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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K

|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______ TO _____

Commission File Number: 1-10643



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Hallwood Realty Partners, L.P.

(Exact name of registrant as specified in its charter)




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|                                         |  |                       
|---------------------------------------- |  | ----------------------
|DELAWARE                                 |  | 75-2313955            
|(State or other jurisdiction of          |  | (I.R.S. Employer      
|incorporation or organization)           |  | Identification Number)
|                                         |  |                       
|3710 Rawlins                             |  |                       
|Suite 1500                               |  |                       
|Dallas, Texas                            |  | 75219-4298            
|(Address of principal executive offices) |  | (Zip Code)            

Registrants telephone number, including area code: (214) 528-5588

Securities Registered Pursuant to Section 12(b) of the Act:

|                                                 |  |                         
|------------------------------------------------ |  | ------------------------
|                                                 |  | Name of each exchange on
|Title of each class                              |  | which registered        
|                                                 |  |                         
|Units representing limited partnership interests |  | American Stock Exchange 

Securities Registered Pursuant to Section 12(g) of the Act:None

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes þ No o

The aggregate market value of units held by nonaffiliates of the registrant as of June 30, 2003 was $127,605,000.

Class: units representing limited partnership interests.
Outstanding at March 5, 2004: 1,593,948 units.



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TABLE OF CONTENTS



|                                                 |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                          
|                                                 | ITEM 1. BUSINESS                                                                             
|                                                 | ITEM 2. PROPERTIES                                                                           
|                                                 | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                 | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                         
|                                                 | ITEM 5. MARKET FOR REGISTRANTS UNITS AND RELATED SECURITY HOLDER MATTERS                    
|                                                 | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                 | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                 | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                 | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION                                    
|                                                 | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|                                                 | ITEM 9A. CONTROLS AND PROCEDURES                                                             
|PART III                                        
|                                                 | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                 | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                                 | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                 | ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES                                              
|PART IV                                         
|                                                 | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.                    
|SIGNATURES                                      
|EXHIBIT INDEX                                   
|Certification of CEO Pursuant to Section 302    
|Certification of CFO Pursuant to Section 302    
|Certifications of CEO & CFO Pursuant to Sec. 906



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##### Table of Contents



HALLWOOD REALTY PARTNERS, L.P.

FORM 10-K

TABLE OF CONTENTS

|         |  |                                                                                       |  |  |    |      |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|         |  |                                                                                       |  |  |    | Page
|         |  |                                                                                       |  |  |    |     
|PART I   |  |                                                                                       |  |  |    |     
|Item 1   |  | Business                                                                              |  |  | 3  |     
|Item 2   |  | Properties                                                                            |  |  | 6  |     
|Item 3   |  | Legal Proceedings                                                                     |  |  | 7  |     
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 9  |     
|PART II  |  |                                                                                       |  |  |    |     
|Item 5   |  | Market for Registrants Units and Related Security Holder Matters                     |  |  | 9  |     
|Item 6   |  | Selected Financial Data                                                               |  |  | 10 |     
|Item 7   |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  |  | 11 |     
|Item 7A  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  |  | 20 |     
|Item 8   |  | Financial Statements and Supplemental Information                                     |  |  | 21 |     
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures |  |  | 44 |     
|Item 9A  |  | Controls and Procedures                                                               |  |  | 44 |     
|PART III |  |                                                                                       |  |  |    |     
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  |  | 45 |     
|Item 11  |  | Executive Compensation                                                                |  |  | 47 |     
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 49 |     
|Item 13  |  | Certain Relationships and Related Transactions                                        |  |  | 50 |     
|Item 14  |  | Principal Accounting Fees and Services                                                |  |  | 50 |     
|PART IV  |  |                                                                                       |  |  |    |     
|Item 15  |  | Exhibits, Financial Statement Schedule and Reports on Form 8-K                        |  |  | 52 |     

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PART I




ITEM 1. BUSINESS

DESCRIPTION OF THE BUSINESS

General.

Hallwood Realty Partners, L.P. (HRP), a publicly traded Delaware limited
partnership, operates in the commercial real estate industry. HRPs activities
include the acquisition, ownership and operation of its commercial real estate
assets. Units representing limited partnership interests are traded on the
American Stock Exchange under the symbol HRY.

As of December 31, 2003, HRP owned 14 real estate properties (the Properties)
located in six states and containing 5,207,000 net rentable square feet (for
additional information, see Item 2 - Properties).

Hallwood Realty, LLC (Realty or the General Partner), a Delaware limited
liability company and indirectly wholly-owned subsidiary of The Hallwood Group
Incorporated (Hallwood), is HRPs general partner and is responsible for
asset management of HRP and its Properties, including decision-making
responsibility for financing, refinancing, acquiring and disposing of
properties. In addition, Realty provides general operating and administrative
services to HRP. Hallwood Commercial Real Estate, LLC (HCRE), another
indirectly wholly-owned subsidiary of Hallwood, provides property management,
leasing and construction supervision services to the Properties.

Available Information.

HRPs Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange
Act), are available on its website at www.hallwood.com/hrp, as soon as
reasonably practicable after such reports are electronically filed with the
Securities and Exchange Commission (the SEC). Additionally, HRPs Code of
Business Conduct and Ethics, Whistle Blower Policy, and Audit Committee
Charter may be accessed through the website.

RISKS, COMPETITION AND OTHER FACTORS

Deterioration in economic conditions and the real estate markets could harm
HRPs business.

The commercial real estate industry is sensitive to a number of factors
relating to global, national, regional and local general and economic
conditions, including war, threat of war, inflation, interest rates, taxation
policies, availability of credit, employment levels, and wage and salary
levels. A negative trend in any of these conditions could adversely affect
HRPs business. If a substantial number of tenants default on their leases,
choose not to renew, or if rental rates decrease, HRPs financial position
could be adversely affected. Such effects could include a decline in
acquisition, disposition and leasing activity; a decline in the supply of
capital invested in commercial real estate; or a decline in the value of real
estate.

HRPs cash flow would be adversely affected by decreases in the performance of
the properties it owns. Property performance typically depends upon the
ability to attract and retain creditworthy tenants; the ability to manage
operating expenses; the magnitude of defaults by tenants under their respective
leases; governmental regulations; the nature and extent of competitive
properties; financial and economic conditions generally and in the specific
areas where properties are located; and the real estate market generally.
Expenses may increase due to unexpected or higher repairs and maintenance
costs, inflation, services and costs required to retain tenants or to sign new
tenants, unsuccessful appeals of rising real estate taxes, changes in interest
rates, higher insurance costs, the outcome of existing or future litigation, as
well as other factors, many of which are beyond the control of HRP.

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RISKS, COMPETITION AND OTHER FACTORS (continued)

HRP may be sensitive to changes in interest rates.

Because only one of its mortgage loans has a floating interest rate, HRPs
exposure to changes in market interest rates is limited to the difference
between the market rate in effect at the time a loan matures compared to its
existing loan rate. As of December 31, 2003, HRP had mortgage loans totaling
$184,554,000 with fixed interest rates from 5.76% to 8.7% (with an effective
average interest rate of 8.0%). These loans mature between 2005 and 2020. At
the time of loan maturity, a higher market interest rate compared to the
existing rate will have a negative impact on the amount of mortgage proceeds
secured from a refinancing, as well as a decrease in cash flow from future
operations due to the higher interest rate.

A $25,000,000 mortgage loan secured by the Allfirst Building bears interest at
LIBOR plus 130 basis points, and therefore HRPs actual cash interest costs are
affected by changes in market interest rates. The interest rate for this loan
was 2.42% as of December 31, 2003. Assuming a 100 basis point, or 1%, change
in LIBOR, interest paid by HRP would increase or decrease by $250,000 on an
annual basis.

Insurance risks have increased as a result of recent events.

Due in large part to the terrorist activities of September 11, 2001, insurance
companies have re-examined many aspects of their business and have taken
certain actions in the wake of these terrorist activities, including increasing
premiums, mandating higher self-insured retentions and deductibles, reducing
limits, restricting coverages, imposing exclusions (such as sabotage and
terrorism), and refusing to underwrite certain risks and classes of business.
Significantly increased premiums, mandated exclusions, or changes in limits,
coverages, terms and conditions could adversely affect HRPs ability to obtain
appropriate insurance coverages. However, at this time the only impact on HRP
has been an increase in premiums. HRP has terrorism insurance coverage of
$100,000,000 for liability and for full value of its Properties.

HRP may incur environmental liability in its role as a property owner.

Various national, state and local laws and regulations impose liability on real
property owners, such as HRP, for the cost of investigating, cleaning up or
removing contamination caused by hazardous or toxic substances. The liability
may be imposed even if the original actions were legal and HRP did not know of,
or was not responsible for, the presence of such hazardous or toxic substances.
HRP may also be solely responsible for the entire payment of the liability if
it is subject to joint and several liability with other responsible parties who
are unable to pay. HRP may be subject to additional liability if it fails to
disclose environmental issues to a buyer or lessee of property or if a third
party is damaged or injured as a result of environmental contamination
emanating from the site. HRP cannot be sure that any of such liabilities to
which it may become subject will not have a material adverse effect upon its
business, results of operations or financial condition.

Parklane Towers, as well as certain other properties to a lesser extent, are
known to contain asbestos. Removal of asbestos at HRPs properties is not
required because it is cementitious, it is not friable and because the
procedures in HRPs site environmental program Operations and Maintenance
Manual are performed as required.

HRP may have difficulty disposing of assets when it has to do so.

HRPs basic investment strategy is to hold real estate assets until what it
believes to be an optimal time to sell them. Normally, this will be during
relatively strong real estate markets. However, factors beyond HRPs control
could make it necessary for HRP to dispose of real estate properties during
weak markets. Further, markets for real estate assets are not usually highly
liquid, which can make it particularly difficult to realize acceptable prices
when disposing of assets during weak markets.

If HRP does not generate sufficient cash flows from operations, it may need additional capital.

To date, HRP has financed its operations with cash from profitably operating
its established properties. If HRP does not generate enough cash from
operations to finance its business in the future, it will need to raise
additional funds through public or private financing or asset sales. If HRP
borrows money, it may be required to agree to restrictions limiting its
operating flexibility. If HRP requires additional funds and is not able to
obtain such funds, it would have a material adverse effect on its operations.

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RISKS, COMPETITION AND OTHER FACTORS (continued)

Some of HRPs loans contain covenants and restrictions, which affect
flexibility.

HRP has two mortgage loans that require compliance with a loan covenant, which
if not met will trigger a default. The loans require the properties securing
each loan to maintain a liquidity ratio, specifically a debt service coverage
ratio. A debt service coverage ratio is the relationship of adjusted net
operating income (as defined in each loan agreement) for the previous 12 months
to the loans annual debt service. The ratio, for a loan requiring a minimum
1.15 ratio, was 2.04, 2.25, and 2.35 for 2003, 2002, and 2001, respectively.
The ratio, for a loan requiring a minimum 1.10 ratio, was 2.47, 2.39, and 1.94
for the same periods. Accordingly, HRP was in compliance with these loan
covenants for the three years ended December 31, 2003. As of December 31,
2003, the outstanding balance of the loans is $109,273,000.

Additionally, these two mortgage loans contain restrictions that limit certain
actions. With respect to the properties encumbered by these loans, HRP cannot
incur additional debt. Also, HRPs ability to sell a property, or a portion
thereof, is limited because of the requirement to substitute collateral with
substantial penalty. These loans, among others, may also under certain
circumstances, restrict the ability of HRP to merge, consolidate or liquidate.

HRP is subject to litigation.

For information regarding litigation,
see Item 3 - Legal Proceedings.

HRP is subject to competition.

The Properties are subject to substantial competition from similar properties
in the vicinity in which they are located. In addition, there are numerous
other potential investors seeking to purchase improved real property and many
property holders seeking to dispose of real estate with which HRP will compete,
including companies substantially larger than HRP and with substantially
greater resources.

Other.

Realty and HCRE, on behalf of HRP, monitor compliance with the Americans with
Disabilities Act and are currently not aware of any material non-compliance
issues.

HRP does not directly employ any individuals. Currently, approximately 90
employees of Realty and/or HCRE render services on behalf of HRP and its
Properties.

The business of HRP involves only one industry segment. Accordingly, all
information required by Item 101(b) of Regulation S-K is included in the
Consolidated Financial Statements included in Item 8. HRP has no foreign
operations and its business is not seasonal.

OCCUPANCY AND MAJOR TENANT INFORMATION

For information regarding occupancy, percentages of square feet scheduled to
expire by calendar year, and major tenants, see Liquidity and Capital
Resources in Item 7 - Managements Discussion and Analysis of Financial
Condition and Results of Operations.

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ITEM 2. PROPERTIES

As of December 31, 2003, HRP owned 14 properties located in six states and
containing 5,207,000 net rentable square feet.

|                              |  |                            |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |   |  | 
|----------------------------- |  | -------------------------- |  | ------------- | ---- | ------- | ------- | ------ | --------- | ---------- | -- | ------------ | ---- | ---------- | -- | - | --- | - |  | 
|                              |  |                            |  |               |      |         |         |        |           | Net        |    |              |      |            |    |   |     |  
|                              |  |                            |  |               |      |         |         |        |           | Rentable   |    | Acres        |      | Percentage
|                              |  |                            |  |               |      | Year(s) |         | Square |           | of         |    | Leased as of
|Name and location             |  | Description                |  | Constructed   |      | Feet    |         | Land   |           | 12/31/2003
|                              |  |                            |  |               |      |         |         |        |           |           
|Airport Plaza                 |  | three story                |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|San Diego, California         |  | office building            |  |               | 1982 |         |         |        | 48,637    |            |    |              | 2    |            |    |   | 86  | %
|Allfirst Building             |  | 22 story                   |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Baltimore, Maryland           |  | office building            |  |               | 1972 |         |         |        | 343,080   |            |    |              | 0.6  |            |    |   | 98  | %
|Bellevue Corporate Plaza      |  | ten story                  |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Bellevue, Washington          |  | office building            |  |               | 1980 |         |         |        | 242,861   |            |    |              | 3.6  |            |    |   | 75  | %
|Bradshaw Business Parks       |  | 21 single story            |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Sacramento and Rancho         |  | office/warehouse buildings |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Cordova, California           |  | at four sites              |  | 1974 to 1980  |      |         | 452,838 |        |           |            | 31 |              |      |            | 93 | %
|Corporate Square              |  | 10 one to seven story      |  | 1967 to 1973, |      |         |         |        |           |            |    |              |      |            |    |  
|Atlanta, Georgia              |  | office buildings           |  |               | 2000 |         |         |        | 598,929   |            |    |              | 34   |            |    |   | 99  | %
|Executive Park                |  | 26 one to six story        |  | 1965 to 1972, |      |         |         |        |           |            |    |              |      |            |    |  
|Atlanta, Georgia              |  | office buildings           |  |               | 2002 |         |         |        | 1,021,332 |            |    |              | 70   |            |    |   | 83  | %
|Fairlane Commerce Park        |  | 11 single story buildings  |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Dearborn, Michigan            |  | in office/industrial park  |  | 1973 to 1990  |      |         | 416,056 |        |           |            | 35 |              |      |            | 88 | %
|Fountain View Business Center |  | 3 three story              |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|San Diego, California         |  | office buildings           |  |               | 1980 |         |         |        | 89,432    |            |    |              | 4.3  |            |    |   | 77  | %
|Gulley Road Industrial Park   |  | 5 single story buildings   |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Dearborn, Michigan            |  | in an industrial park      |  | 1990 to 1993  |      |         | 154,360 |        |           |            | 11 |              |      |            | 75 | %
|Montrose Office Center        |  | ten story                  |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Rockville, Maryland           |  | office building            |  |               | 1980 |         |         |        | 147,357   |            |    |              | 3    |            |    |   | 98  | %
|Parklane Towers               |  | twin 15 story              |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Dearborn, Michigan            |  | office buildings           |  |               | 1973 |         |         |        | 486,867   |            |    |              | 31.8 |            |    |   | 76  | %
|                              |  | 14 single story            |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|                              |  | buildings in               |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Raintree Industrial Park      |  | office/industrial          |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Solon, Ohio                   |  | complex                    |  | 1971 to 1979  |      |         | 795,198 |        |           |            | 49 |              |      |            | 78 | %
|Riverbank Plaza               |  | 2 three story              |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|San Diego, California         |  | office buildings           |  |               | 1978 |         |         |        | 40,222    |            |    |              | 1.6  |            |    |   | 100 | %
|                              |  | 17 single story            |  |               |      |         |         |        |           |            |    |              |      |            |    |   |     |  
|Seattle Business Parks        |  | buildings in two           |  | 1972 to 1978, |      |         |         |        |           |            |    |              |      |            |    |  
|Kent and Tukwila, Washington  |  | office/industrial parks    |  |               | 1993 |         |         |        | 369,419   |            |    |              | 23   |            |    |   | 91  | %

M&T Bank, formerly Allfirst Bank, the principal tenant of the Allfirst
Building, has an option to purchase the building from HRP for $28,000,000 in
2006. For information regarding this project as well as encumbrances to which
any Properties are subject and the status of related mortgage loans, see
Liquidity and Capital Resources in Item 7 - Managements Discussion and
Analysis of Financial Condition and Results of Operations, as well as Note 6 to
the Consolidated Financial Statements and Schedule III in
Item 8 - Financial
Statements and Supplemental Information.

