<PAGE>
 
                             COLUMBUS REALTY TRUST
                        15851 Dallas Parkway, Suite 855
                             Dallas, Texas  75248

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

                   NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD MAY 23, 1997

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

          NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Columbus Realty Trust (the "Company") will be held at 9:00 a.m.,
local time, on Friday, May 23, 1997, at Omni Mandalay Hotel at Las Colinas, 221
E. Las Colinas Blvd., Irving, Texas 75039, for the following purposes:

          1. To elect three members of the Company's Board of Trust Managers in
             Class III, to serve for three-year terms expiring in 2000, and
             until their successors are elected and qualified.

          2. To approve the amendment of the Company's Declaration of Trust to
             reflect an amendment requested by the New York Stock Exchange.

          3. To ratify the appointment of Ernst & Young LLP as independent
             public accountants of the Company for the year ending December 31,
             1997.

          4. To consider and transact such other business as may properly be
             brought before the Meeting or any adjournment thereof.

          Only shareholders of record at the close of business on March 24, 1997
will be entitled to vote at the Meeting.  The share transfer books will not be
closed.

                              By Order of the Board of Trust Managers



                              Richard R. Reupke
                              Chief Financial Officer
                                 and Secretary
Dallas, Texas
March ___, 1997

                             YOUR VOTE IS IMPORTANT

          To ensure that your interests will be represented at the Meeting,
whether or not you plan to attend the Meeting, please complete, date, sign and
mail the enclosed proxy promptly in the enclosed postage-paid envelope.
Shareholders who attend the Meeting in person may revoke their proxies and vote
in person if they so desire.
<PAGE>
 
                             COLUMBUS REALTY TRUST
                        15851 Dallas Parkway, Suite 855
                             Dallas, Texas  75248

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

                                PROXY STATEMENT

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

                        ANNUAL MEETING OF SHAREHOLDERS
                          TO BE HELD ON MAY 23, 1997

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


     This Proxy Statement and the enclosed proxy are furnished to shareholders
of Columbus Realty Trust, a Texas real estate investment trust (the "Company"),
in connection with the solicitation of proxies by the Board of Trust Managers of
the Company from holders of outstanding common shares of beneficial interest,
par value $.01 per share (the "Common Shares"), for use at the Annual Meeting of
Shareholders (the "Meeting") to be held at 9:00 a.m., local time, on Friday, May
23, 1997, at Omni Mandalay Hotel at Las Colinas, 221 E. Las Colinas Blvd.,
Irving, Texas 75039, and at any adjournment or postponement thereof.  This Proxy
Statement and the related form of proxy are first being sent to shareholders on
or about March ___, 1997.

     If the enclosed proxy is properly executed and returned, and if a
shareholder specifies a choice on the proxy, the Common Shares represented by
the proxy will be voted (or withheld from voting) in accordance with such
shareholder's choice.  If the proxy is signed and returned but no specification
is made, the proxy will be voted FOR the election of each of the nominees for
Trust Manager listed herein, FOR the proposal to amend the Company's Declaration
of Trust and FOR the proposal to ratify the appointment of the independent
public accountants.

     Shareholders voting by proxy with respect to the election of Trust Managers
may vote For all nominees, may Withhold Authority to vote as to all nominees or
Withhold Authority to vote as to specific nominees.  With respect to each other
proposal that comes before the shareholders at the Meeting, shareholders may
vote For the proposal, may vote Against the proposal or may Abstain from voting
with respect to the proposal.

     Any proxy executed and returned by a shareholder may be revoked by such
shareholder, at any time prior to its being voted, by filing with the Secretary
of the Company at its address set forth above a written notice of revocation or
a duly executed proxy bearing a later date.  Any proxy also may be revoked by
the shareholder's attendance at the Meeting and voting in person.  A notice of
revocation need not be on any specific form.
<PAGE>
 
     As of the date of this Proxy Statement, the Board of Trust Managers of the
Company knows of no business that will be presented for consideration at the
Meeting other than the matters described in this Proxy Statement.  If any other
matters are properly brought before the Meeting, the persons named in the
accompanying form of proxy will vote the proxies in accordance with their
judgment.


                     RECORD DATE AND VOTING AT THE MEETING

     The Board of Trust Managers has fixed the close of business on March 24,
1997 as the record date for the determination of the shareholders of the Company
entitled to notice of, and to vote at, the Meeting.  At that date, there were
outstanding __________ Common Shares, the holders of which will be entitled to
one vote per Common Share on each matter submitted to the Meeting.  No other
voting securities of the Company were outstanding on March 24, 1997.
Shareholders are not entitled to cumulate their votes.

     The holders of a majority of the Common Shares entitled to vote, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business at the Meeting.  If such quorum shall not be present or represented at
the Meeting, the shareholders present or represented at the Meeting may adjourn
the Meeting from time to time without notice other than announcement at the
Meeting until a quorum shall be present or represented.  If a quorum is present
or represented at the Meeting, the shareholders present or represented at the
Meeting may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum present, provided
that there remain at the Meeting, present or represented by proxy, the holders
of at least one-third of the Common Shares entitled to vote.

     Pursuant to the Company's Bylaws, abstentions and broker non-votes (where a
nominee holding shares for a beneficial owner has not received voting
instructions from the beneficial owner with respect to a particular matter and
such nominee does not possess or chooses not to exercise discretionary authority
with respect thereto) will be included in the determination of the number of
Common Shares present at the Meeting for quorum purposes.  Also pursuant to the
Company's Bylaws, abstentions and broker non-votes will not be deemed to be
outstanding and therefore will not be counted in the tabulations of votes cast
on proposals presented to shareholders.


                    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                             OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of Common Shares by (i) each Trust Manager, (ii) the Company's Chief
Executive Officer and the four other most highly paid executive officers of the
Company, named in the Summary Compensation Table included elsewhere herein
(collectively, the "Named Executive Officers"), (iii) all Trust Managers and
executive officers of the Company as a group, and (iv) each person who is a
shareholder of the Company owning more than a 5% interest in the Company, in
each case at March 1, 1997.  Each person named in the table has sole voting and
investment power with respect to all Common Shares shown as beneficially owned
by such person, except as otherwise set forth in the notes to the table.  In
each case, the number of shares includes the beneficial ownership of Common
Shares issuable upon exercise of options that are  exercisable within 60 days.

                                      -2-
<PAGE>
 
<TABLE> 
<CAPTION>
                                                               Number of            Percentage of
                   Name and Address                          Common Shares           Outstanding
                 of Beneficial Owners                   Beneficially Owned/(1)/  Common Shares/(2)/
                 --------------------                   -----------------------  -------------------
<S>                                                     <C>                      <C>
Cohen & Steers Capital Management, Inc................         1,924,400               13.5%
     757 Third Avenue                                                                
     New York, New York 10017                                                        

Richard L. Bloch......................................           577,185/(3)/           4.0%
     15851 Dallas Parkway, Suite 855                                                 
     Dallas, Texas  75248                                                            

Robert L. Shaw........................................           487,650/(4)/           3.4%
     15851 Dallas Parkway, Suite 855                                                 
     Dallas, Texas  75248                                                            

Will Cureton..........................................           386,782/(5)/           2.7%
     15851 Dallas Parkway, Suite 855                                                 
     Dallas, Texas  75248                                                            

Roger T. Staubach.....................................           203,000/(6)/           1.4%
     6750 LBJ Freeway, Suite 1100                                                    
     Dallas, Texas  75240                                                            

James C. Leslie.......................................            69,019/(7)/           0.5%
     6750 LBJ Freeway, Suite 1100                                                    
     Dallas, Texas  75240                                                            

Amy DiGeso............................................                --                 --
     16251 Dallas Parkway                                                            
     Dallas, Texas  75248                                                            

Hugh G. Robinson......................................            25,000/(7)/           0.2%
     8150 North Central Expressway, Suite 550                                        
     Dallas, Texas  75204                                                            

Gregg L. Engles.......................................            28,000/(7)/           0.2%
     3811 Turtle Creek Boulevard, Suite 1950                                         
     Dallas, Texas  75219                                                            

Richard R. Reupke.....................................            84,524/(8)/           0.6%
     15851 Dallas Parkway, Suite 855                                                 
     Dallas, Texas  75248                                                            

Thomas L. Wilkes......................................            88,650/(8)/           0.6%
     15851 Dallas Parkway, Suite 855                                                 
     Dallas, Texas  75248                                                            

All Trust Managers and executive officers as a group           2,039,178/(9)/          14.3%
     (12 persons).....................................                                