OFFICE SPACE -

HRP leases and shares offices with Hallwood in Dallas, Texas under a lease
which expires November 30, 2008. HRP has a one-time option to terminate the
lease effective November 30, 2005. The annual minimum cash rental payments
are $315,000, of which HRPs portion is approximately $210,000 annually.

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ITEM 3. LEGAL PROCEEDINGS

Gotham Partners, L.P. v. Hallwood
Realty Partners, L.P. - Concluded December
18, 2003

On June 20, 1997, an action was filed against HRP, the General Partner, its
directors, and Hallwood by Gotham Partners, L.P. in the Court of Chancery of
the State of Delaware, styled Gotham Partners, L.P. v. Hallwood Realty
Partners, L.P., et al. (C.A. No. 15754) (the Gotham Partners Litigation).
As filed, the action alleged claims of breach of fiduciary duties, breach of
HRPs partnership agreement, and fraud in connection with certain
transactions involving HRPs units in the mid 1990s. Hallwood was alleged
to have aided and abetted the alleged breaches. On June 21, 2000, after
completing fact discovery, all parties moved for summary judgment on several
issues. In September and October 2000, the Delaware court issued three
separate written opinions resolving the summary judgment motions. In the
opinions, the court ruled that trial would be required as to all issues,
except that (i) Gotham was found to have standing to pursue its derivative
claims; (ii) defendants were entitled to judgment dismissing the fraud claim;
(iii) the General Partner was entitled to judgment dismissing the breach of
fiduciary duty claims brought against it; and (iv) the General Partners
outside directors were entitled to judgment dismissing all claims brought
against them.

A five-day trial was held in January 2001. On July 18, 2001, the Delaware
Court of Chancery rendered its opinion. In its decision, the court
determined that an option plan and a sale of units to Hallwood in connection
with a reverse split of units implemented by HRP in 1995 were in compliance
with HRPs partnership agreement. The court also found that the sale of
units to Hallwood in connection with a 1995 odd-lot offer by HRP did not
comply with certain procedures required by the HRP partnership agreement.
The court ruled that the defendants other than HRP pay a judgment to HRP in
the amount of $3,417,000, plus pre-judgment interest from August 1995. The
judgment amount represents what the court determined was an underpayment by
Hallwood. In August 2001, plaintiff and certain defendants appealed the
Court of Chancerys judgment to the Delaware Supreme Court. In October 2001,
HRP received the $3,417,423 judgment together with $2,988,000 of pre-judgment
and post-judgment interest. On August 29, 2002, the Supreme Court affirmed
the judgment of the trial court that the remaining defendants other than HRP
are jointly and severally liable to HRP. The Supreme Court reversed the
trial courts determination of damages, and remanded the case to the trial
court to fashion appropriate relief.

On July 8, 2003, the Delaware Court of Chancery issued its decision after
remand. In the decision, the Court of Chancery determined that defendants
were required to pay to HRP the difference between the price paid for 293,539
units of HRP purchased by Hallwood in 1995 of $14.20 per unit and the value
of those units, including a control premium for those units, as determined by
the court in its decision, of $36.02 per unit, plus pre-judgment interest.
The court also denied plaintiffs requests for rescission, rescissory damages
or other forms of relief. In its earlier decision before remand, the trial
court had determined that the value of the units was $25.84 per unit and, as
mentioned above, Hallwood paid the judgment amount plus interest in October
2001. Under the trial courts decision on remand, Hallwood was required to
pay an additional amount of approximately $2,988,000, plus pre-judgment
interest of approximately $3,762,000. On July 25, 2003, the trial court
entered its final order and judgment on remand which provided, among other
things, that HRP pay plaintiff $3,000,000 in attorneys fees, cost and
expenses, which was funded by HRP to plaintiff in August 2003. On July 28,
2003, the plaintiff appealed the final order and judgment on remand to the
Delaware Supreme Court. On December 18, 2003, the Supreme Court affirmed
the July 8, 2003 Court of Chancerys final order and judgment on remand,
effectively ending this matter.

In August 2003, Hallwood paid $5,000,000 of the 2003 judgment. As of
December 31, 2003, $1,827,000, including interest, remained unpaid.
$1,781,000 of the unpaid balance due bears simple interest at the statutory
rate of 7% until paid and is reflected on HRPs balance sheet as Receivable
from Affiliates, net. HRP had recorded the cash receipts of judgment and
interest as Deferred Litigation Proceeds on its balance sheet until the
cases final outcome in December 2003. At such time, HRP recorded
$4,933,000 to Limited Partners Capital on HRPs balance sheet ($6,405,000
of judgment for the additional purchase price of the units, less an
allocation of the $3,000,000 attorney fee award, equal to $1,472,000);
$5,123,000 to Proceeds from Litigation on HRPs statement of income
($6,651,000 of pre-judgment interest, less the remaining allocation of the
attorney fee award, equal to $1,528,000); and $175,000 of post-judgment
interest to Interest Income on HRPs statement of income.

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ITEM 3. LEGAL PROCEEDINGS (continued)

High River Limited Partnership v. Hallwood Realty Partners, L.P. -

On April 23, 2003, an action styled High River Limited Partnership v.
Hallwood Realty, LLC, et al. (C.A. No. 20276) was filed in the Court of
Chancery of the State of Delaware against the General Partner, its directors
and HRP as nominal defendant by High River Limited Partnership, which is
indirectly wholly owned by Carl C. Icahn (the High River Litigation). The
action, as filed initially, challenged the unit purchase rights agreement
dated November 30, 1990, between HRP and Equiserve Trust Company, N.A., as
rights agent, as amended (the Rights Plan). High River claimed in the suit
that defendants have wrongfully utilized the Rights Plan to prevent High
River and other third parties from purchasing 15 percent or more of the units
of the Partnership, while at the same time exempting the General Partner and
its affiliates and subsidiaries from the provisions of the Rights Plan. High
River asserts that if defendants make additional purchases of units, they
could render removal of the General Partner pursuant to the two-thirds
removal provision of the partnership agreement impossible, thereby impeding
or preventing the High River tender offer. High River also claims that
defendants wrongfully refused to redeem the rights and thereby frustrated
High Rivers tender offer. The complaint, as amended, seeks as relief an
order redeeming the rights, preventing defendants from treating the General
Partner as exempt from or otherwise not subject to the definition of
Acquiring Person under the Rights Agreement, or, alternatively, preventing
defendants from treating High River as an Acquiring Person under the Rights
Agreement or applying the Rights Agreement to the High River tender offer.

On April 28, 2003, a putative class action lawsuit styled I.G. Holdings,
Inc., et al. v. Hallwood Realty LLC, et al. (C.A. No. 20283) was filed in the
Court of Chancery of the State of Delaware against the General Partner, its
directors and HRP as nominal defendant by three purported unitholders of HRP.
The action asserts that in allegedly refusing to consider the High River
tender offer, the defendants are not acting in good faith and are deriving an
improper personal benefit in impeding a potential removal of the General
Partner or a sale of control of HRP, in breach of their fiduciary duties
under the partnership agreement. The action further asserts that HRPs
Schedule 14D-9 issued in response to the High River tender offer fails to
disclose material information relating to the General Partners
recommendation regarding the offer. The complaint seeks as relief an order
requiring the General Partner to consider the High River tender offer, an
order preventing the General Partner or its affiliates from acquiring units
or otherwise improperly entrenching the General Partner or impeding a
transaction that would maximize value for the public unitholders, an order
directing the defendants to use the Rights Plan fairly and disclose all
material information in connection with the tender offer and the General
Partners recommendations and conclusions with respect thereto, and damages.
This matter was coordinated with the High River action (discussed above) for
discovery and trial purposes.

On October 7-8, 2003, a trial in the two coordinated actions discussed above
was held in the Delaware Court of Chancery.
Subsequent to the trial, the Delaware Court of Chancery held several status
conferences relating to these matters. On February 10, 2004, plaintiffs in
C.A. No. 20283 moved to amend their complaint to add claims challenging the
potential allocation of consideration between Hallwood and its affiliates on
one hand, and the public unitholders on the other, that would result upon the
sale or merger of HRP, by alleging that Hallwood and its principal
shareholder have breached their fiduciary duties by demanding more than 1% of
the merger consideration. On February 11, 2004, the Court granted class
plaintiffs motion to amend their complaint to add these claims.

Other -

HRP is from time to time involved in various other legal proceedings and
claims which arise in the ordinary course of business. These matters are
generally covered by insurance. Management believes that the resolution of
these matters will not have a material adverse effect on HRPs financial
position, cash flows or operations.

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

No matters were submitted to a vote of the security holders of HRP during the
fourth quarter of 2003.




PART II




ITEM 5. MARKET FOR REGISTRANTS UNITS AND RELATED SECURITY HOLDER MATTERS

HRPs units are traded on the American Stock Exchange under the symbol HRY.
As of March 5, 2004, there were approximately 22,600 unitholders owning the
1,593,948 units outstanding. Each quarter Realty reviews HRPs capacity to
make cash distributions to its partners. HRP has not paid any cash
distributions since February, 1992.

The following table shows the high and low closing prices for the periods
indicated, as reported by the American Stock Exchange:

|       |             |  |                |        |     |  |   |        | 
|------ | ----------- |  | -------------- | ------ | --- |  | - | ------ | 
|       |             |  | Closing Prices
|       |             |  |               
|       |             |  | High           |        | Low
|       |             |  |                |        |    
|2002 - |             |  |                |        |     |  |   |       
|       | 1st Quarter |  | $              | 72.25  |     |  | $ | 69.00  | 
|       | 2nd Quarter |  |                | 70.25  |     |  |   | 68.50  | 
|       | 3rd Quarter |  |                | 94.50  |     |  |   | 58.00  | 
|       | 4th Quarter |  |                | 87.95  |     |  |   | 80.50  | 
|2003 - |             |  |                |        |     |  |   |       
|       | 1st Quarter |  | $              | 86.75  |     |  | $ | 66.03  | 
|       | 2nd Quarter |  |                | 106.00 |     |  |   | 81.00  | 
|       | 3rd Quarter |  |                | 130.50 |     |  |   | 100.00 | 
|       | 4th Quarter |  |                | 128.00 |     |  |   | 120.00 | 

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data regarding HRPs
results of operations and financial position as of the dates indicated. This
information should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in Item 7
and the Consolidated Financial Statements and notes thereto contained in Item
8.

|                                                                                                                                         |                     |                                                                 |         |                                         |      |      |         |      |      |      |         |      |      |   |         |   |       |   |         |  |      | 
|---------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | --------------------------------------------------------------- | ------- | --------------------------------------- | ---- | ---- | ------- | ---- | ---- | ---- | ------- | ---- | ---- | - | ------- | - | ----- | - | ------- |  | ---- | 
|                                                                                                                                         |                     |                                                                 |         | Year Ended December 31,                
|                                                                                                                                         |                     |                                                                 |         |                                        
|                                                                                                                                         |                     |                                                                 |         | 2003                                    |      | 2002 |         | 2001 |      | 2000 |         | 1999
|                                                                                                                                         |                     |                                                                 |         |                                         |      |      |         |      |      |      |         |     
|                                                                                                                                         |                     |                                                                 |         | (in thousands, except per unit amounts)
|STATEMENTS OF OPERATIONS:                                                                                                                |                     |                                                                 |         |                                         |      |      |         |      |      |      |         |      |      |   |         |   |       |   |         | 
|Total revenues                                                                                                                           |                     | $                                                               | 72,456  |                                         |      | $    | 73,739  |      |      | $    | 74,691  |      |      | $ | 69,901  |   |       | $ | 61,470  | 
|Income (loss) before proceeds from
litigation, interest income, gain from
property sales, and cumulative effect of
SFAS No. 133 adoption |                     |                                                                 | (2,943  | )                                       |      |      | 6,294   |      |      |      | 3,293   |      |      |   | (1,267  | ) |       |   | 3,154   | 
|Income (loss) before cumulative effect
of SFAS No. 133 adoption                                                                          |                     |                                                                 | 2,806   |                                         |      |      | 6,931   |      |      |      | 8,520   |      |      |   | (299    | ) |       |   | 4,062   | 
|Net income (loss)                                                                                                                        |                     |                                                                 | 2,806   |                                         |      |      | 6,931   |      |      |      | 8,328   |      |      |   | (299    | ) |       |   | 4,062   | 
|Income (loss) per unit and equivalent unit :                                                                                             |                     |                                                                 |         |                                         |      |      |         |      |      |      |         |      |      |   |         |   |       |   |         | 
|                                                                                                                                         | Basic -             |                                                                 |         |                                         |      |      |         |      |      |      |         |      |      |   |         |   |       |   |         |  |     
|                                                                                                                                         |                     | Income (loss) before cumulative effect
of SFAS No. 133 adoption |         |                                         | 1.74 |      |         |      | 4.32 |      |         |      | 5.31 |   |         |   | (0.18 | ) |         |  | 2.40 | 
|                                                                                                                                         |                     | Net income (loss)                                               |         |                                         | 1.74 |      |         |      | 4.32 |      |         |      | 5.19 |   |         |   | (0.18 | ) |         |  | 2.40 | 
|                                                                                                                                         | Assuming dilution - |                                                                 |         |                                         |      |      |         |      |      |      |         |      |      |   |         |   |       |   |         |  |     
|                                                                                                                                         |                     | Income (loss) before cumulative effect
of SFAS No. 133 adoption |         |                                         | 1.68 |      |         |      | 4.16 |      |         |      | 5.13 |   |         |   | (0.18 | ) |         |  | 2.31 | 
|                                                                                                                                         |                     | Net income (loss)                                               |         |                                         | 1.68 |      |         |      | 4.16 |      |         |      | 5.01 |   |         |   | (0.18 | ) |         |  | 2.31 | 
|BALANCE SHEETS:                                                                                                                          |                     |                                                                 |         |                                         |      |      |         |      |      |      |         |      |      |   |         |   |       |   |         | 
|Real estate, net                                                                                                                         |                     | $                                                               | 209,882 |                                         |      | $    | 209,838 |      |      | $    | 213,574 |      |      | $ | 206,392 |   |       | $ | 192,814 | 
|Total assets                                                                                                                             |                     |                                                                 | 291,237 |                                         |      |      | 274,420 |      |      |      | 269,875 |      |      |   | 254,504 |   |       |   | 230,386 | 
|Mortgages payable                                                                                                                        |                     |                                                                 | 209,554 |                                         |      |      | 197,552 |      |      |      | 201,224 |      |      |   | 200,096 |   |       |   | 171,312 | 
|Partners capital (a)                                                                                                                    |                     |                                                                 | 68,234  |                                         |      |      | 60,675  |      |      |      | 54,022  |      |      |   | 44,490  |   |       |   | 48,696  | 

Note to Selected Financial Data:



|(a) |  | Partners capital includes Accumulated Other Comprehensive Income of
$648,000 and $926,000 as of December 31, 2003 and 2002, respectively.
Partners capital balance is allocated 99% to the limited partners and 1%
to the General Partner.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This discussion should be read in
conjunction with Item 6 - Selected Financial
Data and Item 8 - Financial Statements and Supplemental Information.

Overview -

HRP operates in the commercial real estate industry. HRPs activities include
the acquisition, ownership and operation of its commercial real estate assets.
While it is the General Partners intention to operate HRPs existing real
estate investments and to acquire and operate additional real estate
investments, Realty also continually evaluates each of HRPs real estate
investments in light of current economic trends, operations, and other factors
to determine if any should be considered for disposition.

As of December 31, 2003, HRP owned 14 real estate assets (the Properties)
located in six states and containing 5,207,000 net rentable square feet. HRPs
revenue stream consists primarily of rental income from its Properties, along
with some revenues from parking, construction and tenant services.

During 2003, HRPs business was not significantly adversely impacted by general
economic factors. Primarily due to increased rentals resulting from a newly
constructed five-story office building in Atlanta, Georgia, overall rental
rates increased 1.9%. However, there was a decline in average occupancy of
1.5% during 2003 and general economic factors could lead to higher than normal
vacancy rates in many markets. In addition, HRP incurred significantly higher
litigation costs as a result of the Gotham Partners Litigation and High River
Litigation.

HRP fully consolidates into its financial statements majority owned entities.
For each of the three years in the period ended December 31, 2003, all entities
and Properties were fully owned. All significant intercompany balances and
transactions have been eliminated in consolidation.

HRP has, in three situations, created a Special Purpose Entity (SPE). These
SPEs were formed at the request of lenders for the express purpose of
strengthening the collateral for the loans by isolating (for Federal bankruptcy
law purposes) the assets and liabilities of the SPEs. In all cases and since
their various formation dates, the assets, liabilities and results of
operations of these wholly-owned entities have been fully consolidated into the
financial statements of HRP.

Critical Accounting Policies -

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and judgments that affect the reported amounts of
certain assets, liabilities, revenues, expenses, and related disclosures.
Actual results may differ from these estimates under different assumptions or
conditions. A critical accounting policy is one that is both important to
the portrayal of an entitys financial condition and results and requires
managements most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. HRP believes that the following of its accounting policies fit this
description:

Impairment of Long-Lived Assets  - HRP reviews for impairment losses on its
real estate assets when events and circumstances indicate that the assets might
be impaired. If such indication is noted, an undiscounted cash flow analysis
is performed, and in the event undiscounted cash flow estimated to be generated
by an asset over the remaining depreciable life of that asset is less than its
carrying value, then the asset would be written down to its fair value. Cash
flow estimates are based on historical results adjusted to our best estimate of
future market and operating conditions. Significant assumptions used in this
process include an evaluation of leases in place, future rental and occupancy
rates, and the level of expected operating expenses. For the three years ended
December 31, 2003, HRP has not recorded a write-down or impairment of the
carrying value of any real estate property based on these calculations.

Assets Held for Sale  - Should HRP decide to sell a property and actively
commence the disposal process, all of the assets, liabilities, income, and
expenses associated with such property will be segregated in the financial
statements. At such time, an evaluation for potential impairment will be made
using an estimate of the selling price less selling costs.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

Revenue Recognition  -  Statement of Financial Accounting Standards (SFAS)
No. 13 Accounting for Leases requires management to estimate the economic
life of lease payments. However, this does not require subjective input by
management, as rental income is recognized on a straight-line basis over the
lease term, as defined in each respective lease. Adjustments to convert cash
rental income (which may include free rent, reduced rent, or periodic rental
rate increases over the term of the lease) to straight-line rental income
increased revenues by $1,808,000, $99,000, and $256,000 in 2003, 2002, and
2001, respectively. The unamortized portion appears on the Consolidated
Balance Sheets as Effective Rent Receivable.
Other accounting policies are described in Note 2 to the Consolidated
Financials Statements in Item 8. The policies listed are not intended to be a
comprehensive list of all of our accounting policies. In many, cases, the
accounting treatment of a particular transaction is specifically dictated by
accounting principles generally accepted in the United States of America, with
no need for managements judgment in the application. There are also areas in
which managements judgment in selecting any available alternative would not
produce materially different results.

Recent Accounting Pronouncements -

SFAS No. 149 Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, was issued in April 2003. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133.
The statement is generally effective for contracts entered into or modified
after June 30, 2003. The implementation of SFAS No. 149 did not have an impact
on HRPs financial results.

SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity was issued in May 2003. SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. HRP
has no such instruments.

In November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 45 Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that the guarantor recognize, at the inception of
certain guarantees, a liability for the fair value of the obligation undertaken
in issuing such guarantee. FIN 45 also requires additional disclosure about
the guarantors obligations under certain guarantees that it has issued. As of
December 31, 2003 HRP had no such guarantees.

In January 2003 the FASB issued FIN 46 Consolidation of Variable Interest
Entities. In December 2003, the FASB issued FIN No. 46 (Revised) (FIN 46-R)
to address certain FIN 46 implementation issues. This interpretation clarifies
the application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements for companies that have interests in entities that are Variable
Interest Entities (VIE) as defined under FIN 46. The adoption of the
provisions of this interpretation did not have an impact material effect on
HRPs financial statements, as HRP has no VIEs.

RESULTS OF OPERATIONS

2003 Compared to 2002 -

Revenue from property operationsin 2003 increased $1,175,000, or 1.8%,
compared to 2002. The following table illustrates the components of the
change, in thousands:

|                      |              |   |     |       | 
|--------------------- | ------------ | - | --- | ----- | 
|Rental income, net    |              | $ | 548 |      
|Other property income |              |   | 627 |      
|                      |              |   |     |      
|                      | Net increase |   | $   | 1,175 | 
|                      |              |   |     |      

Net rental income increased primarily due to the addition of a
newly-constructed five-story office building within Executive Park in Atlanta,
Georgia (see Liquidity and Capital Resources - Property Development and Loan
Proceeds). Net rental income was also affected by a slight increase in
overall rental rates of 1.9% and a decline in average occupancy between years
from 87.4% to 85.9%. As of December 31, 2003, HRP had leases executed and in
place for 86.3% of the portfolios net rentable square feet. The change in
other property income includes increased tenant expense recoveries.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

Revenue from parking, construction and tenant servicesfor 2003 decreased
$2,458,000, or 36.4%, primarily as a result of fewer construction service
projects completed in 2003 compared to 2002. By their nature, the demand for
and size of construction service projects and the associated revenues can vary
significantly from time to time.

Property operating expensesfor 2003 increased $911,000, or 3.3%, compared to
2002. Utilities increased $301,000, primarily due to higher heating costs due
to a colder winter in 2003, compared to 2002. Real estate taxes increased
$187,000, primarily due to higher tax rates, and partially due to higher
valuations for properties located in Michigan. Property liability and damage
insurance increased $152,000 due to overall higher premiums. Snow removal costs
increased $77,000. Combined, all other operating costs increased $194,000, or
about 0.7%, between the years.

Parking, construction and tenant services expensefor 2003 decreased
$2,151,000, or 47.3%, primarily as a result of fewer construction service
projects completed in 2003 compared to 2002. By their nature, the demand for
and size of construction service projects and the associated expenses can vary
significantly from time to time.

Interest expensefor 2003 increased $263,000, or 1.7%, compared to 2002,
primarily due to capitalization of $256,000 of construction interest in 2002.
The change in interest expense also includes a decrease in mortgage interest of
$38,000 and an increase in other interest costs of $45,000. The change in the
mortgage interest component is due to reduced interest as a result of normally
scheduled debt reduction and reduced interest for HRPs only variable rate
mortgage, partially offset by interest for a $16,000,000 loan obtained in July
2003. For information about this new loan, see Liquidity and Capital
Resources - Property Development and Loan Proceeds. For information about
HRPs only variable rate mortgage, see Item 7A - Quantitative and Qualitative
Disclosures About Market Risk.

Depreciation and amortization expensefor 2003 increased $325,000, or 2.2%,
primarily due to building depreciation and tenant improvement amortization for
the newly-completed building at Executive Park.

General and administrative expensesfor 2003 increased $1,498,000, or 32.6%,
compared to 2002, primarily due to increases in certain professional fees of
$610,000, legal fees of $338,000, director fees of $293,000, travel costs of
$125,000, and director and officer liability insurance of $61,000.

Litigation costswere $7,885,000 and $777,000 for 2003 and 2002, respectively,
and are related to the Gotham Partners Litigation and High River Litigation
described in Item 3 - Legal Proceedings. The 2003 amount includes financial
advisory fees of $3,000,000 to Morgan Stanley, $750,000 to Lehman Brothers in
conjunction with the High River tender offer, and legal costs related to the
High River Litigation which began in 2003. Additionally, the 2003 amount
reflects a $750,000 reimbursement from a directors and officers liability
insurance policy. This reimbursement is included in accounts receivable on
HRPs Consolidated Balance Sheet as of December 31, 2003. For more information
about litigation, see Item 3 - Legal Proceedings.

Proceeds from litigationof $5,123,000 in 2003 represents the amount allocated
to operations from the final judgment of the Gotham Partners Litigation. For
more information about the lawsuit and its final judgment, see
Item 3 - Legal
Proceedings.

Interest incomedecreased by $11,000, or 1.7%, as a result of decreased
earnings on overnight cash investments due to significantly lower interest
rates available between years, partially offset by the recognition of $175,000
of post-judgment interest from the resolution of the Gotham lawsuit.

2002 Compared to 2001 -

Revenue from property operationsin 2002 increased $399,000, or 0.6%, compared
to 2001. The following table illustrates the components of the change, in
thousands:

|                      |              |   |      |     | 
|--------------------- | ------------ | - | ---- | --- | 
|Rental income, net    |              | $ | 830  |    
|Other property income |              |   | (431 | )  
|                      |              |   |      |    
|                      | Net increase |   | $    | 399 | 
|                      |              |   |      |    

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

Net rental income increased primarily due to an overall 5% increase in rental
rates offset by a decrease in average occupancy between years from 90.9% to
87.4%. Average occupancy for 2002 was 89.0% excluding the new, but then
unoccupied, building at Executive Park, which was completed in April 2002 (see
Note 5 to the Consolidated Financial Statements for more information). Other
property income decreased due to a reduction in tenant expense recoveries.

Revenue from parking, construction and tenant servicesfor 2002 decreased
$1,351,000, or 16.7%, primarily as a result of a few major construction service
projects completed in 2001. By their nature, the demand for and size of
construction service projects and the associated revenues can vary
significantly from time to time.

Property operating expensesfor 2002 increased $271,000, or 1.0%, compared to
2001. The change in expense includes non-specific, or general, increases in
real estate taxes, property and liability insurance premiums, and property
level salaries, partially offset by a general decrease in utilities and
landscaping costs.

Parking, construction and tenant services expensefor 2002 decreased $787,000,
or 14.8%, primarily as a result of a few major construction service projects
completed in 2001. By their nature, the demand for and size of construction
service projects and the associated expenses can vary significantly from time
to time.

Interest expensefor 2002 decreased $980,000, or 6.1%, compared to 2001, as a
result of a decrease in mortgage loan interest of $611,000 (primarily due to a
lower interest rate for HRPs only variable rate mortgage secured by the
Allfirst Building), a decrease in capitalized interest of $230,000, and a
decrease in loan cost amortization and other interest costs of $40,000. (For
more information about the variable rate mortgage, see Item 7A - Quantitative
and Qualitative Disclosures About Market Risk.) Additionally, 2001 included
$559,000 of prepayment penalties and other costs related to the early payoff of
loans; these costs were reclassified in the fourth quarter of 2002 from an
extraordinary item to current operations within interest expense as a result of
the adoption of SFAS No. 145.

Depreciation and amortization expensefor 2002 increased $335,000, or 2.3%,
primarily due to depreciation for the newly completed building at Executive
Park.

General and administrative expensesfor 2002 increased $239,000, or 5.5%,
compared to 2001, due to increases in certain professional fees, state
franchise taxes, director and officer liability insurance, and overhead costs.

Litigation costswere $777,000 and $3,808,000 for 2002 and 2001, respectively,
and are related to the Gotham Partners Litigation described in
Item 3 - Legal
Proceedings.

Interest incomedecreased by $406,000, or 38.9%, as a result of decreased
earnings on overnight cash investments due to significantly lower interest
rates available between years.

LIQUIDITY AND CAPITAL RESOURCES

Cash Sources, Cash Uses And Commitments -

HRPs cash position increased $8,717,000 during 2003 to $41,080,000 as of
December 31, 2003. The sources of cash during the year were $7,625,000 of cash
provided by operating activities, $16,000,000 of mortgage principal proceeds,
$5,000,000 of litigation judgment proceeds (Item 3 - Legal Proceedings), and
$48,000 from the exercise and issuance of unit options. The uses of cash were
$12,518,000 for property and tenant improvements, $3,000,000 for plaintiff
awarded fees in the Gotham Partners Litigation, $3,998,000 for scheduled
mortgage principal payments, and $440,000 for loan fees.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

For the foreseeable future, HRP anticipates that mortgage principal payments,
tenant and capital improvements, lease commissions and litigation costs will be
funded by net cash from operations. We believe that there will be sufficient
cash from operations to meet these needs because HRP has leases in place as of
December 31, 2003 to provide $57,370,000 of minimum rental payments during 2004
(see Liquidity and Capital Resources - Lease Agreements and Major Tenant
Information). For 2003, HRP had leases in place to provide $54,963,000 of
minimum rental payments (based on leases in place as of December 31, 2002),
however the actual rental payments recorded for 2003 were $60,320,000. Actual
rental payment results for 2003 were greater than the minimum rental payment
amount, primarily due to our ability to attract and retain tenants. Our
ability to fund operations in the future will depend upon continued success in
maintaining current occupancy levels, retaining current tenants, and attracting
new tenants, as well as sustaining or increasing rental rates.

The primary sources of capital to fund any future acquisitions or developments
will be proceeds from the sale, financing or refinancing of one or more of our
properties. HRP has estimated and budgeted tenant and capital improvements of
$9,007,000 and lease commissions of $2,111,000 for 2004. Each quarter Realty
reviews HRPs capacity to make cash distributions. HRP has not made any cash
distributions since February, 1992.

Property Development and Loan Proceeds -

In February 2001, HRP began constructing a five-story office building within
Executive Park in Atlanta, Georgia, containing 128,000 net rentable square feet
on a site formerly occupied by an 18,000 square foot building. The new
building and its parking garage, excluding tenant finish-out, was completed in
April 2002. A seven-year lease for the entire building, with an option for
five additional years, was executed with the General Services Administration of
the U.S. Government (GSA) in September 2002 and commenced after the
completion of tenant improvements in May 2003. Ultimately, HRP incurred and
capitalized $16,032,000 of building construction costs, which included its
parking garage, but excluded the existing land costs. The lease commissions
incurred were $774,000, while the tenant improvements were $3,159,000.

All these costs were paid from cash funds on hand; however, in July 2003, HRP
obtained a $16,000,000 loan secured by the office building. The ten-year loan
calls for interest-only payments for the first two years, followed by principal
and interest payments during the remaining term, amortized over 28 years. The
interest rate is 5.76% and the maturity date is August 10, 2013. The loan
proceeds were for general working capital purposes and replenished the cash
previously expended for building construction.

Mortgage Loans -

Substantially all of the buildings in HRPs real estate properties were
encumbered and pledged as collateral by 12 non-recourse mortgage loans
aggregating $209,554,000 as of December 31, 2003. These mortgage loans have
interest rates varying from 2.42% to 8.70% (with an effective average interest
rate of 7.34%) and mature between 2005 and 2020. Other than the Allfirst
Buildings mortgage ($25,000,000), all mortgages have fixed interest rates.
Most of the mortgage loans require monthly principal payments with balloon
payments due at maturity. The following table shows for the years presented
the principal and balloon payments that are required (in thousands):

|           |       |   |           |        |          |   |          |         |  |   |          |         | 
|---------- | ----- | - | --------- | ------ | -------- | - | -------- | ------- |  | - | -------- | ------- | 
|           |       |   |           |        |          |   |          |         |  |   | Total   
|           |       |   |           |        |          |   |          |         |  |   | Mortgage
|           |       |   | Principal |        | Balloon  |   | Loan    
|           |       |   | Payments  |        | Payments |   | Payments
|           |       |   |           |        |          |   |         
|2004       |       | $ | 4,310     |        |          | $ |         |         |  | $ | 4,310    |        
|2005       |       |   | 4,244     |        |          |   | 74,515   |         |  |   | 78,759   |        
|2006       |       |   | 3,093     |        |          |   | 25,000   |         |  |   | 28,093   |        
|2007       |       |   | 3,334     |        |          |   |         |         |  |   | 3,334    |        
|2008       |       |   | 2,905     |        |          |   | 34,961   |         |  |   | 37,866   |        
|Thereafter |       |   | 21,721    |        |          |   | 35,471   |         |  |   | 57,192   |        
|           |       |   |           |        |          |   |          |         |  |   |          |        
|           | Total |   | $         | 39,607 |          |   | $        | 169,947 |  |   | $        | 209,554 | 
|           |       |   |           |        |          |   |          |         |  |   |          |        

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

Since August 2000, HRP has had available a $2,000,000 revolving line of credit,
which matures on July 29, 2004. The line of credit has a variable interest
rate of either prime plus 0.50% or LIBOR plus 3.0% and requires monthly
interest payments, but no principal amortization. HRP has not borrowed against
this facility.