</TABLE>

_______________________
(1)  Shares are deemed to be "beneficially owned" by a person if such person,
     directly or indirectly, has or shares (i) voting power with respect
     thereto, including the power to vote or to direct the voting of such
     shares, or (ii) investment power with respect thereto, including the power
     to dispose or to direct the disposition of such shares.  In addition, a
     person is deemed to be the beneficial owner of shares if such person has
     the right to acquire beneficial ownership of such shares within 60 days.
     Persons named in this

                                      -3-
<PAGE>
 
     table have sole voting and investment power with respect to the shares
     shown unless otherwise indicated below.
(2)  Calculated using a denominator of 14,294,859, based on the total number of
     Common Shares outstanding plus Common Shares deemed to be outstanding upon
     exercise of options exercisable within 60 days and deemed to be
     beneficially owned by those named in the table.
(3)  Includes 19,572 Common Shares held of record by Mr. Bloch, 251,666 Common
     Shares issuable upon exercise of options held by Mr. Bloch and exercisable
     within 60 days, and 305,947 Common Shares held by The Richard L. and Nancy
     Bloch Family Trust.  Mr. Bloch shares voting and investment power with
     respect to the Common Shares held by the trust.
(4)  Includes 159,714 Common Shares held of record by Mr. Shaw, 259,097 Common
     Shares issuable upon exercise of options held by Mr. Shaw and exercisable
     within 60 days, 8,839 Common Shares held by trusts established for the
     children of Mr. Shaw, and 60,000 Common Shares issuable upon exercise of
     options held by such trusts and exercisable within 60 days.
(5)  Includes 66,894 Common Shares and 319,888 Common Shares issuable upon
     exercise of options exercisable within 60 days.
(6)  Includes 53,000 Common Shares issuable upon exercise of options exercisable
     within 60 days.
(7)  Includes 25,000 Common Shares issuable upon exercise of options exercisable
     within 60 days.
(8)  Includes 70,000 Common Shares issuable upon exercise of options exercisable
     within 60 days.
(9)  Includes 1,234,977 Common Shares issuable upon exercise of options
     exercisable within 60 days.

                                      -4-
<PAGE>
 
                                 PROPOSAL ONE:

                           ELECTION OF TRUST MANAGERS

     Pursuant to the Company's Amended and Restated Declaration of Trust, the
Board of Trust Managers is divided into three classes, with each class serving a
three-year term and one class being elected at each annual meeting of
shareholders.  The terms of three of the present Trust Managers expire at the
Meeting, and such Trust Managers are being nominated for reelection to the Board
to serve until the 2000 Annual Meeting of Shareholders or until their successors
are elected and qualified.  The remaining five Trust Managers will continue to
serve on the Board until their respective terms expire as indicated below under
the caption "Trust Managers Whose Terms Will Continue After the Meeting," and
until their successors are elected and qualified.  The Bylaws of the Company
require the affirmative vote of two-thirds of the outstanding Common Shares to
elect each Trust Manager nominee.  If the requisite vote is not obtained with
respect to the election of Trust Managers, then the existing Trust Managers will
continue in their capacities as such.

     Messrs. Robert L. Shaw, Roger T. Staubach and Hugh G. Robinson are the
three Trust Managers whose terms are expiring and who have been nominated by the
Board for re-election to the Board of Trust Managers of the Company to serve
three-year terms expiring at the 2000 Annual Meeting of Shareholders.  Unless
such authority is withheld, it is the intention of the persons named in the
enclosed proxy to vote such proxy for the election of the three nominees.  If a
shareholder who executes and returns a proxy fails to designate a vote for
either of the three nominees, the person acting under the proxy will vote such
shareholder's votes for the election of the three nominees.

     If for any reason any nominee for Trust Manager should become unavailable
for election, the proxies may be voted for the election of a substitute
designated by the Board of Trust Managers, unless a contrary instruction is
given on the proxy.  The Board of Trust Managers has no reason to believe that
any of the nominees will be unavailable or unwilling to serve if elected, and
all nominees have expressed an intention to serve the entire term for which
election is sought.

NOMINEES FOR ELECTION TO THE BOARD

     Robert L. Shaw, age 40,  has been Chief Executive Officer of the Company
and a Trust Manager since its inception, and is a member of the Executive
Committee.  Mr. Shaw was a co-founder of Columbus Realty Holdings, Inc. ("CRH"),
a predecessor of the Company, and of its affiliate, Memphis Real Estate, Inc.
("Memphis Real Estate"), and served as President of CRH and Memphis Real Estate
from August 1989 to December 1993.  Mr. Shaw was Executive Vice President of SBC
Development Company from September 1987 to March 1990, and Vice President from
July 1987 to September 1987.  Mr. Shaw has been involved in the construction and
development of multifamily residential properties since 1981.  He serves on the
Board of Directors of the Greater Dallas Chamber of Commerce and the National
Association of Real Estate Investment Trusts.  He is also a member of the Young
Presidents Organization ("YPO"), the Urban Land Institute, and the National
Multifamily Housing Council.  In addition, he serves on the University of Texas
at Dallas Advisory Board.

     Roger T. Staubach, age 55, has been a Trust Manager of the Company since
December 1993 and is a member of the Audit Committee.  Mr. Staubach is Chairman
and Chief Executive Officer of The Staubach Company, an integrated real estate
company providing services related to office, industrial and retail real estate
with a commitment to represent only the real estate user, which he formed in
1977.  He is also a director of a number of affiliates and subsidiaries of The
Staubach Company, and serves as

                                      -5-
<PAGE>
 
president of several of these entities.  Mr. Staubach is a director of
Halliburton Company, Brinker International and First USA, Inc. and a trustee of
American AAdvantage Funds.  Mr. Staubach was quarterback for the Dallas Cowboys
professional football team from 1969 through 1979.

     Hugh G. Robinson, age 64, has been a Trust Manager of the Company since
December 1993 and is a member of the Executive Compensation Committee.  General
Robinson, who retired from the U.S. Army Corps of Engineers as a Major General
in 1983, has served since 1989 as Chairman of the Board and Chief Executive
Officer of The Tetra Group, Inc., which provides construction management and
business development services.  From 1988 to 1995, he was Senior Vice President
and managed the Southwest office of Grigsby Brandford & Co., Inc., a minority-
owned investment banking firm specializing in municipal securities.  He was a
member of the board of directors of the Federal Reserve Bank of Dallas from 1985
through 1991, serving as chairman of the board in 1991.  Prior to joining The
Tetra Group, General Robinson held the position of President of Cityplace
Development Corporation, a real estate development company, since its formation
in 1984.  General Robinson is also a member of the boards of directors of A.H.
Belo Corporation (the owner of The Dallas Morning News), TUElectric, Smith
Environmental Technologies, Guaranty Federal Savings Bank and Circuit City
Stores, Inc.

VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF TRUST MANAGERS

     To be elected a Trust Manager, each nominee must receive the affirmative
vote of the holders of two-thirds of the outstanding shares of the Company.

     THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF EACH
OF THE NOMINEES.

TRUST MANAGERS WHOSE TERMS WILL CONTINUE AFTER THE MEETING
<TABLE>
<CAPTION>
                                                  Trust Manager   Term to
       Name         Age      Positions Held           Since       Expire
       ----         ---      --------------       --------------  -------
<S>                 <C>  <C>                      <C>             <C>
Richard L. Bloch     67  Chairman of the Board,   October 1993      1999
                         Trust Manager

Will Cureton         46  Trust Manager,           October 1993      1998
                         Chief Operating Officer

Amy DiGeso           44  Trust Manager            September 1996    1999

Gregg L. Engles      39  Trust Manager            December 1993     1998

James C. Leslie      41  Trust Manager            December 1993     1999
</TABLE>

     Richard L. Bloch has been Chairman of the Board of Trust Managers and a
Trust Manager since October 1993 and is a member of the Executive Committee.
Mr. Bloch has served as a Director of City National Bank of Beverly Hills and
its holding company, City National Bank Corporation, since 1976 and of Cantel
Corporation since 1988.  Mr. Bloch served as a Director of Data Broadcasting
Corporation from 1993 through 1995.  He served as Chairman of the Board and
Chief Executive Officer of Filmways, Inc., and Chairman of the Board of two of
its principal subsidiaries, Union Fidelity Insurance and Grossett & Dunlap,
Inc., from 1976 through 1982, and as a member of the board of directors of
Glenayre Technology (formerly known as NuWest Corporation) from 1987 through
1992.  He is a co-founder and former

                                      -6-
<PAGE>
 
principal owner of the Phoenix Suns NBA basketball team and one of the former
owners of the NBC-affiliated KVOA television station in Tucson, Arizona.  Mr.
Bloch's real estate experience includes co-developing and/or owning the Gulf &
Western Building in New York City, a Hyatt Hotel in Los Angeles, the
Transamerica Building in Tucson and several IBM and Allstate Insurance
facilities.