HRP has two mortgage loans that require compliance with a loan covenant, which
if not met will trigger a default. The loans require the properties securing
each loan to maintain a liquidity ratio, specifically a debt service coverage
ratio. A debt service coverage ratio is the relationship of adjusted net
operating income (as defined in each loan agreement) for the previous 12 months
to the loans annual debt service. The ratio, for a loan requiring a minimum
1.15 ratio, was 2.04, 2.25, and 2.35 for 2003, 2002, and 2001, respectively.
The ratio, for a loan requiring a minimum 1.10 ratio, was 2.47, 2.39, and 1.94
for the same periods. Accordingly, HRP was in compliance with these loan
covenants for the three years ended December 31, 2003. As of December 31,
2003, the outstanding balance of the loans is $109,273,000.

Additionally, these two mortgage loans contain restrictions that limit certain
actions. With respect to the properties encumbered by these loans, HRP cannot
incur additional debt. Also, HRPs ability to sell a property, or a portion
thereof, is limited because of the requirement to substitute collateral with
substantial penalty. These loans, among others, may also under certain
circumstances, restrict the ability of HRP to merge, consolidate or liquidate.

Long-Term Contractual Obligations -

The following table sets forth HRPs long-term contractual obligations for the
periods presented (in thousands):

|                            |       |  |    |   |  |        |           |           |  |           |         |         |  |       |        |        |           |   |        |        |  |   |         |         | 
|--------------------------- | ----- |  | -- | - |  | ------ | --------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ------ | --------- | - | ------ | ------ |  | - | ------- | ------- | 
|                            |       |  |    |   |  |        | Less than |           |  |           |         |         |  |       |        |        | More than |   |        |        | 
|Type                        |       |  |    |   |  | 1 year |           | 1-3 years |  | 3-5 years |         | 5 years |  | Total
|                            |       |  |    |   |  |        |           |           |  |           |         |         |  |      
|Long-Term Debt Obligations  |       |  | (a | ) |  | $      | 4,310     |           |  | $         | 106,852 |         |  | $     | 41,200 |        |           | $ | 57,192 |        |  | $ | 209,554 |        
|Operating Lease Obligations |       |  | (b | ) |  |        | 210       |           |  |           | 420     |         |  |       | 403    |        |           |   |       |        |  |   | 1,033   |        
|                            |       |  |    |   |  |        |           |           |  |           |         |         |  |       |        |        |           |   |        |        |  |   |         |        
|                            | Total |  |    |   |  |        | $         | 4,520     |  |           | $       | 107,272 |  |       | $      | 41,603 |           |   | $      | 57,192 |  |   | $       | 210,587 | 
|                            |       |  |    |   |  |        |           |           |  |           |         |         |  |       |        |        |           |   |        |        |  |   |         |        



---

|(a) |  | These are mortgage loans secured by the Properties.
Amounts due include principal and balloon payments. For
information, see Note 6 to the Consolidated Financial
Statements.                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | HRP leases and shares offices with Hallwood in
Dallas, Texas under a lease which expires November 30, 2008.
HRP has a one-time option to terminate the lease effective
November 30, 2005. The annual minimum cash rental payments
are $315,000, of which HRPs portion is approximately
$210,000 annually.

Litigation & Judgment -

On July 8, 2003, the Delaware Court of Chancery issued its decision after
remand in the Gotham Partners Litigation. In the decision, the Court of
Chancery determined that defendants were required to pay to HRP the difference
between the price paid for 293,539 units of HRP purchased by Hallwood in 1995
of $14.20 per unit and the value of those units, including a control premium
for those units, as determined by the court in its decision, of $36.02 per
unit, plus pre-judgment interest. The court also denied plaintiffs requests
for rescission, rescissory damages or other forms of relief. In its earlier
decision before remand, the trial court had determined that the value of the
units was $25.84 per unit and Hallwood paid that judgment amount, plus interest
in October 2001. Under the trial courts decision on remand, Hallwood was
required to pay an additional amount of approximately $2,988,000, plus
pre-judgment interest of approximately $3,762,000. On July 25, 2003, the trial
court entered its final order and judgment on remand which provided, among
other things, that HRP pay plaintiff $3,000,000 in attorneys fees, cost and
expenses, which was funded by HRP to plaintiff in August 2003. On July 28,
2003, the plaintiff appealed the final order and judgment on remand to the
Delaware Supreme Court. On December 18, 2003, the Supreme Court affirmed the
July 8, 2003 Court of Chancerys final order and judgment on remand,
effectively ending this matter.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

In August 2003, Hallwood paid $5,000,000 of the 2003 judgment. As of December
31, 2003, $1,827,000, including interest, remained unpaid. $1,781,000 of the
unpaid balance due bears simple interest at the statutory rate of 7% until paid
and is reflected on HRPs balance sheet as Receivable from Affiliates, net.
HRP had recorded the cash receipts of judgment and interest as Deferred
Litigation Proceeds on its balance sheet until the cases final outcome in
December 2003. At such time, HRP recorded $4,933,000 to Limited Partners
Capital on HRPs balance sheet ($6,405,000 of judgment for the additional
purchase price of the units, less an allocation of the $3,000,000 attorney fee
award, equal to $1,472,000); $5,123,000 to Proceeds from Litigation on HRPs
statement of income ($6,651,000 of pre-judgment interest, less the remaining
allocation of the attorney fee award, equal to $1,528,000); and $175,000 of
post-judgment interest to Interest Income on HRPs statement of income.

Lease Agreements And Major Tenant Information -

Lease provisions generally require HRPs tenants to pay fixed rental amounts,
plus their proportionate share of certain building operating costs and real
property taxes. Revenue from expense recoveries, included in property
operations, was $4,166,000, $3,755,000, and $4,197,000 in 2003, 2002, and 2001,
respectively. In addition, certain leases include provisions for annual rental
adjustments. Some leases contain provisions to allow a tenant to terminate
their lease prior to its normal expiration. At December 31, 2003, the
Properties, in the aggregate, were 86% leased. The following table sets forth
the minimum cash rental payments to be received from leases in place as of
December 31, 2003 (in thousands):

|           |       |   |               |         |             |   |        |        |  |   |         |         | 
|---------- | ----- | - | ------------- | ------- | ----------- | - | ------ | ------ |  | - | ------- | ------- | 
|           |       |   | Payments      |         | Payments    |   |        |        | 
|           |       |   | from Leases   |         | from Leases |   |        |        | 
|           |       |   | without Early |         | with Early  |   |        |        | 
|           |       |   | Termination   |         | Termination |   |        |        | 
|           |       |   | Rights        |         | Rights      |   | Total 
|           |       |   |               |         |             |   |       
|2004       |       | $ | 57,370        |         |             | $ | 39     |        |  | $ | 57,409  |        
|2005       |       |   | 47,308        |         |             |   | 2,300  |        |  |   | 49,608  |        
|2006       |       |   | 35,049        |         |             |   | 1,588  |        |  |   | 36,637  |        
|2007       |       |   | 26,016        |         |             |   | 3,936  |        |  |   | 29,952  |        
|2008       |       |   | 19,905        |         |             |   | 5,688  |        |  |   | 25,593  |        
|Thereafter |       |   | 61,094        |         |             |   | 42,446 |        |  |   | 103,540 |        
|           |       |   |               |         |             |   |        |        |  |   |         |        
|           | Total |   | $             | 246,742 |             |   | $      | 55,997 |  |   | $       | 302,739 | 
|           |       |   |               |         |             |   |        |        |  |   |         |        

Based on leases in place as of December 31, 2003, set forth below are the
percentages of leased square footage scheduled for lease expirations for each
calendar year, assuming that none of the tenants exercise early termination or
renewal options:

|           |  |  |    |  
|---------- |  |  | -- | -
|2004       |  |  | 18 | %
|2005       |  |  | 18 | %
|2006       |  |  | 17 | %
|2007       |  |  | 8  | %
|2008       |  |  | 11 | %
|Thereafter |  |  | 28 | %

During 2003, one tenant leasing space contributed 10% or more of HRPs
revenues. During 2002, two tenants contributed 10% or more of HRPs revenues.
The GSA leases space in Corporate Square and Executive Park. The GSA
accounted for 17% of revenues in 2003 and 2002. Ford Motor Company and
affiliates (Ford) leases space in Parklane Towers and Fairlane Commerce
Park. Ford accounted for 9% and 11% of revenues in 2003 and 2002,
respectively.

As of December 31, 2003, GSA leased 396,000 square feet of office space at
Executive Park under six leases which expire between 2004 and 2015. Also, as
of December 31, 2003, GSA leased 353,000 square feet of office space at
Corporate Square under three leases, which expire in 2004, 2013 (with a right
to early terminate in 2008) and 2020. As of December 31, 2003, Ford leased
158,000 square feet of office space under four leases at Parklane Towers and
170,000 square feet of office, technical laboratory and industrial space under
five leases at Fairlane Commerce Park. These leases expire between 2004 and
2010 and most contain options providing for one to ten year renewals. The
remaining tenants are not concentrated in any one industry, and HRP is not
otherwise dependent on any group of related tenants for 10% or more of its
revenues.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

Transactions With Related Parties -

HRP pays certain fees to Realty in connection with its ongoing management,
including an asset management fee, acquisition fees and disposition fees.
Specifically, HRP pays an asset management fee equal to 1% of the net
aggregate base rents of the Properties, acquisition fees equal to 1% of the
purchase price of newly acquired properties, and disposition fees with respect
to real estate investments, other than the properties owned at the time of
HRPs formation in 1990, equal to 10% of the amount, by which the sales price
of a property exceeds the purchase price of the property.

HRP pays HCRE compensation in connection with the management of the
Properties, which includes a property management fee, lease commissions and
construction supervision fees. The management contracts expire June 30, 2004
and provide for basic compensation from a property management fee in an amount
equal to 2.85% of cash receipts collected from the Properties tenants, lease
commissions equal to the current commission market rate as applied to the net
aggregate rent (none exceeding 6% of the net aggregate rent), and construction
supervision fees for administering all construction projects equal to 5% of
the total contracted costs of each capital expenditure or tenant improvement
project.

HRP compensates Realty and HCRE for services provided to it and its Properties
as described above and HRP reimburses Realty and HCRE, at cost, for certain
costs and expenses. In particular, since HRP does not directly employ any
individuals, the compensation and other costs related to approximately 90
employees rendering services on behalf of HRP and its properties are
reimbursed to Realty and HCRE by HRP. The following table sets forth such
compensation and reimbursements paid by HRP (in thousands):

|                        |  |  |    |   |  |            |  |      |       |      |  |      |       |  |  |   |       |  |  | 
|----------------------- |  |  | -- | - |  | ---------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | 
|                        |  |  |    |   |  | Entity     |  |      |       |      |  |      |       |  |  |   |       | 
|                        |  |  |    |   |  | Paid or    |  |      |       |      |  |      |       |  |  |   |       | 
|                        |  |  |    |   |  | Reimbursed |  | 2003 |       | 2002 |  | 2001
|                        |  |  |    |   |  |            |  |      |       |      |  |     
|Asset management fee    |  |  |    |   |  | Realty     |  | $    | 605   |      |  | $    | 618   |  |  | $ | 609   | 
|Acquisition fee         |  |  |    |   |  | Realty     |  |      |      |      |  |      |      |  |  |   |      | 
|Disposition fee         |  |  |    |   |  | Realty     |  |      |      |      |  |      |      |  |  |   | 120   | 
|Reimbursement of costs  |  |  | (a | ) |  | Realty     |  |      | 3,908 |      |  |      | 3,477 |  |  |   | 3,161 | 
|Property management fee |  |  |    |   |  | HCRE       |  |      | 1,987 |      |  |      | 2,022 |  |  |   | 2,005 | 
|Lease commissions       |  |  | (b | ) |  | HCRE       |  |      | 1,556 |      |  |      | 2,151 |  |  |   | 2,158 | 
|Construction fees       |  |  |    |   |  | HCRE       |  |      | 698   |      |  |      | 582   |  |  |   | 1,204 | 
|Reimbursement of costs  |  |  | (c | ) |  | HCRE       |  |      | 3,932 |      |  |      | 3,916 |  |  |   | 3,826 | 



---



|(a) |  | These expenses are recorded as general and
administrative expenses and represent reimbursement to
Realty for administrative level employee and director
compensation, officer and director liability insurance, and
allocated overhead costs. HRP pays its account balance with
Realty on a monthly basis.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | As of December 31, 2002, $567,000 of the 2002
lease commissions accrued were related to the development
project at Executive park and were paid in 2003.                                                                                                                                                  
|   
|(c) |  | These costs are recorded as property operating
expenses and represent reimbursement to HCRE for
property-level employee compensation and related expenses.                                                                                                                                                

As of December 31, 2003, Hallwood owes HRP $1,827,000 of unpaid litigation
judgment and interest related to the final outcome in the Gotham Partners
Litigation. $1,781,000 of the unpaid balance bears simple interest at the
statutory rate of 7% and is reflected on HRPs balance sheet as Receivable
from Affiliates, net (see Item 3 - Litigation for more information).

In January 2001, HRP acquired a construction development consulting contract
from Hallwood regarding a project in Tulsa, Oklahoma with an unrelated third
party. In connection therewith, HRP reimbursed Hallwood for its actual costs
incurred related to the project of $281,000.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)

Inflation -

Inflation did not have a significant impact on HRP during the three years
ended December 31, 2003 and is not anticipated to have a material impact in
2004.

Risks, Competition and Other Factors -

For information about risks, see Risks, Competition and Other Factors in
Item 1 - Business.

Forward-Looking Statements -

In the interest of providing investors with certain information regarding
HRPs future plans and operations, certain statements set forth in this Form
10-K relate to managements future plans, objectives and expectations. Such
statements are forward-looking statements. Although any forward-looking
statements contained in this Form 10-K or otherwise expressed by or on behalf
of HRP are, to the knowledge and in the judgment of the officers and directors
of the General Partner, expected to prove true and come to pass, management is
not able to predict the future with absolute certainty. Although HRP believes
that the assumptions underlying the forward-looking statements are reasonable,
any of the assumptions could be inaccurate and, therefore, there can be no
assurance that the forward-looking statements will prove to be accurate.

Forward-looking statements involve known and unknown risks and uncertainties,
which may cause HRPs actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted
result. These risks and uncertainties include the risks identified under
Risks, Competition and Other Factors in Item 1 - Business.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

On July 27, 2000, HRP sold its interest rate swap agreement for $1,597,000.
HRP had entered into the interest rate swap agreement in 1998 to reduce its
exposure to changes in interest rates for the loan secured by the Allfirst
Building. This interest rate swap agreement effectively fixed the loans cash
interest rate at 6.78%, as opposed to the mortgage loan interest rate of LIBOR
plus 1.30% (or 7.94% at the time of the swap agreement sale). The proceeds
from the sale were designated for general working capital purposes. For
financial reporting purposes, the proceeds are being amortized over the life
of the loan as a reduction to interest expense. During 2001, as the result of
the adoption of SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities, HRP reclassified the remaining unamortized gain from
liabilities to accumulated other comprehensive income. The proceeds will
continue to be amortized over the life of the Allfirst Buildings mortgage
payable as a reduction to interest expense. As of December 31, 2003 and 2002,
the unamortized balance, included on the balance sheet as Accumulated other
comprehensive income, was $648,000 and $926,000, respectively.