     Will Cureton has been Chief Operating Officer and a Trust Manager of the
Company since its inception and is a member of the Executive Committee.  Prior
to the formation of the Company, from 1987 until December 1993, Mr. Cureton
served as President and Chief Executive Officer of Texana-RAT II, Ltd. and
certain of its affiliates (the "Texana Group"), which were merged into the
Company pursuant to the transactions involved in the formation of the Company
(the "Formation Transactions").  Prior to his affiliation with the Texana Group,
Mr. Cureton was Vice President and Chief Operating Officer of The DicoGroup,
Inc., a Dallas-based oil and gas and real estate company, from 1981 through
1988.  Prior to his association with The DicoGroup, Mr. Cureton joined Coopers &
Lybrand in 1974 as a Certified Public Accountant where he served as real estate
coordinator and audit manager for the Dallas office until 1981.  He is a member
of the Real Estate Council and the National Association of Real Estate
Investment Trusts.  Mr. Cureton has been on the Board of Directors of the East
Texas State University Athletic Association since 1989.  He also serves on the
ETSU Foundation Board and its Capital Campaign Steering Committee.

     Amy DiGeso has been a Trust Manager of the Company since September 1996.
Ms. DiGeso was elected to fill the vacancy created by the resignation of Jack
Kemp.  Ms. DiGeso is currently President and Chief Executive Officer of Mary Kay
Inc., directing all operating responsibilities for Mary Kay Inc. global
business.  She is also a board member of Mary Kay Inc. and of the Cosmetic,
Toiletry, and Fragrance Association.  Prior to her affiliation with Mary Kay,
Ms. DiGeso was with Bankers Trust Company from 1986 to 1992, last holding the
position as Chief of Staff for the Asset and Project Financing Group, Executive
Director of Human Resources of Estee Lauder from 1984 to 1986, and with American
Express Company from 1978 to 1984, holding several positions culminating in the
Chief Administrative Officer role for their direct marketing business.  She
holds an MBA in International Management from Fordham University, and a BS in
Behavorial Science from Penn State.

     Gregg L. Engles has been a Trust Manager of the Company since December 1993
and is the Chairman of the Executive Compensation Committee and a member of the
Audit Committee.  Mr. Engles is the Chairman and Chief Executive Officer of
Suiza Foods Corporation, a New York Stock Exchange company, which owns and
operates dairy processing operations in Florida, California, Nevada and Puerto
Rico and packaged ice operations throughout the United States.  Until December
1993, Mr. Engles was Chairman of the Board of The Milnot Company, a branded and
private label food products company.  Mr. Engles is also a co-founder of SFE
Citrus Processors, L.P., which owns a Florida bulk citrus processor.

     James C. Leslie has been a Trust Manager of the Company since December
1993, and is Chairman of the Audit Committee and a member of the Executive
Compensation Committee.  Mr. Leslie is President, Chief Operating Officer and a
director of The Staubach Company, positions he has held since March 1996 and
October 1988, respectively.  Mr. Leslie was Chief Financial Officer of The
Staubach Company from 1982 to January 1992 at which time he became President of
Staubach Financial Services, a position he held until February 1996.  Mr. Leslie
is also President and a board member of Wolverine Holding Company, and serves on
the boards of FM Properties, Inc., Forum Retirement Partners, L.P., Wyndham
Hotel Corporation and the North Texas Chapter of the Arthritis Foundation.  Mr.
Leslie is a certified public accountant.

     No family relationship exists among any of the Trust Managers or executive
officers of the Company.  No arrangement or understanding exists between any
Trust Manager or executive officer or

                                      -7-
<PAGE>
 
any other person pursuant to which any Trust Manager or executive officer was
selected as a Trust Manager or executive officer of the Company.  All executive
officers are elected annually by, and serve at the discretion of, the Board of
Trust Managers.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Based solely upon a review of Forms 3 and 4, and amendments thereto, if
any, furnished to the Company with respect to the year ended December 31, 1996
and Forms 5 furnished to the Company for such year, no person failed to disclose
on a timely basis, as disclosed in such forms, reports required by Section 16(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

COMMITTEES OF THE BOARD OF TRUST MANAGERS

     The Board of Trust Managers of the Company has three standing committees:
an Audit Committee, an Executive Committee and an Executive Compensation
Committee.  The Audit Committee consists of Messrs. Leslie, Engles and Staubach
and makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.  The Executive
Committee consists of Messrs. Bloch, Shaw and Cureton and has the authority to
generally administer the business of the Company, and generally exercise all
other powers as may be delegated by the Trust Managers, except for those which
require action by the Board of Trust Managers or disinterested Trust Managers
under the Declaration of Trust or Bylaws or under applicable law.  Actions
requiring approval of the Board of Trust Managers include: (i) the establishment
of share option plans, profit sharing plans or pension plans; (ii) the issuance
of shares; (iii) approval of a merger; (iv) the sale of substantially all of the
assets of the Company; (v) the election of officers; and (vi) actions outside
the ordinary course of the Company's business.  Actions by the Executive
Committee require unanimous approval of the members of the Executive Committee.
The Executive Compensation Committee consists of Messrs. Engles, Robinson and
Leslie and has the authority to determine compensation for the Company's
executive officers and to administer the Company's 1993 Share Option Plan (the
"Share Option Plan"), the Company's Share Bonus Plan (No. 2), the Stock Purchase
Plan, the Management Incentive Plan and the Employee Incentive Plan.  The
Company does not have a nominating committee.

COMPENSATION OF TRUST MANAGERS

     The Company pays to its Trust Managers who are not employees of the Company
an annual fee of $12,000 plus a fee of $1,000 for attending each meeting (other
than telephonic meetings).  An additional $2,000 fee is paid to the Chairman of
each of the Audit Committee and the Executive Compensation Committee.  No
compensation is paid for attendance at committee meetings.  Trust Managers who
are also officers of the Company do not receive Trust Managers' fees.  The
Company may reimburse Trust Managers for expenses incurred in connection with
their activities on behalf of the Company.  Each Trust Manager who is not
otherwise an employee of the Company or any of its subsidiaries or affiliates is
also entitled to receive automatically in May of each year, an annual grant of
options to purchase 10,000 Common Shares at an exercise price equal to the
market price of the Common Shares at the date of grant of such option.  In
addition, pursuant to the Management Incentive Plan and the Employee Incentive
Plan, the Company may, in lieu of payment of Trust Manager fees, issue
restricted Common Shares having a fair market value equal to 150% of the Trust
Manager fees otherwise payable.  Pursuant to the Management Incentive Plan, each
Trust Manager who is not an employee of the Company

                                      -8-
<PAGE>
 
was awarded the right to elect to purchase, at any time prior to May 30, 1997,
up to 15,384 Common Shares for a purchase price of $19.50 per share (the fair
market value of the stock on the date of the award).  Each such Trust Manager is
entitled to obtain a loan from the Company, in a maximum amount of $150,000, the
proceeds of which will be used to pay up to 50% of the purchase price of any of
such Common Shares to be purchased.

MEETINGS OF THE BOARD AND COMMITTEES

     During 1996, there were nine meetings of the Board of Trust Managers,
twelve meetings of the Executive Committee, three meetings of the Audit
Committee and two meetings of the Executive Compensation Committee.  No
incumbent Trust Manager attended fewer than 75% of all meetings of the Board of
Trust Managers and the committees on which such Trust Manager served during such
period.  In addition, the Board of Trust Managers took action on certain
occasions by unanimous written consent.


                         COMPENSATION COMMITTEE REPORT
                       ON EXECUTIVE OFFICER COMPENSATION

     The Executive Compensation Committee of the Board of Trust Managers (the
"Compensation Committee"), which is entirely comprised of outside Trust
Managers, is responsible for evaluating and establishing the level of executive
compensation and administering the Company's Share Option Plan, Share Bonus Plan
(No. 2), Stock Purchase Plan, Management Incentive Plan and Employee Incentive
Plan.

OBJECTIVES AND COMPENSATION PHILOSOPHY

     The Company's objectives are to enhance its financial performance and
expand its portfolio of properties.  In order to meet its objectives, the
Company must attract, reward, motivate and retain key executives who are capable
of achieving the Company's objectives in a competitive industry.  The Company's
philosophy is to compensate its executive officers pursuant to an incentive-
based compensation system tied to the Company's financial performance and
portfolio growth in order to best align the objectives of the Company and the
interests of its executives.  In accordance with this philosophy, the Company
has adopted a compensation system designed to meet the Company's objectives by
making a significant portion of an executive's compensation dependent on the
Company's and such executive's performance.

     The Company's executive compensation system consists of a base salary
(determined by the Compensation Committee based on its assessment of individual
performance, contributions to the Company and peer group comparisons) and an
annual bonus that is directly related to the performance of the executive's
business unit and the Company as a whole.  In addition, the Compensation
Committee may grant share options or restricted Common Shares designed to
motivate individuals to enhance the long-term value of the Common Shares and to
more closely align the interests of the executive officers with those of the
shareholders of the Company.  The Compensation Committee does not allocate a
fixed percentage of compensation to each of these three elements, nor does the
Compensation Committee use specific qualitative or quantitative measures or
factors in assessing individual performance.

BASE SALARY

     During 1996, each of Messrs. Reupke, Wilkes, Hoobler, Duffy, Lomenick and
Lewis received base salaries pursuant to their respective employment agreements
with the Company.

                                      -9-
<PAGE>
 
     Commencing January 1, 1996, the employment agreements of each of Messrs.
Shaw and Cureton were amended to delete the requirement for the payment of base
salary for the period from January 1, 1996 through December 31, 1996 and to
provide that Messrs. Shaw and Cureton each receive, in lieu thereof, 14,060
restricted Common Shares pursuant to the Share Bonus Plan No. 2 having a fair
market value based upon the average closing price of Common Shares on the NYSE
for the 30-day period preceding the date of grant of $272,236 (equal to 150% of
the amount of base salary which would have been payable for calendar year 1996).
Such restricted Common Shares do not vest until the third anniversary of the
date of the grant, provided that if the executive's employment with the Company
is terminated by the Company "without cause," as a result of death or
disability, or in the event the executive terminates his employment with the
Company as a result of a "family medical necessity," as defined in the
executive's award agreement, such Common Shares shall immediately vest.  Such
shares may be forfeited if (i) the executive leaves the employment of the
Company prior to the expiration of such three-year term (subject to the
exceptions described above) and (ii) the executive competes with the Company
during such three year period.

     Mr. Richard L. Bloch, the Chairman of the Board of Trust Managers of the
Company, waived the receipt of any salary payable to him in such capacity for
the period from January 1, 1996 through December 31, 1996.  In consideration of
such waiver, on January 8, 1996, Mr. Bloch received 5,965 restricted Common
Shares having a fair market value (based on the average closing price of the
Common Shares on the NYSE for the 30-day period preceding the date of grant) of
$115,500 (equal to 150% of the amount of base salary which would have been
payable for calendar year 1996).  Such restricted Common Shares do not vest
until the third anniversary of the date of grant, provided that if Mr. Bloch's
position as Chairman of the Board of the Company is terminated by the Company
without "cause," as a result of death or disability, or in the event that Mr.
Bloch terminates employment with the Company with "good reason" or as a result
of a "family medical necessity," as defined in Mr. Bloch's award agreement, such
Common Shares shall immediately vest.  Such shares may be forfeited in the event
Mr. Bloch voluntarily leaves the employment of the Company (subject to the
exceptions described above) and competes with the Company prior to the
expiration of such three year period.

     The annual base salaries of the other executive officers (other than
Messrs. Bloch, Shaw and Cureton) were increased effective January 1, 1996 by
10%, based generally upon such executive's experience level and position with
the Company, the market comparisons of salaries for comparable executives in
other multifamily real estate investment trusts ("REITs") and the executive's
skill and ability to influence the Company's financial performance and growth,
both currently and in the future.

BONUS COMPENSATION

     The Company has a discretionary bonus program that allows payment of
bonuses based on each executive officer's performance and the Company's overall
performance.  On January 8, 1996, the Compensation Committee awarded restricted
stock bonuses to the Company's Chairman of the Board, Chief Executive Officer
and Chief Operating Officer based upon the Company's overall performance for the
year ended December 31, 1995, including growth in funds from operations and
growth in the Company's portfolio of properties.  Such restricted Common Shares
do not vest until the third anniversary of the date of grant, provided that if
the executive's employment with the Company is terminated by the Company
"without cause," as a result of death or disability, or in the event the
executive terminates his employment with the Company as a result of a "family
medical necessity," as defined in the executive's award agreement, such Common
Shares shall immediately vest.  Such shares may be forfeited in the event the
executive leaves the employment of the Company prior to the expiration of such
three-year term

                                      -10-
<PAGE>
 
(subject to the exceptions described above) and the executive competes with the
Company during such three year period.

     Similarly, on January 8, 1996, the Compensation Committee awarded
restricted stock bonuses to each of the other executive officers based upon (i)
the Company's overall performance for the year ended December 31, 1995
(including growth in funds from operations and growth in the Company's portfolio
of properties), (ii) the performance of the executive's business unit and (iii)
the individual's overall performance, attitude and self-improvement.
Consideration of these matters is subjective based upon performance, commitment
and contribution, and without the use of predetermined formulaic or weighted
calculations.  Such restricted Common Shares are subject to the vesting schedule
described above.  Such shares may be forfeited in the event the executive leaves
the employment of the Company prior to the expiration of such three-year term
(subject to the exceptions described above).

PERFORMANCE STOCK ISSUANCES

     In order to further align the interests of the senior executive officers
with those of the Company and its shareholders, on November 15, 1996, the
Company granted Messrs. Bloch, Shaw and Cureton the right, pursuant to a Long
Term Management Incentive Plan Performance-Based Stock and Dividend Equivalent
Award Agreement (the "Performance Award Agreement") to receive 60,000, 100,000
and 100,000 Common Shares, respectively, either (i) on January 15, 2000, if,
during the applicable measurement period, the total return on the Company's
Common Shares (the "Company's Total Return") exceeds the weighted average total
return per common share for all publicly-traded equity residential apartment
REITs (the "Industry Total Return") (as determined by the National Association
of Real Estate Investment Trusts ("NAREIT")) by 2% or (ii) on January 15, 2002,
if, during the applicable measurement period the Company's Total Return exceeds
the Industry Total Return.  In addition, each such executive is entitled to
receive an amount equal to certain specified percentages of the dividends
payable on an equivalent number of outstanding Common Shares, plus interest and
assumed reinvestment earnings thereon (the "Dividend Equivalents") for each
calendar years 1997 through 2001, if the Company's Total Return exceeds the
Industry Total Return in any year.  All of such Common Shares will become fully
vested and issuable prior to the dates set forth above and irrespective of the
satisfaction of the performance criteria set forth above, in the event the
executive's employment is terminated without "cause" or upon the occurrence of a
"change of control."  In addition, a portion of such Common Shares will become
fully vested and issuable upon the death or disability of the executive.  In the
event the performance criteria set forth above is not satisfied on or before
January 15, 2002, all rights to receive the Common Shares and Dividend
Equivalents will terminate.

SHARE OPTIONS

     In December, 1993, the Company adopted the Share Option Plan.

     The Compensation Committee believes that by providing the executives who
have substantial responsibility for the management and growth of the Company
with an opportunity to increase their ownership of Common Shares, the best
interests of shareholders and executives will be closely aligned.  Therefore,
executives are eligible to receive options from time to time, giving them the
right to purchase Common Shares.  During 1996, the Compensation Committee
awarded options to purchase 270,000 Common Shares to the Company's executive
officers.  In making these awards, the Compensation Committee considered the
contribution of each executive to the Company and the desires of the
Compensation Committee to further long term incentives and commitment to the
Company rather than adhering to any established formulas or schedules for the
issuance of options.

                                      -11-
<PAGE>
 
CEO PERFORMANCE EVALUATION

     Commencing January 1, 1996, Mr. Shaw and the Company agreed, pursuant to an
amendment to Mr. Shaw's employment agreement, to delete the requirement for
payment of base salary for the period from January 1, 1996 through December 31,
1996 and, in lieu thereof, to award Mr. Shaw 14,060 restricted Common Shares
pursuant to the Share Bonus Plan (No. 2) having a fair market value (based upon
the average closing price of Common Shares on the NYSE for the 30 day period
preceding the date of grant) of $272,236 (equal to 150% of the amount of base
salary which would have been payable for 1996).  Mr. Shaw's employment agreement
also provides for payment of discretionary bonuses, based upon such factors,
including growth in funds from operations, as the Compensation Committee shall
determine.  No cash bonuses were paid to Mr. Shaw during 1996.  In January,
1996, the Compensation Committee approved a discretionary bonus to Mr. Shaw of
9,296 shares of restricted Common Stock having a fair market value as of the
date of grant (based on the average closing price of the Common Shares on the
NYSE for the 30-day period preceding the date of grant) of $180,000, of which
2,622 shares were issued pursuant to the Company's Share Bonus Plan (No. 2) and
6,674 shares were issued pursuant to the Company's Management Incentive Plan.
Such bonus was determined based upon the Company's performance for the calendar
year ending December 31, 1995, particularly growth in funds from operations and
growth in the Company's portfolio of properties, both from successful
acquisitions and from developments completed or proposed for construction.  The
Compensation Committee also considered a comparison of the salaries of the
Company's executive officers, including its Chief Executive Officer, to salaries
of comparable executives at other similar multifamily REITs.  Such restricted
Common Shares do not vest until the third anniversary of the date of grant,
provided that if Mr. Shaw's employment with the Company is terminated by the
Company "without cause," as a result of death or disability, or in the event Mr.
Shaw terminates his employment with the Company as a result of a "family medical
necessity," as such terms are defined in Mr. Shaw's award agreement, such
restricted Common Shares shall immediately vest.  Such restricted Common Shares
may be forfeited if Mr. Shaw leaves the employment of the Company prior to the
expiration of such three year term (subject to the exceptions described above)
and Mr. Shaw competes with the Company within such three year term.