Also on July 27, 2000 and in connection with the sale of the swap agreement,
HRP purchased an interest rate cap for the Allfirst Buildings mortgage loan
for $288,000, which limits HRPs exposure to changing interest rates to a
maximum of 10%. This interest rate cap, which has a notional amount of
$25,000,000, has terms consistent with the Allfirst Buildings mortgage loan.
Allfirst Buildings cash interest rate was 2.42% and 2.68% as of December 31,
2003 and 2002, respectively. The interest rate cap is a derivative and
designated as a cash flow hedge. Hedge effectiveness is measured based on
using the intrinsic value of the interest rate cap. All changes in the fair
value of the cap are recorded directly to earnings. With the January 1, 2001
adoption of SFAS No. 133, HRP recorded the cumulative effect of the adoption
as a reduction to income of $192,000, or the amount of the difference between
the carrying value as of January 1, 2001 of $267,000 and the then estimated
fair value of $75,000, all of which represented change in time value.
Thereafter, on a quarterly basis, HRP has recorded changes in the estimated
fair value of the cap in interest expense. As of December 31, 2003 and 2002,
the estimated fair value of the interest rate cap was $18,000 and $55,000,
respectively.

Other than Allfirst Buildings mortgage ($25,000,000), all mortgages have
fixed interest rates. Accordingly, changes in LIBOR or the prime rate do not
significantly impact the amount of interest paid by HRP. Assuming a 100 basis
point, or 1%, change in LIBOR, interest paid by HRP would increase or decrease
by $250,000 on an annual basis.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION

ITEM 8 INDEX

|                              |                                                                                                                                                                                         |  |      |    | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                              |                                                                                                                                                                                         |  | Page
|                              |                                                                                                                                                                                         |  |     
|FINANCIAL STATEMENTS:         |                                                                                                                                                                                         |  |      |   
|                              | Independent Auditors Report                                                                                                                                                            |  |      | 22 | 
|                              | Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                                                                            |  |      | 23 | 
|                              | Consolidated Statements of Income for the years
ended December 31, 2003, 2002 and 2001                                                                                                  |  |      | 24 | 
|                              | Consolidated Statements of Comprehensive Income for the years
ended December 31, 2003, 2002 and 2001                                                                                    |  |      | 25 | 
|                              | Consolidated Statements of Partners Capital for the years
ended December 31, 2003, 2002 and 2001                                                                                       |  |      | 26 | 
|                              | Consolidated Statements of Cash Flows for the years
ended December 31, 2003, 2002 and 2001                                                                                              |  |      | 27 | 
|                              | Notes to Consolidated Financial Statements                                                                                                                                              |  |      | 28 | 
|FINANCIAL STATEMENT SCHEDULE: |                                                                                                                                                                                         |  |      |   
|                              | Schedule III - Real Estate and Accumulated Depreciation                                                                                                                                 |  |      | 42 | 
|                              | All other schedules have been omitted because they are not
applicable, not required, or the required information is disclosed
in the Consolidated Financial Statements or notes thereto |  |      |    | 

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INDEPENDENT AUDITORS REPORT

To the Partners of Hallwood Realty Partners, L.P.

We have audited the accompanying consolidated balance sheets of Hallwood
Realty Partners, L.P. and subsidiaries as of December 31, 2003 and 2002, and
the related consolidated statements of income, comprehensive income, partners
capital, and cash flows for each of the three years in the period ended
December 31, 2003. Our audit for the year ended December 31, 2003 also
included the financial statement schedule listed in the Index at Item 8.
These financial statements and financial statement schedule are the
responsibility of the Partnerships management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedule based upon our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hallwood Realty Partners, L.P.
and subsidiaries as of December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Dallas, Texas
March 9, 2004

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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit amounts)

|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|--------------------------------- | --------------------------------------- | -------------------------------------------------------------------------- | ------- | ------------ | -------- | ---- | ------- | ------- | -------- | -
|                                  |                                         |                                                                            |         | December 31,
|                                  |                                         |                                                                            |         |             
|                                  |                                         |                                                                            |         | 2003         |          | 2002
|                                  |                                         |                                                                            |         |              |          |     
|ASSETS                            |                                         |                                                                            |         |              |          |      |         |        
|Real estate:                      |                                         |                                                                            |         |              |          |      |         |        
|                                  |                                         | Land                                                                       |         | $            | 59,015   |      |         | $       | 59,015   |  
|                                  |                                         | Buildings and improvements                                                 |         |              | 307,011  |      |         |         | 310,154  |  
|                                  |                                         | Tenant improvements                                                        |         |              | 27,125   |      |         |         | 23,504   |  
|                                  |                                         | Construction in progress                                                   |         |              | 5,755    |      |         |         | 836      |  
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|                                  |                                         |                                                                            | 398,906 |              |          |      | 393,509 |        
|                                  |                                         | Accumulated depreciation and amortization                                  |         |              | (189,024 | )    |         |         | (183,671 | )
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|                                  | Real estate, net                        |                                                                            |         | 209,882      |          |      |         | 209,838 |         
|Cash and cash equivalents         |                                         |                                                                            | 41,080  |              |          |      | 32,363  |        
|Accounts receivable               |                                         |                                                                            | 5,140   |              |          |      | 2,315   |        
|Receivable from affiliates, net   |                                         |                                                                            | 1,432   |              |          |      |        |        
|Escrow deposits held by lenders   |                                         |                                                                            | 11,477  |              |          |      | 8,918   |        
|Prepaid expenses and other assets |                                         |                                                                            | 2,117   |              |          |      | 2,190   |        
|Lease commissions, net            |                                         |                                                                            | 11,037  |              |          |      | 11,390  |        
|Effective rent receivable         |                                         |                                                                            | 6,564   |              |          |      | 4,729   |        
|Loan costs, net                   |                                         |                                                                            | 2,508   |              |          |      | 2,677   |        
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|                                  | Total assets                            |                                                                            | $       | 291,237      |          |      | $       | 274,420 |         
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|LIABILITIES AND PARTNERS CAPITAL |                                         |                                                                            |         |              |          |      |         |        
|Liabilities:                      |                                         |                                                                            |         |              |          |      |         |        
|                                  |                                         | Mortgages payable                                                          |         | $            | 209,554  |      |         | $       | 197,552  |  
|                                  |                                         | Accounts payable and accrued expenses                                      |         |              | 10,577   |      |         |         | 5,743    |  
|                                  |                                         | Payable to affiliates                                                      |         |              |         |      |         |         | 512      |  
|                                  |                                         | Prepaid rent, security deposits and other                                  |         |              | 2,872    |      |         |         | 3,533    |  
|                                  |                                         | Deferred litigation proceeds                                               |         |              |         |      |         |         | 6,405    |  
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|                                  | Total liabilities                       |                                                                            |         | 223,003      |          |      |         | 213,745 |         
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|Commitments and contingencies     |                                         |                                                                            |         |              |          |      |         |        
|Partners capital:                |                                         |                                                                            |         |              |          |      |         |        
|                                  |                                         | Limited partners - 1,593,948 and 1,589,948
units outstanding, respectively |         |              | 66,910   |      |         |         | 59,152   |  
|                                  |                                         | General partner                                                            |         |              | 676      |      |         |         | 597      |  
|                                  |                                         | Accumulated other comprehensive income                                     |         |              | 648      |      |         |         | 926      |  
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|                                  | Total partners capital                 |                                                                            |         | 68,234       |          |      |         | 60,675  |         
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  
|                                  | Total liabilities and partners capital |                                                                            | $       | 291,237      |          |      | $       | 274,420 |         
|                                  |                                         |                                                                            |         |              |          |      |         |         |          |  

See notes to consolidated financial statements.

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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per unit amounts)

|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |        |      |      | 
|--------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------- | ---------- | ---------- | ------ | -------------------------------- | ----- | ------ | ------ | ---- | ----- | ------ | ------ | ---- | ---- | 
|                                                                                                                                        |                                           |                                                         |            |            |        | For the
Years Ended December 31,
|                                                                                                                                        |                                           |                                                         |            |            |        |                                 
|                                                                                                                                        |                                           |                                                         |            |            |        | 2003                             |       | 2002   |        | 2001
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |     
|REVENUES:                                                                                                                               |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |       
|                                                                                                                                        | Property operations                       |                                                         | $          | 68,167     |        |                                  | $     | 66,992 |        |      | $     | 66,593 |       
|                                                                                                                                        | Parking, construction and tenant services |                                                         |            | 4,289      |        |                                  |       | 6,747  |        |      |       | 8,098  |       
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        |                                           | Total revenues                                          |            |            | 72,456 |                                  |       |        | 73,739 |      |       |        | 74,691 |     
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|EXPENSES:                                                                                                                               |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |       
|                                                                                                                                        | Property operations                       |                                                         |            | 28,375     |        |                                  |       | 27,464 |        |      |       | 27,193 |       
|                                                                                                                                        | Parking, construction and tenant services |                                                         |            | 2,396      |        |                                  |       | 4,547  |        |      |       | 5,334  |       
|                                                                                                                                        | Interest                                  |                                                         |            | 15,428     |        |                                  |       | 15,165 |        |      |       | 16,145 |       
|                                                                                                                                        | Depreciation and amortization             |                                                         |            | 15,222     |        |                                  |       | 14,897 |        |      |       | 14,562 |       
|                                                                                                                                        | General and administrative                |                                                         |            | 6,093      |        |                                  |       | 4,595  |        |      |       | 4,356  |       
|                                                                                                                                        | Litigation costs                          |                                                         |            | 7,885      |        |                                  |       | 777    |        |      |       | 3,808  |       
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        |                                           | Total expenses                                          |            |            | 75,399 |                                  |       |        | 67,445 |      |       |        | 71,398 |     
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|INCOME (LOSS) BEFORE PROCEEDS FROM
LITIGATION, INTEREST INCOME, GAIN FROM
PROPERTY SALES, AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING |                                           |                                                         | (2,943     | )          |        |                                  | 6,294 |        |        |      | 3,293 |       
|Proceeds from litigation                                                                                                                |                                           |                                                         | 5,123      |            |        |                                  |      |        |        |      |      |       
|Interest income                                                                                                                         |                                           |                                                         | 626        |            |        |                                  | 637   |        |        |      | 1,043 |       
|Gain from property sales                                                                                                                |                                           |                                                         |           |            |        |                                  |      |        |        |      | 4,184 |       
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING                                                                                 |                                           |                                                         | 2,806      |            |        |                                  | 6,931 |        |        |      | 8,520 |       
|Cumulative effect of SFAS No. 133 adoption -
valuation of interest rate cap                                                             |                                           |                                                         |           |            |        |                                  |      |        |        |      | (192  | )     
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|NET INCOME                                                                                                                              |                                           | $                                                       | 2,806      |            |        | $                                | 6,931 |        |        | $    | 8,328 |       
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|ALLOCATION OF NET INCOME:                                                                                                               |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |       
|                                                                                                                                        | Limited partners                          |                                                         | $          | 2,778      |        |                                  | $     | 6,862  |        |      | $     | 8,245  |       
|                                                                                                                                        | General partner                           |                                                         |            | 28         |        |                                  |       | 69     |        |      |       | 83     |       
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        |                                           | Total                                                   |            | $          | 2,806  |                                  |       | $      | 6,931  |      |       | $      | 8,328  |     
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|NET INCOME PER UNIT AND POTENTIAL UNIT:                                                                                                 |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |       
|                                                                                                                                        | Net income per unit - basic               |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        |                                           | Income before cumulative effect of change in accounting |            | $          | 1.74   |                                  |       | $      | 4.32   |      |       | $      | 5.31   |     
|                                                                                                                                        |                                           | Cumulative effect of SFAS No. 133 adoption              |            |            |       |                                  |       |        |       |      |       |        | (0.12  | )   
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        |                                           |                                                         | Net income |            | $      | 1.74                             |       |        | $      | 4.32 |       |        | $      | 5.19 |     
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        | Net income per unit - assuming dilution   |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        |                                           | Income before cumulative effect of change in accounting |            | $          | 1.68   |                                  |       | $      | 4.16   |      |       | $      | 5.13   |     
|                                                                                                                                        |                                           | Cumulative effect of SFAS No. 133 adoption              |            |            |       |                                  |       |        |       |      |       |        | (0.12  | )   
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        |                                           |                                                         |            | Net income |        | $                                | 1.68  |        |        | $    | 4.16  |        |        | $    | 5.01 | 
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|WEIGHTED AVERAGE UNITS USED IN COMPUTING
NET INCOME PER UNIT AND POTENTIAL UNIT:                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |       
|                                                                                                                                        | Basic                                     |                                                         |            | 1,593      |        |                                  |       | 1,590  |        |      |       | 1,590  |       
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       
|                                                                                                                                        | Assuming dilution                         |                                                         |            | 1,651      |        |                                  |       | 1,648  |        |      |       | 1,645  |       
|                                                                                                                                        |                                           |                                                         |            |            |        |                                  |       |        |        |      |       |        |       

See notes to consolidated financial statements.

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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

|                                                                                                               |  |                     |       |      |  |      |       |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------------- |  | ------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                                                               |  | For the Years Ended
|                                                                                                               |  | December 31,       
|                                                                                                               |  |                    
|                                                                                                               |  | 2003                |       | 2002 |  | 2001
|                                                                                                               |  |                     |       |      |  |     
|Net income                                                                                                     |  | $                   | 2,806 |      |  | $    | 6,931 |   |  | $ | 8,328 |  
|Reclassification of cumulative effect of
SFAS No. 133 adoption - deferred gain
from sale of interest rate swap |  |                     |      |      |  |      |      |   |  |   | 1,481 |  
|Amortization of deferred gain
from sale of interest rate swap                                                  |  |                     | (278  | )    |  |      | (278  | ) |  |   | (277  | )
|                                                                                                               |  |                     |       |      |  |      |       |   |  |   |       |  
|Comprehensive income                                                                                           |  | $                   | 2,528 |      |  | $    | 6,653 |   |  | $ | 9,532 |  
|                                                                                                               |  |                     |       |      |  |      |       |   |  |   |       |  

See notes to consolidated financial statements.

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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
(in thousands, except unit amounts)

|                                                                                                               |  |         |     |          |  |               |        |       |  |             |       |       |  |   |        |             |  |  |           | 
|-------------------------------------------------------------------------------------------------------------- |  | ------- | --- | -------- |  | ------------- | ------ | ----- |  | ----------- | ----- | ----- |  | - | ------ | ----------- |  |  | --------- | 
|                                                                                                               |  |         |     |          |  |               |        |       |  | Accumulated |       |       |  |   |        | Limited    
|                                                                                                               |  |         |     |          |  |               |        |       |  | Other       |       |       |  |   |        | Partnership
|                                                                                                               |  | General |     | Limited  |  | Comprehensive |        |       |  |             |       | Units
|                                                                                                               |  | Partner |     | Partners |  | Income        |        | Total |  | Outstanding
|                                                                                                               |  |         |     |          |  |               |        |       |  |            
|PARTNERS CAPITAL, JANUARY 1, 2001                                                                             |  | $       | 445 |          |  | $             | 44,045 |       |  | $           |      |       |  | $ | 44,490 |             |  |  | 1,589,948 | 
|Reclassification of cumulative effect of
SFAS No. 133 adoption - deferred gain
from sale of interest rate swap |  |         |    |          |  |               |       |       |  |             | 1,481 |       |  |   | 1,481  |             |  |  |          | 
|Amortization of deferred gain from
sale of interest rate swap                                                  |  |         |    |          |  |               |       |       |  |             | (277  | )     |  |   | (277   | )           |  |  |          | 
|Net income                                                                                                     |  |         | 83  |          |  |               | 8,245  |       |  |             |      |       |  |   | 8,328  |             |  |  |          | 
|                                                                                                               |  |         |     |          |  |               |        |       |  |             |       |       |  |   |        |             |  |  |           | 
|PARTNERS CAPITAL, DECEMBER 31, 2001                                                                           |  |         | 528 |          |  |               | 52,290 |       |  |             | 1,204 |       |  |   | 54,022 |             |  |  | 1,589,948 | 
|Amortization of deferred gain from
sale of interest rate swap                                                  |  |         |    |          |  |               |       |       |  |             | (278  | )     |  |   | (278   | )           |  |  |          | 
|Net income                                                                                                     |  |         | 69  |          |  |               | 6,862  |       |  |             |      |       |  |   | 6,931  |             |  |  |          | 
|                                                                                                               |  |         |     |          |  |               |        |       |  |             |       |       |  |   |        |             |  |  |           | 
|PARTNERS CAPITAL, DECEMBER 31, 2002                                                                           |  |         | 597 |          |  |               | 59,152 |       |  |             | 926   |       |  |   | 60,675 |             |  |  | 1,589,948 | 
|Issuance of units upon exercise of options                                                                     |  |         | 1   |          |  |               | 47     |       |  |             |      |       |  |   | 48     |             |  |  | 4,000     | 
|Amortization of deferred gain from
sale of interest rate swap                                                  |  |         |    |          |  |               |       |       |  |             | (278  | )     |  |   | (278   | )           |  |  |          | 
|Capital payment received from Hallwood from
litigation judgment                                                |  |         | 50  |          |  |               | 4,933  |       |  |             |      |       |  |   | 4,983  |             |  |  |          | 
|Net income                                                                                                     |  |         | 28  |          |  |               | 2,778  |       |  |             |      |       |  |   | 2,806  |             |  |  |          | 
|                                                                                                               |  |         |     |          |  |               |        |       |  |             |       |       |  |   |        |             |  |  |           | 
|PARTNERS CAPITAL, DECEMBER 31, 2003                                                                           |  | $       | 676 |          |  | $             | 66,910 |       |  | $           | 648   |       |  | $ | 68,234 |             |  |  | 1,593,948 | 
|                                                                                                               |  |         |     |          |  |               |        |       |  |             |       |       |  |   |        |             |  |  |           | 

See notes to consolidated financial statements.

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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |        |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------- | ------- | -------------------------------- | ------- | ------ | ------ | ------ | ------ | ------ | ------- | ------ | ------- | -
|                                      |                                                                                   |                                                                             |                                                     |         | For the Years Ended December 31,
|                                      |                                                                                   |                                                                             |                                                     |         |                                 
|                                      |                                                                                   |                                                                             |                                                     |         | 2003                             |         | 2002   |        | 2001  
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |       
|OPERATING ACTIVITIES:                 |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |        
|                                      | Net income                                                                        |                                                                             | $                                                   | 2,806   |                                  |         | $      | 6,931  |        |        | $      | 8,328   |       
|                                      | Adjustments to reconcile net income to
net cash provided by operating activities: |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|                                      |                                                                                   | Depreciation and amortization                                               |                                                     |         | 15,222                           |         |        |        | 14,897 |        |        |         | 14,562 |        
|                                      |                                                                                   | Gain from property sales                                                    |                                                     |         |                                 |         |        |        |       |        |        |         | (4,184 | )      
|                                      |                                                                                   | Cumulative effect of SFAS No. 133
adoption - valuation of interest rate cap |                                                     |         |                                 |         |        |        |       |        |        |         | 192    |        
|                                      |                                                                                   | Effective rent adjustments                                                  |                                                     |         | (1,808                           | )       |        |        | (99    | )      |        |         | (256   | )      
|                                      | Changes in assets and liabilities:                                                |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|                                      |                                                                                   | Accounts receivable                                                         |                                                     |         | (4,257                           | )       |        |        |       |        |        |         | 896    |        
|                                      |                                                                                   | Lease commission payments                                                   |                                                     |         | (2,784                           | )       |        |        | (2,951 | )      |        |         | (2,752 | )      
|                                      |                                                                                   | Escrow deposits, prepaid expenses, and other assets                         |                                                     |         | (1,904                           | )       |        |        | (200   | )      |        |         | (174   | )      
|                                      |                                                                                   | Accounts payable and other liabilities                                      |                                                     |         | 350                              |         |        |        | 1,148  |        |        |         | (740   | )      
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|                                      |                                                                                   |                                                                             | Net cash provided by operating activities           |         |                                  | 7,625   |        |        |        | 19,726 |        |         |        | 15,872  |  
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|INVESTING ACTIVITIES:                 |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |        
|                                      | Property and tenant improvements                                                  |                                                                             |                                                     | (12,518 | )                                |         |        | (6,617 | )      |        |        | (9,417  | )     
|                                      | Property development cost                                                         |                                                                             |                                                     |        |                                  |         |        | (1,977 | )      |        |        | (13,406 | )     
|                                      | Cash proceeds from property sales, net of selling costs                           |                                                                             |                                                     |        |                                  |         |        |       |        |        |        | 8,435   |       
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|                                      |                                                                                   |                                                                             | Net cash used in investing activities               |         |                                  | (12,518 | )      |        |        | (8,594 | )      |         |        | (14,388 | )
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|FINANCING ACTIVITIES:                 |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |        
|                                      | Mortgage principal proceeds                                                       |                                                                             |                                                     | 16,000  |                                  |         |        |       |        |        |        | 10,000  |       
|                                      | Mortgage principal refinanced                                                     |                                                                             |                                                     |        |                                  |         |        |       |        |        |        | (2,760  | )     
|                                      | Loan fees                                                                         |                                                                             |                                                     | (440    | )                                |         |        | (10    | )      |        |        | (138    | )     
|                                      | Mortgage principal early payoff                                                   |                                                                             |                                                     |        |                                  |         |        |       |        |        |        | (2,125  | )     
|                                      | Mortgage prepayment penalties                                                     |                                                                             |                                                     |        |                                  |         |        |       |        |        |        | (423    | )     
|                                      | Mortgage principal scheduled payments                                             |                                                                             |                                                     | (3,998  | )                                |         |        | (3,672 | )      |        |        | (3,987  | )     
|                                      | Litigation proceeds received                                                      |                                                                             |                                                     | 5,000   |                                  |         |        |       |        |        |        | 6,405   |       
|                                      | Payment to plaintiff from litigation proceeds                                     |                                                                             |                                                     | (3,000  | )                                |         |        |       |        |        |        |        |       
|                                      | Issuance of units upon exercise of options                                        |                                                                             |                                                     | 48      |                                  |         |        |       |        |        |        |        |       
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|                                      |                                                                                   |                                                                             | Net cash provided by (used in) financing activities |         |                                  | 13,610  |        |        |        | (3,682 | )      |         |        | 6,972   |  
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|INCREASE IN CASH AND CASH EQUIVALENTS |                                                                                   |                                                                             | 8,717                                               |         |                                  |         | 7,450  |        |        |        | 8,456  |        
|BEGINNING CASH AND CASH EQUIVALENTS   |                                                                                   |                                                                             | 32,363                                              |         |                                  |         | 24,913 |        |        |        | 16,457 |        
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       
|ENDING CASH AND CASH EQUIVALENTS      |                                                                                   | $                                                                           | 41,080                                              |         |                                  | $       | 32,363 |        |        | $      | 24,913 |        
|                                      |                                                                                   |                                                                             |                                                     |         |                                  |         |        |        |        |        |        |         |       

See notes to consolidated financial statements.

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|1 |  | ORGANIZATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Hallwood Realty Partners, L.P. (HRP), a publicly traded Delaware
limited partnership, operates in the commercial real estate industry.
HRPs activities include the acquisition, ownership and operation of its
commercial real estate assets. Units representing limited partnership
interests are traded on the American Stock Exchange under the symbol
HRY. As of December 31, 2003 there were 1,593,948 units outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| 
|  |  | As of December 31, 2003, HRP owned 14 real estate assets (the
Properties) located in six states and containing 5,207,000 net rentable
square feet. HRP seeks to maximize the value of its real estate by
making capital and tenant improvements, by executing marketing programs
to attract and retain tenants, and by controlling or reducing, where
possible, operating expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
|  |  | Hallwood Realty, LLC (Realty or the General Partner), a Delaware
limited liability company and indirectly wholly-owned subsidiary of The
Hallwood Group Incorporated (Hallwood), is HRPs general partner and is
responsible for asset management of HRP and its Properties, including
decision-making responsibility for financing, refinancing, acquiring and
disposing of properties. In addition, Realty provides general operating
and administrative services to HRP. Hallwood Commercial Real Estate, LLC
(HCRE), another indirectly wholly-owned subsidiary of Hallwood,
provides property management, leasing and construction supervision
services to the Properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| 
|2 |  | ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| 
|  |  | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
|  |  | HRP fully consolidates into its financial statements majority owned
entities. For each of the three years in the period ended December 31,
2003, all entities and Properties were fully owned. All significant
intercompany balances and transactions have been eliminated in
consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| 
|  |  | HRP has, in three situations, created a Special Purpose Entity (SPE).
These SPEs were formed at the request of lenders for the express purpose
of strengthening the collateral for the loans by isolating (for Federal
bankruptcy law purposes) the assets and liabilities of the SPEs. In all
cases and since their various formation dates, the assets, liabilities
and results of operations of these wholly-owned entities have been fully
consolidated into the financial statements of HRP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| 
|  |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | HRP considers highly liquid investments with original maturities of three
months or less at the time of purchase to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
|  |  | Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
|  |  | Property is stated at cost. Renovations and improvements are
capitalized; maintenance and repairs are expensed. When an asset is sold
or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and any gain or any previously
unanticipated loss is recognized in the year of sale or disposition. HRP
reviews for impairment losses on its real estate assets when events and
circumstances indicate that the assets might be impaired. If such
indication is noted, an undiscounted cash flow analysis is performed, and
in the event undiscounted cash flow estimated to be generated by an asset
over the remaining depreciable life of that asset is less than its
carrying value, then the asset would be written down to its fair value.
Cash flow estimates are based on historical results adjusted to our best
estimate of future market and operating conditions. Significant
assumptions used in this process include an evaluation of leases in
place, future rental and occupancy rates, and the level of expected
operating expenses. For the three years ended December 31, 2003, HRP has
not recorded a write-down or impairment of the carrying value of any real
estate property based on these calculations.

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|2 |  | ACCOUNTING POLICIES - (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Should HRP decide to sell a property and actively commence the disposal
process, all of the assets, liabilities, income, and expenses associated
with such property will be segregated in the financial statements. At
such time, an evaluation for potential impairment will be made using an
estimate of the selling price less selling costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | Depreciation of buildings is computed using the straight-line method over
estimated useful lives ranging from 15 to 43 years. Equipment and other
improvements are depreciated on a straight-line basis over estimated
useful lives ranging from 3 to 23 years. Tenant improvements are
capitalized and amortized over the terms of the respective leases or
useful life, if shorter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
|  |  | HRP capitalizes all costs related to the development and construction of
its projects, including interest of $0, $256,000, and $486,000 in 2003,
2002, and 2001, respectively. The development period of a project is
considered to have begun when activities related to the construction of
the project or a portion thereof has commenced. All costs for
construction are capitalized and allocated to each building.
Capitalization of such costs is discontinued when the building is
available for occupancy.                                                                                                                                                                                                                                                                                                                                                 
| 
|  |  | HRP would accrue for losses associated with environmental remediation
obligations if such losses were probable and reasonably estimable.
Accruals for estimated losses from environmental remediation obligations
would generally be recognized no later than completion of a remedial
feasibility study. Such accruals would be adjusted as further
information developed or circumstances changed. Costs of future
expenditures for environmental remediation obligations would not be
discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their
receipt is deemed probable. HRPs management is not aware of any
environmental remediation obligations which would materially affect the
operations, financial position or cash flows of HRP and therefore has
made no loss accruals.
| 
|  |  | Other Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
|  |  | Lease costs and commissions are amortized over the terms of the
respective leases. Leases at the Properties expire from 2004 to 2020.
Loan costs are amortized over the terms of the respective loans. The
loans mature between 2005 and 2020. Amortization of lease commissions,
included in depreciation and amortization expense, was $2,748,000,
$2,817,000, and $2,889,000 in 2003, 2002, and 2001, respectively.
Amortization of loan costs, included in interest expense, was $609,000,
$591,000, and $624,000 in 2003, 2002, and 2001, respectively. The
caption Prepaid expenses and other assets on the Consolidated Balance
Sheets includes prepaid real estate taxes, prepaid insurance and other
miscellaneous deposits and prepaid expenses.                                                                                                        
| 
|  |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| 
|  |  | Rental income is recognized as earned on a straight-line basis over the
terms of the respective leases. Amortization of effective rent income
adjustments, included in property operations revenues, was $1,808,000,
$99,000, and $256,000 in 2003, 2002, and 2001, respectively. The
unamortized portion appears on the Consolidated Balance Sheets as
Effective Rent Receivable. Lease provisions generally require tenants
to pay their proportionate share of certain building operating costs and
real property taxes. Revenue from expense recoveries, included in
property operations, are recorded as earned and was $4,166,000,
$3,755,000, and $4,197,000 in 2003, 2002, and 2001, respectively.                                                                                                                                                        
| 
|  |  | Revenues and expenses from short-term construction and tenant service
projects are recorded at the time of project completion. Revenues and
expenses from long-term construction projects are accounted for using the
percentage-of-completion method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
|  |  | Interest Rate Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | HRP has used an interest rate swap as a hedge against interest exposure
of variable rate debt. HRPs only interest rate swap was sold in July
2000. Differences between amounts paid or received in this interest rate
agreement, which was designated as a hedge, were included in interest
expense as the payments were made or received. HRP was exposed to
credit-related gains or losses in the event of non-performance by
counterparties, however none of the counterparties failed to meet their
obligations during the term of the agreement. In July 2000, in
connection with the sale of the interest rate swap, HRP
purchased an interest rate cap derivative that limits its interest rate
exposure on its mortgage for the Allfirst Building (see Notes 6 and 9 for
more information).                                                                

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|2 |  | ACCOUNTING POLICIES - (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Litigation Expense and Litigation Judgment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | Litigation costs were $7,885,000, $777,000, and $3,808,000 for 2003, 2002
and 2001, respectively, and are related to the Gotham Partners Litigation
and High River Litigation described in Footnote 10. The 2003 amount
includes financial advisory fees of $3,000,000 to Morgan Stanley,
$750,000 to Lehman Brothers in conjunction with the High River tender
offer, and legal costs related to the High River Litigation which began
in 2003. Additionally, the 2003 amount reflects a $750,000 reimbursement
from a directors and officers liability insurance policy.                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | On December 18, 2003, the Supreme Court affirmed the July 8, 2003 Court
of Chancerys final order and judgment on remand, effectively ending the
Gotham Partners Litigation. Accordingly in 2003, HRP recorded the
$13,056,000 litigation judgment ($6,405,000 was awarded in 2001 and
$6,651,000 was awarded in 2003), of which $3,000,000 was paid to the
plaintiff, $5,123,000 was reflected in the Statement of Income, and
$4,933,000 was recorded as an increase in Limited Partners Capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| 
|  |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
|  |  | Currently, HRP is a non-taxable entity. Federal and state income taxes,
if any, are the responsibility of the individual partners. Accordingly,
the Consolidated Financial Statements do not include a provision for
income taxes. However, certain business and franchise taxes are the
responsibility of HRP and subsidiary entities. These business and
franchise taxes, included in general and administrative expenses, were
$198,000, $280,000, and $178,000 in 2003, 2002, and 2001, respectively.
HRPs tax returns are subject to examination by federal and state taxing
authorities. If HRPs taxable income is ultimately changed by the taxing
authorities, the tax liability of the partners could be changed
accordingly. Additionally, no assurance can be given that the federal or
state governments will not pass legislation that will characterize HRP as
an association taxable as a corporation for federal income tax purposes.
Such classification may have an adverse effect on HRP.
| 
|  |  | Equity-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
|  |  | Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation establishes a method of accounting whereby
recognized option pricing models are used to estimate the fair value of
equity-based compensation, including options. HRP has elected, as
provided by SFAS No. 123, not to recognize employee equity-based
compensation expense as calculated under SFAS No. 123, but has recognized
such expense in accordance with the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. As the
only options of HRP fully vested in 1997, there would be no difference
between the historical operations and pro forma operations for each of
the three years ended December 31, 2003 had the expense provisions of
SFAS No. 123 been adopted.                                                                                                                                                                       
| 
|  |  | Computation of Net Income Per Unit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | Basic net income per unit is computed by dividing results attributable to
the limited partners interests by the weighted average number of units
outstanding. Net income per unit assuming dilution is computed by
dividing results attributable to the limited partners interests by the
weighted average number of units and potential units outstanding.
Options to acquire units were issued during 1995 and are considered to be
potential units. The number of potential units is computed using the
treasury stock method which assumes that the increase in the number of
units is reduced by the number of units which could have been repurchased
by HRP with the proceeds from the exercise of these options. The
following table illustrates the amounts used to calculate the weighted
average number of units outstanding (in thousands):                                                                                                                                                     

|                                                                 |  |      |       |      |  |      |       |   |  |  |       |  
|---------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                 |  | 2003 |       | 2002 |  | 2001
|                                                                 |  |      |       |      |  |     
|Weighted average units outstanding - basic                       |  |      | 1,593 |      |  |      | 1,590 |   |  |  | 1,590 |  
|Potential weighted average units issued from options             |  |      | 65    |      |  |      | 69    |   |  |  | 69    |  
|Potential repurchase of units from unit option proceeds          |  |      | (7    | )    |  |      | (11   | ) |  |  | (14   | )
|                                                                 |  |      |       |      |  |      |       |   |  |  |       |  
|Potential weighted average units outstanding -
assuming dilution |  |      | 1,651 |      |  |      | 1,648 |   |  |  | 1,645 |  
|                                                                 |  |      |       |      |  |      |       |   |  |  |       |  