     In addition, as more fully discussed above, in order to further align the
interests of the Chief Executive Officer with those of the Company and its
shareholders, effective November 15, 1996, the Company and Mr. Shaw entered into
the Performance Award Agreement pursuant to which Mr. Shaw is entitled to
receive 100,000 Common Shares on either January 15, 2000 or January 15, 2002 and
certain Dividend Equivalents for calendar years 1997 through 2001, if the
Company's Total Return (as defined above) exceeds (by 2% with respect to the
measurement period ending January 15, 2000 or by any amount with respect to the
measurement period ending January 15, 2002) the Industry Total Return (as
defined above) for the applicable periods.

     The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.

                                      -12-
<PAGE>
 
     The foregoing report is given by the following members of the Compensation
Committee:

                                Gregg L. Engles
                                James C. Leslie
                                Hugh G. Robinson


                             EXECUTIVE COMPENSATION

     The following table sets forth certain information with respect to annual
and long-term compensation for services rendered in all capacities for the years
ended December 31, 1996, 1995 and 1994 paid to the Company's Chief Executive
Officer and to each of the Named Executive Officers and all executive officers
as a group.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                   Annual         Long Term      Restricted         All Other
                                                Compensation    Compensation    Stock Awards*      Compensation
                                                -------------   -------------   -------------      ------------
                                       Fiscal                     Options
     Name and Principal Position        Year     Salary ($)          (#)
     ---------------------------       ------   -------------   -------------
<S>                                    <C>      <C>             <C>             <C>                <C>
Richard L. Bloch,                       1996       $0   /(1)/    30,000/(5)/    $  179,495/(1)/        /(10)/
   Chairman of the Board                1995    $  5,833/(2)/    30,000         $   96,250/(2)/
                                        1994    $ 70,000              0              $0
                                                                              
Robert L. Shaw,                         1996       $0   /(3)/    65,000/(5)/    $  452,236/(6)/        /(10)/
   Chief Executive Officer              1995    $ 96,250/(4)/    65,000         $  238,125/(7)/
                                        1994    $150,000              -        
                                                                              
Will Cureton,                           1996       $0   /(3)/    45,000/(5)/    $  392,236/(8)/        /(10)/
   Chief Operating Officer              1995    $ 96,250/(4)/    45,000         $  215,625/(9)/
                                        1994    $150,000              -                  -
                                                                              
Richard R. Reupke,                      1996    $116,600         10,000         $   45,000             /(10)/
   Chief Financial Officer              1995    $106,000         10,000         $   45,000
                                        1994    $100,000              -                  -
                                                                              
Thomas L. Wilkes,                       1996    $116,600         10,000         $   60,006            /(10)/
   Senior Vice President-Management     1995    $106,000         10,000         $   45,000
                                        1994    $100,000              -                  -
                                                                              
All executive officers as a group       1996    $569,139        215,000         $1,267,715
   (9 persons)                          1995    $710,333        220,000         $  745,000
                                        1994    $774,708         40,000        
</TABLE>

__________________________
*  Dividends are payable on all restricted Common Shares reported in this table.

(1)  Represents (i) $115,500 of restricted Common Shares issued pursuant to the
     Share Bonus Plan (No. 2) in connection with Mr. Bloch's waiver of the
     receipt of any salary payable to him in his capacity as Chairman of the
     Board for the period from January 1, 1996 through December 31, 1996 (equal
     to 150% of the amount of base salary which would have been payable for
     calendar year 1996) and (ii) $63,995 of restricted Common Shares issued as
     an incentive bonus in January 1996 pursuant to the Share Bonus Plan (No.
     2).  At December 31, 1996, Mr. Bloch held an aggregate of 14,754 restricted
     Common Shares valued (based on the closing price of the Common Shares on
     the NYSE on such date) at $335,654.

                                      -13-
<PAGE>
 
(2)  Mr. Bloch received a partial salary payment of $5,833 in January 1995. Mr.
     Bloch received no other base salary in 1995.  On March 9, 1995, Mr. Bloch
     received $96,250 of restricted Common Shares (equal to 150% of the amount
     of base salary which would have been payable for the remainder of 1995)
     issued pursuant to the Share Bonus Plan (No. 2) in lieu of payment of base
     salary for the remainder of 1995.

(3)  Pursuant to amendments to their respective employment agreements effective
     January 1, 1996, each of Messrs. Shaw and Cureton agreed to receive no base
     salary for the period from January 1, 1996 through December 31, 1996 and,
     in lieu thereof, to receive restricted Common Shares pursuant to the
     Company's Share Bonus Plan (No. 2) having a fair market value equal to 150%
     of the amount of such base salary.

(4)  Pursuant to amendments to their respective employment agreements effective
     August 1, 1995, each of Messrs. Shaw and Cureton agreed to receive no
     additional base salary for the remainder of 1995 and to receive, in lieu
     thereof, restricted Common Shares pursuant to the Company's Share Bonus
     Plan (No. 2) having a fair market value equal to 150% of the amount of such
     base salary.

(5)  The Compensation Committee approved the award of options to purchase 30,000
     Common Shares, 65,000 Common Shares and 45,000 Common Shares to Messrs.
     Bloch, Shaw and Cureton, respectively, pursuant to the Company's Share
     Option Plan, Management Incentive Plan and Employee Incentive Plan.

(6)  Represents (i) $272,236 of restricted Common Shares issued pursuant to the
     Share Bonus Plan (No. 2) in connection with the amendment of Mr. Shaw's
     employment agreement as described in Footnote 1 above and (ii) $180,000 of
     restricted Common Shares issued as an incentive bonus in January 1996
     pursuant to the Share Bonus Plan (No. 2) and the Management Incentive Plan.
     At December 31, 1996, Mr. Shaw held an aggregate of 36,532 restricted
     Common Shares valued (based on the closing price of the Common Shares on
     the NYSE on such date) at $831,103.

(7)  Represents (i) $135,000 of restricted Common Shares issued as an incentive
     bonus in March 1995 pursuant to the Share Bonus Plan (No. 2) and (ii)
     $103,125 of restricted Common Shares issued pursuant to the Share Bonus
     Plan (No. 2) in connection with the amendment of Mr. Shaw's employment
     agreement as described in Footnote 2 above.

(8)  Represents (i) $272,236 of restricted Common Shares issued pursuant to the
     Share Bonus Plan (No. 2) in connection with the amendment of Mr. Cureton's
     employment agreement as described in Footnote 1 above and (ii) $120,000 of
     restricted Common Shares issued as an incentive bonus in January 1996
     pursuant to the Share Bonus Plan (No. 2) and the Management Incentive Plan.
     At December 31, 1996, Mr. Cureton held an aggregate of 32,066 restricted
     Common Shares valued (based on the closing price of the Common Shares on
     the NYSE on such date) at $729,502.

(9)  Represents (i) $90,000 of restricted Common Shares issued as an incentive
     bonus in March 1995 pursuant to the Share Bonus Plan (No. 2), (ii) $103,125
     of restricted Common Shares issued pursuant to the Share Bonus Plan (No. 2)
     in connection with the amendment of Mr. Cureton's employment agreement as
     described in Footnote 2 above and (iii) $22,500 of restricted Common Shares
     issued as an incentive bonus in September 1995 pursuant to the Share Bonus
     Plan (No. 2).

(10) All prerequisites and other personal benefits did not exceed 10% of the
     total annual salary and bonus for the Named Executive Officer.

                                      -14-
<PAGE>
 
OPTION GRANTS

     The following table sets forth certain information concerning individual
grants of stock options made to each Named Executive Officer during 1996.

                       OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                      Number of
                     Securities       Percent of
                      Underlying    Total Options    Exercise  Expiration
       Name          Options (#)   Granted in 1996    Price       Date     Alternative Grant Date Value/(1)/
-------------------  ------------  ----------------  --------  ----------  ---------------------------------
<S>                  <C>           <C>               <C>       <C>         <C>
Richard L. Bloch        30,000          11.1%        $20.875    10/15/06                $37,500
                                                                                        
Robert L. Shaw          65,000          24.1%        $20.875    10/15/06                $81,250
                                                                                        
Will Cureton            45,000          16.7%        $20.875    10/15/06                $56,250
                                                                                        
Richard R. Reupke       10,000           3.7%        $20.875    10/15/06                $12,500
                                                                                        
Thomas L. Wilkes        10,000           3.7%        $20.875    10/15/06                $12,500
</TABLE>

(1) Based upon a value of $1.25 for each option to purchase one Common Share,
    determined based upon a Black-Scholes pricing model, using (i) a historical
    volatility of the price per Common Share of 0.165, (ii) an assumed expected
    life (time of exercise) of 9 years, (iii) an expected dividend yield, based
    upon the historical dividend yield on the Common Shares, of 7.82%, and (iv)
    a risk-free interest rate of 6.37%, based upon the 9-year Treasury bill,
    zero coupon rate as of the date of the option grant.  The foregoing
    calculations were made in accordance with the requirements of Statement of
    Financial Accounting Standards No. 123, "Accounting for Stock-Based
    Compensation."


OPTION EXERCISES AND YEAR-END OPTION VALUES

     The following table sets forth certain information with respect to the
value of unexercised options held by the Named Executive Officers at December
31, 1996. No share options were exercised by any of the Named Executive Officers
during 1996.

              AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
                       AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
                                                                             Value of Unexercised
                                 Number of Unexercised                       In-the-Money Options
                              Options at Fiscal Year End                      at Fiscal Year End
     Name                  Exercisable (E)/Unexercisable (U)         Exercisable (E)/Unexercisable (U)(a)
     ----                  ---------------------------------         ------------------------------------
<S>                        <C>                  <C>                  <C>                     <C>
Richard L. Bloch           251,666(E)           30,000(U)            $1,203,976(E)            $78,750(U)
                          
Robert L. Shaw             319,097(E)(b)        59,862(U)(b)         $1,626,244(E)           $160,992(U)
                          
Will Cureton               319,888(E)           41,443(U)            $1,618,458(E)           $111,456(U)
                          
Richard R. Reupke           70,000(E)           10,000(U)              $363,751(E)            $26,249(U)
                          
Thomas L. Wilkes            70,000(E)           10,000(U)              $363,751(E)            $26,249(U)
</TABLE>

(a)  The December 31, 1996 closing market price of the Common Shares on the NYSE
     of $22.75 is used in the calculation to determine the value of unexercised
     options.

(b)  Includes options held in trust for the benefit of Mr. Shaw's children.

                                      -15-
<PAGE>
 
                       LONG-TERM INCENTIVE PLANS-AWARDS
                              IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                                                Estimated Future
                                        Performance or            Payouts Under
                                         Other Period               Non-Stock
                        Number               Until              Price-Based Plan
                          of             Maturation or         -------------------
       Name             Shares              Payout                 Target/(2)/
       ----             -------        -----------------       -------------------      
<S>                     <C>            <C>                      <C>
Richard L. Bloch         60,000        2000 or 2002/(1)/        $2,762,240/(3)//(4)/

Robert L. Shaw          100,000        2000 or 2002/(1)/        $4,603,733/(3)//(4)/

Will Cureton            100,000        2000 or 2002/(1)/        $4,603,733/(3)//(4)/
</TABLE>

/(1)/ Pursuant to the Performance Award Agreements, if on January 15, 2000, the
      total cumulative return on the Common Shares for the three calendar years
      ending on December 31, 1999 exceeds the weighted average total return per
      common share for all publicly traded equity residential apartment REITs,
      as determined by NAREIT (the "Industry Total Return") for such period plus
      2.0%, the Company will issue to the named executive officer the number of
      Common Shares reflected above. If on January 15, 2002, the total
      cumulative return on the Common Shares for the five calendar years ending
      on December 31, 2001 exceeds the Industry Total Return for such period by
      any amount, the Company will issue to the named executive officer the
      number of Common Shares reflected above. If on or before January 15, 2002,
      such total cumulative return does not exceed the NAREIT Equity Apartment
      Total Return Series, all rights of the named executive with respect to the
      issuance of the Common Shares will terminate.

/(2)/ If the total annual return on the Common Shares for the calendar year set
      forth below exceeds (by any amount) the Industry Total Return for such
      calendar year, the named executive officer will be paid an amount for such
      calendar year (and each succeeding calendar year) equal to the percentage
      indicated below multiplied by the aggregate amount of dividends for such
      calendar year, paid or payable with respect to 100,000 or 60,000
      outstanding Common Shares, as applicable, plus interest and, in certain
      circumstances, assumed reinvestment earnings thereon (the "Dividend
      Equivalent"). If on either January 15, 2000 or January 15, 2002, the
      performance based stock is issued, all Dividend Equivalents not previously
      paid will, at such time, be paid in full.

                             1997                       30%
                             1998                       45%
                             1999                       60%
                             2000                       75%
                             2001                      100%

/(3)/ The future payout amounts under the Performance Awards, if any, are
      contingent and are not determinable. Any payout is dependent upon numerous
      variables, including the Company's Total Return and the Industry Total
      Return as well as the Company's cost of funds and dividend payments over
      the applicable measurement periods. As a result, solely for purposes of
      calculation of the target payout amounts reflected above, the Company has
      assumed that (i) the Company's Total Return exceeds the Total Industry
      Return for the five-year period ending December 31, 2001, (ii) that the
      Company's dividend increases over the five-year period ending December 31,
      2001 at the same rate as it increased during the period from January 1,
      1994 through December 31, 1996, (iii) that the market price of the
      Company's Common Shares continues to grow over the five-year period ending
      December 31, 2001 at the same rate of growth experienced during the period
      from January 1, 1994 through December 31, 1996, and (iv) that the
      Company's cost of funds over the five-year period ending December 31, 2001
      remains at the average rate of such cost of funds for 1996. The foregoing
      assumptions are made solely for the purposes of the 

                                      -16-
<PAGE>
 
      calculations made herein and are not necessarily valid assumptions nor are
      such assumptions indications of the Company's belief that such events are
      likely to occur. The Company believes that the Company's Total Return for
      the three-year period from January 1, 1994 through December 31, 1996 is a
      more appropriate basis for estimating the Company's Total Return over the
      three- and five-year measurement periods contemplated by the Performance
      Awards than the Company's Total Return for 1996 or any other single year.

/(4)/ Includes all Dividend Equivalents potentially payable as well as the
      assumed market value of the number of Common Shares potentially issuable
      on January 15, 2002, calculated as described in Footnote (3) above.


EMPLOYMENT AGREEMENTS

     Effective November 15, 1996, the Company has entered into new employment
agreements with Messrs. Bloch, Shaw and Cureton pursuant to which Mr. Bloch
serves as Chairman of the Board, Mr. Shaw serves as Chief Executive Officer and
Mr. Cureton serves as Chief Operating Officer of the Company.  Messrs. Bloch,
Shaw and Cureton also serve as Trust Managers.  Each employment agreement is for
an initial term through December 31, 2001, which is automatically extended for
additional one year periods following the expiration of the initial term of the
agreement, unless a notice of expiration is given by the executive to the
Company or such notice is given by the Company to the executive at least nine
months prior to the expiration of the then current term.  Pursuant to the terms
of the agreements, each executive is entitled to receive a base salary at the
rate of $262,000 per annum with respect to Messrs. Shaw and Cureton and $100,000
per annum with respect to Mr. Bloch, commencing January 1, 1997.  Each
executive's annual base salary for 1998 and each subsequent calendar year during
the term of the agreement will be increased by ten percent (10%).  The
agreements provide that if the executive is terminated for "cause" or
voluntarily terminates his employment without "good reason," he will not compete
with the Company within 20 miles of any of the Company's properties for a period
of one year after such termination.  Each of the employment agreements provides
for certain severance payments in the event of death or disability, or upon
termination of executive's employment by the Company without "cause" or by the
employee with "good reason."  The agreements provide that in the event of death
or disability or upon termination by the Company "without cause," an amount
equal to 2.99 times the total compensation (as defined in the agreements) for
the immediately preceding twelve-month period will be paid to the executive or
his estate.  In the event of termination by the executive of his employment with
"good reason," the Company will pay to the executive the lesser of (i) two times
such executive's total compensation for the immediately preceding twelve-month
period or (ii) such executive's total compensation for the immediately preceding
twelve-month period multiplied by the number of years (or fraction thereof)
remaining in the term of the agreement.  The agreements provide for automatic
termination upon the occurrence of a "change in control" of the Company.  In the
event of such automatic termination upon a "change in control," the Company will
pay the executive the greater of (i) the amount of total compensation to which
such executive would have (or could reasonably have been expected to have) been
entitled had the agreement not been terminated or (ii) 2.99 times such
executive's total compensation for the immediately preceding twelve-month
period.  The agreements also provide that in the event of termination by the
Company without "cause," by the executive with "good reason" or upon a "change
in control," each executive will be entitled, at his option, to exercise any
options to purchase Common Shares (whether or not then vested) granted to such
executive and to retain any Common Shares awarded to such executive (whether or
not then vested or subject to any forfeiture restrictions).  In addition, the
agreements provide that in the event of termination by the Company without
"cause" or upon a "change in control," each executive may require the Company to
repurchase all or any portion of such executive's options to purchase Common
Shares (whether or not then vested).