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|2 |  | ACCOUNTING POLICIES - (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
|  |  | Comprehensive income items are revenues, expenses, gains and losses that
under accounting principles generally accepted in the United States of
America are excluded from current period results and reflected as a
component of equity. HRP recorded comprehensive income related to its
unrealized gain from the sale of an interest rate swap in 2001.                                                                                                                                                                                                                                             
| 
|  |  | Segment Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
|  |  | Operating segments are defined as components of an entity for which
separate financial information is available that is evaluated by the
chief operating decision-maker in deciding how to allocate resources and
in assessing performance. Management believes that HRP operates in only
one business segment, real estate.                                                                                                                                                                                                                                                                          
| 
|  |  | Recent Accounting Pronouncements and Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | SFAS No. 149 Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, was issued in April 2003. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. The statement is generally effective for
contracts entered into or modified after June 30, 2003. The
implementation of SFAS No. 149 did not have an impact on HRPs financial
results.                                                                                            
| 
|  |  | SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity was issued in May 2003.
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. HRP has no such instruments.                                                                                                                                                                                                                                                                 
| 
|  |  | In November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation (FIN) No. 45 Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 requires that the guarantor recognize,
at the inception of certain guarantees, a liability for the fair value of
the obligation undertaken in issuing such guarantee. FIN 45 also
requires additional disclosure about the guarantors obligations under
certain guarantees that it has issued. As of December 31, 2003 HRP had
no such guarantees.
| 
|  |  | In January 2003 the FASB issued FIN 46 Consolidation of Variable
Interest Entities. In December 2003, the FASB issued FIN No. 46
(Revised) (FIN 46-R) to address certain FIN 46 implementation issues.
This interpretation clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements for companies that
have interests in entities that are Variable Interest Entities (VIE) as
defined under FIN 46. The adoption of the provisions of this
interpretation did not have an impact material effect on HRPs financial
statements, as HRP has no VIEs.   
| 
|  |  | The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of certain assets, liabilities, revenues, expenses, and related
disclosures, as of and for the reporting periods. Actual results may
differ from these estimates under different assumptions or conditions.                                                                                                                                                                
| 
|  |  | The policies listed are not intended to be a comprehensive list of all of
our accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by accounting principles
generally accepted in the United States of America, with no need for
managements judgment in the application. There are also areas in which
managements judgment in selecting any available alternative would not
produce materially different results.                                                                                                                    
| 
|3 |  | STATEMENTS OF CASH FLOWS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
|  |  | Cash interest payments were $14,763,000, $14,602,000 (net of capitalized
interest of $256,000), and $14,947,000 (net of capitalized interest of
$486,000) in 2003, 2002, and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                      

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|4 |  | TRANSACTIONS WITH RELATED PARTIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | HRP pays certain fees to Realty in connection with its ongoing
management, including an asset management fee, acquisition fees and
disposition fees. Specifically, HRP pays an asset management fee equal
to 1% of the net aggregate base rents of the Properties, acquisition fees
equal to 1% of the purchase price of newly acquired properties, and
disposition fees with respect to real estate investments, other than the
properties owned at the time of HRPs formation in 1990, equal to 10% of
the amount, by which the sales price of a property exceeds the purchase
price of the property.                                                                                                                
| 
|  |  | HRP pays HCRE compensation in connection with the management of the
Properties, which includes a property management fee, lease commissions
and construction supervision fees. The management contracts expire June
30, 2004 and provide for basic compensation from a property management
fee in an amount equal to 2.85% of cash receipts collected from the
Properties tenants, lease commissions equal to the current commission
market rate as applied to the net aggregate rent (none exceeding 6% of
the net aggregate rent), and construction supervision fees for
administering all construction projects equal to 5% of the total
contracted costs of each capital expenditure or tenant improvement
project.
| 
|  |  | HRP compensates Realty and HCRE for services provided to it and its
Properties as described above and HRP reimburses Realty and HCRE, at
cost, for certain costs and expenses. In particular, since HRP does not
directly employ any individuals, the compensation and other costs related
to approximately 90 employees rendering services on behalf of HRP and its
properties are reimbursed to Realty and HCRE by HRP. The following table
sets forth such compensation and reimbursements paid by HRP (in
thousands):                                                                                                                                                                                               

|                        |  |  |    |   |  |            |  |      |       |      |  |      |       |  |  |   |       |  |  | 
|----------------------- |  |  | -- | - |  | ---------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | 
|                        |  |  |    |   |  | Entity     |  |      |       |      |  |      |       |  |  |   |       | 
|                        |  |  |    |   |  | Paid or    |  |      |       |      |  |      |       |  |  |   |       | 
|                        |  |  |    |   |  | Reimbursed |  | 2003 |       | 2002 |  | 2001
|                        |  |  |    |   |  |            |  |      |       |      |  |     
|Asset management fee    |  |  |    |   |  | Realty     |  | $    | 605   |      |  | $    | 618   |  |  | $ | 609   | 
|Acquisition fee         |  |  |    |   |  | Realty     |  |      |      |      |  |      |      |  |  |   |      | 
|Disposition fee         |  |  |    |   |  | Realty     |  |      |      |      |  |      |      |  |  |   | 120   | 
|Reimbursement of costs  |  |  | (a | ) |  | Realty     |  |      | 3,908 |      |  |      | 3,477 |  |  |   | 3,161 | 
|Property management fee |  |  |    |   |  | HCRE       |  |      | 1,987 |      |  |      | 2,022 |  |  |   | 2,005 | 
|Lease commissions       |  |  | (b | ) |  | HCRE       |  |      | 1,556 |      |  |      | 2,151 |  |  |   | 2,158 | 
|Construction fees       |  |  |    |   |  | HCRE       |  |      | 698   |      |  |      | 582   |  |  |   | 1,204 | 
|Reimbursement of costs  |  |  | (c | ) |  | HCRE       |  |      | 3,932 |      |  |      | 3,916 |  |  |   | 3,826 | 



---



|(a) |  | These expenses are recorded as general
and administrative expenses and represent reimbursement
to Realty for administrative level employee and
director compensation, officer and director liability
insurance, and allocated overhead costs. HRP pays its
account balance with Realty on a monthly basis.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | As of December 31, 2002, $567,000 of the
2002 lease commissions accrued were related to the
development project at Executive park and were paid in
2003.                                                                                                                                                  
|   
|(c) |  | These costs are recorded as property
operating expenses and represent reimbursement to HCRE
for property-level employee compensation and related
expenses.                                                                                                                                                

As of December 31, 2003, Hallwood owes HRP $1,827,000 of unpaid
litigation judgment and interest related to the final outcome in the
lawsuit styled Gotham Partners, L.P. v. Hallwood Realty Partners, L.P.
$1,781,000 of the unpaid balance bears simple interest at the
statutory rate of 7% and is reflected on HRPs balance sheet as
Receivable from Affiliates, net (see Note 10 for more information).

In January 2001, HRP acquired a construction development consulting
contract from Hallwood regarding a project in Tulsa, Oklahoma with an
unrelated third party. In connection therewith, HRP reimbursed
Hallwood for its actual costs incurred related to the project of
$281,000.

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|5 |  | PROPERTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Property Development At Executive Park                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| 
|  |  | In February 2001, HRP began constructing a five-story office building
within the Executive Park property in Atlanta, Georgia containing
128,000 net rentable square feet on a site formerly occupied by an
18,000 square foot building. The new building and its parking garage,
excluding tenant finish-out, was completed in April 2002. A seven-year
lease for the entire building, with an option for five additional
years, was executed with the General Services Administration of the
U.S. Government (GSA) in September 2002 and it commenced after the
completion of tenant improvements in May 2003. Ultimately, HRP
incurred and capitalized $16,032,000 of building construction costs,
which included its parking garage, but excluded the existing land
costs. The lease commissions incurred were $774,000, while the tenant
improvements were $3,159,000.
| 
|  |  | All these costs were paid from cash funds on hand; however, in July
2003, HRP obtained a $16,000,000 loan secured by the office building.
The ten-year loan calls for interest-only payments for the first two
years, followed by principal and interest payments during the remaining
term, amortized over 28 years. The interest rate is 5.76% and the
maturity date is August 10, 2013. The loan proceeds are for general
working capital purposes and they replenish a majority of the costs for
building construction.                                                                                                                                                                                                                                                                                                                                                 
| 
|  |  | Dispositions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
|  |  | In March 2001, HRP sold Joy Road Distribution Center that contained
442,000 net rentable square feet on 21 acres for a gross selling price
of $5,326,000. The carrying value of the assets was $2,994,000. The
sale resulted in $4,916,000 of net proceeds to HRP and a net gain of
$1,922,000. The net sale proceeds were used to pay the outstanding
mortgage principal balance of $2,125,000, to pay a prepayment penalty
of $14,000 to the lender, and to add $2,777,000 to general working
capital. The prepayment penalty along with the writeoff of $31,000 of
unamortized loan costs associated with the retired loan were expensed
and are included in the Consolidated Statements of Operations as
interest expense.                                                                                                                                              
| 
|  |  | In January 2001, HRP sold one of the warehouse buildings at Seattle
Business Parks that contained 63,000 net rentable square feet on 3.9
acres for a gross selling price of $3,287,000. The carrying value of
the assets was $885,000. The sale resulted in $2,994,000 of net
proceeds, which were added to HRPs working capital, and a net gain of
$2,109,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | Also in January 2001, HRP sold one building at Fairlane Commerce Park
that contained less than 2,000 net rentable square feet on 0.5 acres
for a gross selling price of $575,000. The carrying value of the
assets was $372,000. The sale resulted in $525,000 of net proceeds,
which were added to HRPs working capital, and a net gain of $153,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|6 |  | MORTGAGES PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Substantially all of the buildings in HRPs real estate properties were
encumbered and pledged as collateral by 12 non-recourse mortgage loans
aggregating $209,554,000 as of December 31, 2003 and $197,552,000 as of
December 31, 2002. These mortgage loans have interest rates varying
from 2.42% to 8.70% (with an effective average interest rate of 7.34%
as of December 31, 2003) and mature between 2005 and 2020. Other than
the Allfirst Buildings mortgage ($25,000,000), all mortgages have
fixed interest rates. Most of the mortgage loans require monthly
principal payments with balloon payments due at maturity. The
following table sets forth, by real estate property, mortgages payable
balances as of December 31, 2003 and 2002 (in thousands), maturity
dates, and interest rates:

|                              |       |   |               |         |               |   |          |         |            |  |          |  |  |  |       |   |  |  |    |   | 
|----------------------------- | ----- | - | ------------- | ------- | ------------- | - | -------- | ------- | ---------- |  | -------- |  |  |  | ----- | - |  |  | -- | - | 
|                              |       |   | Mortgages     |         | Mortgages     |   |          |         |            |  | Interest |  |  |  |      
|                              |       |   | Payable as of |         | Payable as of |   | Maturity |         | Rate as of |  |          |  | 
|                              |       |   | 12-31-2003    |         | 12-31-2002    |   | Date     |         | 12-31-2003 |  |          |  | 
|                              |       |   |               |         |               |   |          |         |            |  |          |  | 
|Airport Plaza                 |       | $ | 705           |         |               | $ | 721      |         |            |  | 10-11-05 |  |  |  | 8.70  | % |  |  |    |  
|Allfirst Building             |       |   | 25,000        |         |               |   | 25,000   |         |            |  | 4-30-06  |  |  |  | 2.42  | % |  |  | (a | )
|Bellevue Corporate Plaza      |       |   | 14,101        |         |               |   | 14,414   |         |            |  | 10-11-05 |  |  |  | 8.70  | % |  |  |    |  
|Bradshaw Business Parks       |       |   | 11,676        |         |               |   | 11,980   |         |            |  | 12-31-20 |  |  |  | 8.10  | % |  |  | (b | )
|Corporate Square              |       |   | 7,667         |         |               |   | 7,838    |         |            |  | 10-11-05 |  |  |  | 8.70  | % |  |  |    |  
|Corporate Square              |       |   | 9,592         |         |               |   | 9,782    |         |            |  | 8-11-11  |  |  |  | 7.70  | % |  |  |    |  
|Corporate Square              |       |   | 19,925        |         |               |   | 20,468   |         |            |  | 8-15-20  |  |  |  | 7.97  | % |  |  |    |  
|Executive Park                |       |   | 31,365        |         |               |   | 31,915   |         |            |  | 4-11-08  |  |  |  | 7.32  | % |  |  |    |  
|Executive Park                |       |   | 16,000        |         |               |   |         |         |            |  | 8-10-13  |  |  |  | 5.76  | % |  |  |    |  
|Fairlane Commerce Park        |       |   | 18,684        |         |               |   | 19,099   |         |            |  | 10-11-05 |  |  |  | 8.70  | % |  |  |    |  
|Fountain View Business Center |       |   | 5,008         |         |               |   | 5,151    |         |            |  | 2-10-10  |  |  |  | 8.17  | % |  |  |    |  
|Gulley Road Industrial Park   |       |   | 3,775         |         |               |   | 4,144    |         |            |  | 5-11-11  |  |  |  | 7.375 | % |  |  |    |  
|Montrose Office Center        |       |   | 5,729         |         |               |   | 5,856    |         |            |  | 10-11-05 |  |  |  | 8.70  | % |  |  |    |  
|Parklane Towers               |       |   | 21,151        |         |               |   | 21,621   |         |            |  | 10-11-05 |  |  |  | 8.70  | % |  |  |    |  
|Raintree Industrial Park      |       |   | 9,871         |         |               |   | 10,090   |         |            |  | 10-11-05 |  |  |  | 8.70  | % |  |  |    |  
|Riverbank Plaza               |       |   | 2,301         |         |               |   | 2,364    |         |            |  | 2-10-10  |  |  |  | 8.29  | % |  |  |    |  
|Seattle Business Parks        |       |   | 7,004         |         |               |   | 7,109    |         |            |  | 6-7-08   |  |  |  | 6.97  | % |  |  |    |  
|                              |       |   |               |         |               |   |          |         |            |  |          |  |  |  |       |   |  |  |    |  
|                              | Total |   | $             | 209,554 |               |   | $        | 197,552 |            |  |          |  |  |  |       |   |  |  |    |   | 
|                              |       |   |               |         |               |   |          |         |            |  |          |  |  |  |       |   |  |  |    |  



---

|(a) |  | Variable interest rate. LIBOR plus 1.30%. Rate was 2.68% as of
December 31, 2002.
|--- |  | ---------------------------------------------------------------------------------
|   
|(b) |  | Call options exercisable by lender on February 1, 2011 and February
1, 2016.     