                                      -17-
<PAGE>
 
     The Company also has entered into employment agreements with Messrs.
Reupke, Lewis, Wilkes, Lomenick and Duffy effective January 1, 1997 or, with
respect to Mr. Duffy, effective October 15, 1996.  Pursuant to such employment
agreements, Mr. Reupke serves as Chief Financial Officer of the Company, Mr.
Lewis serves as Senior Vice President and Treasurer of the Company, Mr. Wilkes
serves as Senior Vice President-Management of the Company, Mr. Lomenick serves
as Senior Vice President-Development of the Company and Mr. Duffy serves as
Senior Vice President-Construction of the Company.  Each agreement is for an
initial term through December 31, 1999, which is automatically extended to
December 31, 2000 and each December 31 thereafter unless written notice is given
by the executive to the Company or by the Company to the executive of such
party's intent not to renew or extend the agreement by a specified number of
months prior to the expiration of the then current term.  Pursuant to the terms
of the respective agreements, Messrs. Reupke, Lewis, Wilkes and Lomenick are
entitled to an annual base salary of $150,000 during 1997, Mr. Duffy is entitled
to an annual base salary of $125,000 during 1997, and all are eligible for merit
raises and bonuses as determined by the Compensation Committee.  In each
calendar year during the term of the agreements, the Company may issue to the
executives (other than Mr. Duffy), in satisfaction of a portion of such
executive's base salary, restricted Common Shares having a fair market value of
up to $25,000.  The agreements provide that if the executive is terminated for
"cause" or voluntarily terminates his employment without "good reason," he will
not compete with the Company within 20 miles of any of the Company's properties
for a period of one year after such termination.  Each of the employment
agreements provides for certain severance payments in the event of death or
disability, upon termination of the executive's employment by the Company
without "cause," by the executive with "good reason" or, with respect to the
agreements with Messrs. Wilkes, Lomenick and Duffy, by the executive without
"good reason" at any time within the twelve-month period following a "change in
control" (as defined in the agreements) of the Company.   Each agreement
provides that in the event of death or disability, or upon termination by the
Company without "cause," an amount equal to 2.99 times such executive's total
compensation (as defined in the agreements) for the immediately preceding
twelve-month period will be paid to the executive or his estate.  In the event
of termination by the executive with "good reason," the Company will pay to the
executive the lesser of (i) two times such executive's total compensation for
the immediately preceding twelve-month period or (ii) such executive's total
compensation for the immediately preceding twelve-month period multiplied by the
number of years (or fraction thereof) remaining in the term of the agreement.
In the event of termination by Messrs. Wilkes, Lomenick or Duffy without "good
reason" at any time within the twelve-month period following a "change in
control," the Company will pay to such executive a lump sum payment equal to the
prorata portion of the executive's base salary which would have been payable to
such executive during the three month period following the date of termination
of the agreement.

SHARE OPTION PLAN

     The Company has established the Share Option Plan for the purpose of
attracting and retaining the Company's trust managers, executive officers and
other employees.  The Share Option Plan provides for administration by a
committee of the Trust Managers established for such purpose.  A maximum of
1,400,000 Common Shares have been reserved for issuance under the Share Option
Plan.  The Share Option Plan allows for the grant of "incentive" and
"nonqualified" options (within the meaning of the Internal Revenue Code) and for
the right of an option holder to elect to receive in cash or Common Shares an
amount equal to the excess of the market price of the Common Shares subject to
an incentive or nonqualified option over the exercise price for such Common
Shares, which right can be exercised instead of (but not in addition to) its
related incentive or nonqualified option.  As of October 15, 1996, all Common
Shares reserved for issuance pursuant to the Share Option Plan had been awarded.

                                      -18-
<PAGE>
 
SHARE BONUS PLAN (NO. 2)

     The Company has established the Share Bonus Plan (No. 2) for the purpose of
advancing the best interests of the Company and its subsidiaries by providing
certain executive officers and other key employees with additional long-term
incentives by creating a means for such persons to acquire a proprietary
interest in the Company and a direct participation in the growth of the Company
through ownership of Common Shares.  The Share Bonus Plan (No. 2) provides for
administration by a committee of the Trust Managers established for such
purpose.  A maximum of 100,000 Common Shares were reserved for issuance under
the Share Bonus Plan (No. 2).  As of January 8, 1996, all Common Shares reserved
for issuance pursuant to the Share Bonus Plan (No. 2) had been awarded.

EMPLOYEE STOCK PURCHASE PLAN

     The Company has established the Employee Stock Purchase Plan for the
purpose of securing for the Company and its shareholders the benefits inherent
in the ownership of Common Shares by present and future employees of the Company
and its affiliates.  The Employee Stock Purchase Plan provides for
administration by a committee of Trust Managers established for such purpose.
The Employee Stock Purchase Plan provides for grants to eligible employees of
options to purchase up to 100,000 Common Shares.  All employees, except for an
employee who, immediately after the grant of an option under the plan, would own
5% or more of the voting power of all classes of equity of the Company, are
eligible to participate in the Employee Stock Purchase Plan.  The Employee Stock
Purchase Plan provides each eligible employee the right to purchase Common
Shares at 85% of the fair market value of the Common Shares on the date of
purchase.  As of March 1, 1997, 14,343 Common Shares have been purchased
pursuant to the Employee Stock Purchase Plan.

MANAGEMENT INCENTIVE PLAN

     The Company has established the Management Incentive Plan for the purpose
of assisting the Company in attracting and retaining selected individuals to
serve as trust managers, officers and employees of the Company who will
contribute to the Company's success and to achieve long-term objectives which
will inure to the benefit of all shareholders through the additional incentive
inherent in the ownership of Common Shares.  The Management Incentive Plan
provides for administration by a committee of Trust Managers established for
such purpose. Up to 500,000 Common Shares may be the subject of awards under the
Management Incentive Plan.  As of October 15, 1996, all Common Shares reserved
for issuance pursuant to the Management Incentive Plan had been awarded.

EMPLOYEE INCENTIVE PLAN

     The Company has established the Employee Incentive Plan for the purpose of
assisting the Company in attracting and retaining selected individuals to serve
as trust managers, employees and consultants of the Company who will contribute
to the Company's success and to achieve long-term objectives which will inure to
the benefit of all shareholders through the additional incentive inherent in the
ownership of Common Shares.  The Employee Incentive Plan provides for
administration by a Committee of Trust Managers established for such purpose.
Up to 1,000,000 Common Shares may be the subject of awards under the Employee
Incentive Plan.

                                      -19-
<PAGE>
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     No person who served as a member of the Company's Compensation Committee
during 1996 (i) was an officer or employee of the Company during such year, (ii)
was formerly an officer of the Company or (iii) was a party to any material
transaction set forth under "Certain Relationships and Transactions."

     No executive officer of the Company served as a member of the compensation
or similar committee or board of directors of any other entity of which an
executive officer served on the Compensation Committee or Board of Trust
Managers of the Company.

PERFORMANCE GRAPH

     The following graph shows a comparison of cumulative total returns for the
Company, the Standard & Poor's 500 Composite Stock Index and the SNL Securities
Corporate Performance Index Value of all publicly traded residential real estate
investment trusts since December 29, 1993, the date of the consummation of the
Company's initial public offering.  The stock price performance graph assumes an
investment of $100 in the Company and the two indexes on December 29, 1993, and
assumes the full reinvestment of dividends.

                                      -20-
<PAGE>
 
                            TOTAL RETURN PERFORMANCE


                                [INSERT GRAPH]


<TABLE> 
<CAPTION>
                                                                  Period Ending
                                ---------------------------------------------------------------------------------
Index                           12/21/93    6/30/94    12/31/94     6/30/95     12/31/95     6/30/96     12/31/96
-----------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>        <C>          <C>         <C>          <C>         <C> 
Columbus Realty Trust            100.00     126.38      115.96       122.32      131.44      136.71       166.52
S&P 500                          100.00      96.93      101.66       122.20      139.86      153.96       171.83
SNL Residential REITs Index      100.00     105.52      105.67       106.63      119.97      129.05       157.03
</TABLE> 

                     CERTAIN RELATIONSHIPS AND TRANSACTIONS

     The Company has entered into a partnership agreement with Gaylord
Properties, Inc. ("Gaylord") to own, construct, operate and manage an
approximately 445-unit multifamily development (including retail and office
space) presently under construction in Addison, Texas, a northern suburb of
Dallas. Mr. Roger Staubach, a Trust Manager of the Company, and certain
affiliates of Mr. Staubach and Mr. James Leslie, including The Staubach Company
and Wolverine Asset Management, Inc. ("Wolverine"), were instrumental in
developing the relationships with Gaylord and the City of Addison which enabled
the Company to undertake this project. In consideration of these efforts, the
Company has paid to Wolverine a fee of $150,000.

                                      -21-
<PAGE>
 
     In June 1996, Mr. Shaw pledged to Bank One, Texas, National Association
("Bank One") 36,532 restricted Common Shares (having a fair market value at
December 31, 1996 of $831,103) as collateral for a loan in the amount of up to
$350,000 (the "Shaw Loan"). In June 1996, Mr. Cureton pledged to Bank One 32,066
restricted Common Shares (having a fair market value at December 31, 1996 of
$729,502) as collateral for a loan in the amount of up to $300,000 (the "Cureton
Loan"). In connection with the Shaw Loan and the Cureton Loan (collectively, the
"Loans"), the Company entered into a Note Purchase Agreement with Bank One with
respect to each of the Loans. Pursuant to the terms of the Note Purchase
Agreements, the Company agreed to purchase, or cause one of its subsidiaries to
purchase, the notes evidencing such Loans upon the occurrence of an event of a
default (as defined in the Letter Loan Agreement with respect to each of the
Loans) thereunder by either of Messrs. Shaw or Cureton.

                                 PROPOSAL TWO:

                     AMENDMENT OF THE DECLARATION OF TRUST

     The Company's Amended and Restated Declaration of Trust ("Declaration of
Trust") provides, in Article XVIII, that no person may own 9.8% of the
outstanding Common Shares and no securities of the Company shall be accepted,
purchased or in any manner acquired by any person if such issuance or transfer
would result in that person's ownership of Common Shares exceeding 9.8% (the
"Ownership Limitations"). The Ownership Limitations are designed to ensure that
the Company satisfies the requirement of the Internal Revenue Code of 1986 (the
"Code") that, in order to maintain its qualification as a real estate investment
trust (a "REIT"), not more than 50% in value of the outstanding Common Shares be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code). In accordance with the requirements of the New York Stock Exchange (the
"NYSE"), Article XVIII of the Declaration of Trust also contains a provision
(the "NYSE Settlement Provision") which states that no transfer restrictions
contained in the Declaration of Trust will preclude the settlement of any
transaction in Common Shares entered into through the facilities of the NYSE.
Paragraph (h) of Article XVIII currently provides that the Company has the
unlimited ability to impose or to seek judicial or other imposition of
additional restrictions if deemed necessary or advisable to protect the Company
and the interests of its security holders by preservation of the Company's
status as a qualified REIT. The NYSE has requested that the Company amend its
Declaration of Trust to clarify that the power granted to the Company to impose
or to seek judicial or other imposition of additional restrictions to preserve
the Company's qualified REIT status is also subject, in all respects, to the
NYSE Settlement Provision. The Board of Trust Managers has determined that it is
in the best interests of the Company to revise paragraph (h) of the Company's
Declaration of Trust to reflect such clarification pursuant to the request of
the New York Stock Exchange.

     Accordingly, paragraph (h) of Article XVIII of the Company's Declaration of
Trust is proposed to be amended by adding to the beginning of paragraph (h) the
phrase "Subject to Paragraph (b) of this Article XVIII." Paragraph (h) as it is
proposed to be amended would therefore read as follows:

          (h) Subject to Paragraph (b) of this Article XVIII, nothing herein
     contained shall limit the ability of the Trust to impose or to seek
     judicial or other imposition of additional restrictions if deemed necessary
     or advisable to protect the Trust and the interests of its security holders
     by preservation of the Trust's status as a qualified real estate investment
     trust under the Code.

                                      -22-
<PAGE>
 
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF TRUST MANAGERS

     The affirmative vote of the holders of at least eighty percent (80%) of the
Common Shares entitled to vote on the proposed amendment is required for the
adoption of the proposal to amend the Declaration of Trust.

     THE BOARD OF TRUST MANAGERS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE PROPOSAL TO AMEND THE DECLARATION OF TRUST.

                                      -23-
<PAGE>
 
                                PROPOSAL THREE:

                 RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS

     Upon the recommendation of the Audit Committee, the Board of Trust Managers
of the Company has appointed the firm of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 1997.  A
resolution will be submitted to shareholders at the Meeting to ratify the
appointment of Ernst & Young LLP.

     A representative of Ernst & Young LLP is expected to be present at the
Meeting.  The representative will be afforded the opportunity to make a
statement and to respond to appropriate questions of shareholders.  If the
resolution ratifying the appointment of Ernst & Young LLP as independent public
accountants is approved by the shareholders, the Board of Trust Managers
nevertheless retains the discretion to select different auditors in the future,
should the Board then deem it in the Company's best interest.  Any such
selection need not be submitted to a vote of shareholders.

          VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF TRUST MANAGERS

     Ratification of the appointment of Ernst & Young LLP as the independent
public accountants of the Company requires the affirmative vote of the holders
of a majority of Common Shares present, or represented by proxy, and entitled to
vote at the Meeting.

     THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF
THE COMPANY.

                             SHAREHOLDER PROPOSALS

     Shareholders are entitled to submit proposals on matters appropriate for
shareholder action consistent with regulations of the Commission.  Should a
shareholder intend to present a proposal at the Company's 1998 Annual Meeting of
Shareholders, it must be received by the Secretary of the Company, 15851 Dallas
Parkway, Suite 855, Dallas, Texas 75248, not later than November ___, 1997 [120
DAYS PRIOR TO MAILING DATE], in order to be included in the Company's proxy
statement and form of proxy relating to that meeting.

                            SOLICITATION PROCEDURES

     Officers and regular employees of the Company, without extra compensation,
may solicit the return of proxies by mail, telephone, telegram or personal
interview.  Certain holders of record, such as brokers, custodians and nominees,
are being requested to distribute proxy materials to beneficial owners and to
obtain such beneficial owners' instructions concerning the voting of proxies.

     The cost of solicitation of proxies (including the cost of reimbursing
banks, brokerage houses, and other custodians, nominees and fiduciaries for
their reasonable expenses in forward proxy soliciting material to beneficial
owners) will be paid by the Company.

                                      -24-
<PAGE>
 
                                 MISCELLANEOUS

     A copy of the Company's Annual Report to Shareholders for the year ended
December 31, 1996 has previously been sent or is concurrently being sent to
shareholders of the Company. The Annual Report to Shareholders is not part of
the proxy solicitation materials.

     The information set forth in this Proxy Statement under the captions
"Executive Compensation --Report of the Compensation Committee of the Board of
Trust Managers" and "-- Performance Graph" shall not be deemed to be (i)
incorporated by referenced into any filing by the Company under the Securities
Act or the Exchange Act, except to the extent that in any such filing the
Company expressly so incorporates such information by reference, and (ii)
"soliciting material" or to be "filed" with the Commission.

     Where information contained in this Proxy Statement rests particularly
within the knowledge of a person other than the Company, the Company has relied
upon information furnished by such person or contained in filings made by such
person with the Commission.


                              By Order of the Board of Trust Managers



                              Richard R. Reupke
                              Chief Financial Officer
                                 and Secretary

                                      -25-
<PAGE>
 
                             COLUMBUS REALTY TRUST
            PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 23, 1997
 
     The undersigned, revoking any proxy heretofore given, hereby appoint(s)
Robert L. Shaw and Will Cureton, or either of them, proxies of the undersigned
with full power of substitution, to vote all of the common shares of beneficial
interest of COLUMBUS REALTY TRUST (the "Company") which the undersigned is
entitled to vote at the Company's Annual Meeting to be held at 9:00 a.m., local
time, on Friday, May 23, 1997, at Omni Mandalay Hotel at Las Colinas, 221 E. Las
Colinas Blvd., Irving, Texas and at any adjournment thereof, hereby ratifying
all that said proxies or their substitutes may do by virtue hereof, and the
undersigned authorizes and instructs said proxies to vote as set forth on the
Reverse Side hereof.
 
     THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUST MANAGERS.
 
     In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments thereof.
 
     THE BOARD OF TRUST MANAGERS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED IN
PROPOSAL 1, AND FOR PROPOSALS 2 and 3.
 
     Please fill in, date, sign and mail this Proxy in the enclosed postage-paid
return envelope.
 
     By signing and returning this Proxy, the undersigned acknowledges receipt
of the Notice of Annual Meeting and Proxy Statement and of the Annual Report and
financial statements of the Company preceding or accompanying the same.
 
     Unless a contrary direction is indicated, this Proxy will be voted FOR all
nominees listed in Proposal 1, FOR Proposal 2 and FOR Proposal 3 as more
specifically set forth in the Proxy Statement; if specific instructions are
indicated, this Proxy will be voted in accordance therewith.
 
 
                    (PLEASE SIGN AND DATE ON REVERSE SIDE)
 
 
[X]  PLEASE MARK YOUR
     VOTES AS IN THIS EXAMPLE.
 
1.  Election of Trust Managers  Nominees:  
          Robert L. Shaw    [ ]  FOR  [ ]  WITHHOLD AUTHORITY
          Roger T. Staubach [ ]  FOR  [ ]  WITHHOLD AUTHORITY
          Hugh G. Robinson  [ ]  FOR  [ ]  WITHHOLD AUTHORITY
 
2.  Approval of the amendment to the Company's Declaration of Trust 
    [ ]  FOR  [ ]  AGAINST  [ ]  ABSTAIN
 
3.  Approval of the appointment of Ernst & Young LLP  
    [ ]  FOR  [ ]  AGAINST  [ ]  ABSTAIN
 
4.  In their discretion, upon such other matters as properly come before the
    meeting.
 
                                   Signature___________________________________
 
                                   Date________________________________________
 
                                   Signature___________________________________
 
                                   Date________________________________________

                                   Please sign exactly as name appears hereon.
                                   When signing as attorney, executor,
                                   administrator, trustee or guardian, please
                                   give full title as such. If a corporation,
                                   please sign in full corporate name by
                                   President or other authorized officer. If a
                                   partnership, please sign in partnership name
                                   by authorized person. If owned jointly, each
                                   owner should sign.

[ ]   PLEASE MARK HERE IF YOU PLAN TO ATTEND THE MEETING