| |  | The following table shows, for the years presented, the principal and
balloon payments that are required (in thousands):
| |  | ------------------------------------------------------------------------------------------------------------------------

|           |       |   |           |        |          |   |          |         |  |   |          |         | 
|---------- | ----- | - | --------- | ------ | -------- | - | -------- | ------- |  | - | -------- | ------- | 
|           |       |   |           |        |          |   |          |         |  |   | Total   
|           |       |   |           |        |          |   |          |         |  |   | Mortgage
|           |       |   | Principal |        | Balloon  |   | Loan    
|           |       |   | Payments  |        | Payments |   | Payments
|           |       |   |           |        |          |   |         
|2004       |       | $ | 4,310     |        |          | $ |         |         |  | $ | 4,310    |        
|2005       |       |   | 4,244     |        |          |   | 74,515   |         |  |   | 78,759   |        
|2006       |       |   | 3,093     |        |          |   | 25,000   |         |  |   | 28,093   |        
|2007       |       |   | 3,334     |        |          |   |         |         |  |   | 3,334    |        
|2008       |       |   | 2,905     |        |          |   | 34,961   |         |  |   | 37,866   |        
|Thereafter |       |   | 21,721    |        |          |   | 35,471   |         |  |   | 57,192   |        
|           |       |   |           |        |          |   |          |         |  |   |          |        
|           | Total |   | $         | 39,607 |          |   | $        | 169,947 |  |   | $        | 209,554 | 
|           |       |   |           |        |          |   |          |         |  |   |          |        

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|6 |  | MORTGAGES PAYABLE - (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | The following discussions pertain to financing and refinancing
activities during the three years ended December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | Allfirst Building                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | In July 2000, HRP sold its interest rate swap agreement for $1,597,000.
HRP had entered into the interest rate swap agreement in 1998 to reduce
its exposure to changes in interest rates for the loan secured by the
Allfirst Building. This interest rate swap agreement effectively fixed
the loans cash interest rate at 6.78%, as opposed to the mortgage loan
interest rate of LIBOR plus 1.30% (or 7.94% at the time of the swap
agreement sale). The proceeds from the sale were designated for general
working capital purposes. For financial reporting purposes, the
proceeds are being amortized over the life of the loan as a reduction to
interest expense. During 2001, as the result of the adoption of SFAS
No. 133 Accounting for Derivative Instruments and Hedging Activities,
HRP reclassified the remaining unamortized gain from liabilities to
accumulated other comprehensive income. The proceeds will continue to
be amortized over the life of the Allfirst Buildings mortgage payable
as a reduction to interest expense. As of December 31, 2003 and 2002,
the unamortized balance, included on the balance sheet as Accumulated
other comprehensive income, was $648,000 and $926,000, respectively.                                                                                                                   
| 
|  |  | Also in July 2000 and in connection with the sale of the swap agreement,
HRP purchased an interest rate cap for the Allfirst Buildings mortgage
loan for $288,000, which limits HRPs exposure to changing interest
rates to a maximum of 10%. This interest rate cap, which has a notional
amount of $25,000,000, has terms consistent with the Allfirst Buildings
mortgage loan. Allfirst Buildings cash interest rate was 2.42% and
2.68% as of December 31, 2003 and 2002, respectively. The interest rate
cap is a derivative and designated as a cash flow hedge. Hedge
effectiveness is measured based on using the intrinsic value of the
interest rate cap. All changes in the fair value of the time value of
the cap are recorded directly to earnings. With the January 1, 2001
adoption of SFAS No. 133, HRP recorded the cumulative effect of the
adoption as a reduction to income of $192,000, or the amount of the
difference between the carrying value as of January 1, 2001 of $267,000
and the then estimated fair value of $75,000, all of which represented
change in time value. Thereafter, on a quarterly basis, HRP has
recorded changes in the estimated fair value of the cap in interest
expense. As of December 31, 2003 and 2002, the estimated fair value of
the interest rate cap was $18,000 and $55,000, respectively.
| 
|  |  | Corporate Square                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| 
|  |  | In August 2001, HRP refinanced a mortgage loan secured by a portion of
Corporate Square with a new lender. The interest rate was reduced from
8.625% to 7.7% and the maturity date was extended six years to August
2011. The monthly principal payments will amortize the loan over 22.5
years. The loan proceeds of $10,000,000 were used to pay the
outstanding mortgage principal balance of $2,760,000 with the former
lender, to pay a prepayment penalty of $409,000, to pay transaction
costs of $142,000, and for general working capital. The prepayment
penalty along with the writeoff of $105,000 of unamortized loan costs
associated with the retired loan were expensed and are included in the
Consolidated Statements of Operations as an interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
|  |  | Executive Park                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
|  |  | In July 2003, HRP obtained a $16,000,000 loan secured by the development
project at Executive Park completed in April 2002 (see Note 5 for more
information). The ten-year loan calls for interest-only payments for
the first two years, followed by principal and interest payments during
the remaining term, amortized over 28 years. The interest rate is 5.76%
and the maturity date is August 10, 2013. The loan proceeds are for
general working capital purposes and they replenish a majority of the
costs for building construction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
|  |  | Line of Credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
|  |  | Since August 2000, HRP has had available a $2,000,000 revolving line of
credit, which matures on July 29, 2004. The line of credit has a
variable interest rate of either prime plus 0.50% or LIBOR plus 3.0% and
requires monthly interest payments, but no principal amortization. HRP
has not borrowed against this facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|7 |  | LEASE AGREEMENTS AND MAJOR TENANT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | HRP leases and shares offices with Hallwood in Dallas, Texas under a
lease which expires November 30, 2008. HRP has a one-time option to
terminate the lease effective November 30, 2005. The annual minimum
cash rental payments are $315,000, of which HRPs portion is
approximately $210,000 annually.                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
|  |  | Lease provisions generally require HRPs tenants to pay fixed rental
amounts, plus their proportionate share of certain building operating
costs and real property taxes. Revenue from expense recoveries,
included in property operations, was $4,166,000, $3,755,000, and
$4,197,000 in 2003, 2002, and 2001, respectively. In addition, certain
leases include provisions for annual rental adjustments. Some leases
contain provisions to allow a tenant to terminate their lease prior to
its normal expiration. At December 31, 2003, the Properties, in the
aggregate, were 86% leased. The following table sets forth the minimum
cash rental payments to be received from leases in place as of December
31, 2003 (in thousands):

|           |       |   |               |         |             |   |        |        |  |   |         |         | 
|---------- | ----- | - | ------------- | ------- | ----------- | - | ------ | ------ |  | - | ------- | ------- | 
|           |       |   | Payments      |         | Payments    |   |        |        | 
|           |       |   | from Leases   |         | from Leases |   |        |        | 
|           |       |   | without Early |         | with Early  |   |        |        | 
|           |       |   | Termination   |         | Termination |   |        |        | 
|           |       |   | Rights        |         | Rights      |   | Total 
|           |       |   |               |         |             |   |       
|2004       |       | $ | 57,370        |         |             | $ | 39     |        |  | $ | 57,409  |        
|2005       |       |   | 47,308        |         |             |   | 2,300  |        |  |   | 49,608  |        
|2006       |       |   | 35,049        |         |             |   | 1,588  |        |  |   | 36,637  |        
|2007       |       |   | 26,016        |         |             |   | 3,936  |        |  |   | 29,952  |        
|2008       |       |   | 19,905        |         |             |   | 5,688  |        |  |   | 25,593  |        
|Thereafter |       |   | 61,094        |         |             |   | 42,446 |        |  |   | 103,540 |        
|           |       |   |               |         |             |   |        |        |  |   |         |        
|           | Total |   | $             | 246,742 |             |   | $      | 55,997 |  |   | $       | 302,739 | 
|           |       |   |               |         |             |   |        |        |  |   |         |        



| |  | During 2003, one tenant leasing space contributed 10% or more of HRPs
revenues. During 2002, two tenants contributed 10% or more of HRPs
revenues. The GSA leases space in Corporate Square and Executive Park.
The GSA accounted for 17% of revenues in 2003 and 2002. Ford Motor
Company and affiliates (Ford) leases space in Parklane Towers and
Fairlane Commerce Park. Ford accounted for 9% and 11% of revenues in
2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As of December 31, 2003, GSA leased 396,000 square feet of office space
at Executive Park under six leases which expire between 2004 and 2015.
Also, as of December 31, 2003, GSA leased 353,000 square feet of office
space at Corporate Square under three leases, which expire in 2004, 2013
(with a right to early terminate in 2008) and 2020. As of December 31,
2003, Ford leased 158,000 square feet of office space under four leases
at Parklane Towers and 170,000 square feet of office, technical
laboratory and industrial space under five leases at Fairlane Commerce
Park. These leases expire between 2004 and 2010 and most contain
options providing for one to ten year renewals. The remaining tenants
are not concentrated in any one industry, and HRP is not otherwise
dependent on any group of related tenants for 10% or more of its
revenues.

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|8 |  | PARTNERS CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | In 1995, HRP issued options totaling 86,000 units to certain executives
of Realty and HCRE with an exercise price of $11.875 per unit. The
options were vested over a three year period ending in 1997 and they
expire on February 27, 2005. As of December 31, 2003, a total of 21,200
options had been exercised (17,200 in 2000 and 4,000 in 2003), none have
been canceled, and 64,800 options remained exercisable. No options have
been granted since 1995. As the only options of HRP fully vested in
1997, there is no difference between the historical operations and pro
forma operations for the periods presented herein had the expense
provisions of SFAS No. 123 Accounting for Stock-Based Compensation
been adopted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | On May 1, 2003, High River Limited Partnership, an affiliate of Carl C.
Icahn, announced its unsolicited tender offer for any and all of the
outstanding limited partnership units of HRP at $100 per unit. In May
2003, the board of directors of Realty evaluated the offer and advised
unitholders to reject the offer as inadequate. On July 29, 2003, and in
a subsequent letter addressed to the board of directors of Realty, Mr.
Icahn announced a purported proposal to purchase HRP in a merger
transaction for an aggregate purchase price of $222 million, subject to
existing debt. On August 1, 2003, at the direction of its board of
directors, Realty sent a letter to Mr. Icahn stating that HRP had
engaged Morgan Stanley & Co. Incorporated to initiate discussions with
parties interested in participating in a transaction with HRP and
stating that if Mr. Icahn were interested in participating in that
process, he should contact Morgan Stanley. On August 19, 2003, High
River announced an increase in the purchase price in its tender offer to
$120 per unit, subject to a variety of conditions, including High River
achieving ownership of 66-2/3 % of the outstanding units. Thereafter,
the board of directors of Realty evaluated the revised offer and advised
unitholders to reject the offer as inadequate. Additionally, HRP hired
Lehman Brothers Inc. to render financial advisory services to the
process. Prior to the tender offer, High River owned 235,000 units and
as of February 26, 2004, 66,532 units had been tendered to High River.
The offer has been extended numerous times and currently expires March
24, 2004.                                              
| 
|  |  | At the boards direction, Morgan Stanley is actively engaged in a
process of identifying alternatives that may be in the best interests of
the unitholders, focusing primarily on discussions with prospective
parties interested in participating in a transaction with HRP at prices
and on terms which the board believes would be in the best interest of
all partners of HRP, including an extraordinary transaction, such as a
merger, reorganization or liquidation, involving HRP or any of its
subsidiaries or a purchase, sale or transfer of a material amount of
assets by HRP or any of its subsidiaries. Although HRP is working with
Morgan Stanley and these interested parties, there can be no assurance
that a transaction with respect to HRP will result from those
discussions. HRP has adopted an Executive Incentive and Retention
Program under which, after completion of a transaction involving HRP,
certain officers and management employees of the General Partner and
HCRE will be eligible to receive a bonus equal to the total of their
current annual salary plus bonuses and commissions paid with respect to
2002. The plan is designed to encourage such persons to continue
employment through the completion of any transaction involving HRP.
Additionally, an Employee Change of Control Severance Payment Policy was
adopted by HRP for all other employees whereby they will be compensated
with up to 26 weeks of their then current salary upon their involuntary
termination within one year of the occurrence of a change in control of
HRP. Since payments will only be payable upon a change in control, no
accrual for them has been made in these financial statements.
| 
|  |  | Additionally, subject to availability at prices deemed favorable and in
accordance with applicable laws and regulations, HRP may acquire units
from time to time in open market transactions, privately negotiated
transactions or otherwise. There can be no assurance that HRP will
engage in any such acquisitions or the prices at which such acquisitions
may occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
|9 |  | ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
|  |  | Estimated fair value amounts of certain financial instruments have been
determined using available market information based upon negotiations
held by Realty with potential lenders or other appropriate valuation
methodologies that require considerable judgment in interpreting market
data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that HRP could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | The fair value of financial instruments that are short-term or re-price
frequently and have a history of negligible credit losses is considered to
approximate their carrying value. These include cash and cash equivalents,
short term receivables, accounts payable and other liabilities. Real estate and
other assets are not considered financial instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|9  |  | ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Management has reviewed the fair values of its mortgages payable in
connection with interest rates currently available to HRP for borrowing
with similar characteristics and maturities (approximately 6.75% and
7.5% as of December 31, 2003 and 2002, respectively). Based on those
interest rates, management has determined that the estimated fair values
of HRPs mortgages payable as of December 31, 2003 and 2002 would equal
approximately $217,391,000 and $199,383,000, respectively, as compared
to the carrying values of $209,554,000 and $197,552,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The estimated fair value of HRPs interest rate cap as of December 31,
2003 and 2002 was $18,000 and $55,000, respectively, based on quotes
obtained from the issuer of the cap agreement (see Note 6 for more
information). The carrying value of HRPs interest rate cap as of
December 31, 2003 and 2002 was $18,000 and $55,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | The fair value information presented herein is based on pertinent
information available to management as of December 31, 2003. Although
management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date and, therefore current estimates of fair value may
differ significantly from the amounts presented herein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|10 |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Gotham Partners, L.P. v. Hallwood Realty Partners, L.P. -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | On June 20, 1997, an action was filed against HRP, the General Partner,
its directors, and Hallwood by Gotham Partners, L.P. in the Court of
Chancery of the State of Delaware, styled Gotham Partners, L.P. v.
Hallwood Realty Partners, L.P., et al. (C.A. No. 15754). As filed, the
action alleged claims of breach of fiduciary duties, breach of HRPs
partnership agreement, and fraud in connection with certain transactions
involving HRPs units in the mid 1990s. Hallwood was alleged to have
aided and abetted the alleged breaches. On June 21, 2000, after
completing fact discovery, all parties moved for summary judgment on
several issues. In September and October 2000, the Delaware court
issued three separate written opinions resolving the summary judgment
motions. In the opinions, the court ruled that trial would be required
as to all issues, except that (i) Gotham was found to have standing to
pursue its derivative claims; (ii) defendants were entitled to judgment
dismissing the fraud claim; (iii) the General Partner was entitled to
judgment dismissing the breach of fiduciary duty claims brought against
it; and (iv) the General Partners outside directors were entitled to
judgment dismissing all claims brought against them.                                                                
|  
|   |  | A five-day trial was held in January 2001. On July 18, 2001, the
Delaware Court of Chancery rendered its opinion. In its decision, the
court determined that an option plan and a sale of units to Hallwood in
connection with a reverse split of units implemented by HRP in 1995 were
in compliance with HRPs partnership agreement. The court also found
that the sale of units to Hallwood in connection with a 1995 odd-lot
offer by HRP did not comply with certain procedures required by the HRP
partnership agreement. The court ruled that the defendants other than
HRP pay a judgment to HRP in the amount of $3,417,000, plus pre-judgment
interest from August 1995. The judgment amount represents what the
court determined was an underpayment by Hallwood. In August 2001,
plaintiff and certain defendants appealed the Court of Chancerys
judgment to the Delaware Supreme Court. In October 2001, HRP received
the $3,417,423 judgment together with $2,988,000 of pre-judgment and
post-judgment interest. On August 29, 2002, the Supreme Court affirmed
the judgment of the trial court that the remaining defendants other than
HRP are jointly and severally liable to HRP. The Supreme Court reversed
the trial courts determination of damages, and remanded the case to the
trial court to fashion appropriate relief.
|  
|   |  | On July 8, 2003, the Delaware Court of Chancery issued its decision after
remand. In the decision, the Court of Chancery determined that defendants were
required to pay to HRP the difference between the price paid for 293,539 units
of HRP purchased by Hallwood in 1995 of $14.20 per unit and the value of those
units, including a control premium for those units, as determined by the court
in its decision, of $36.02 per unit, plus pre-judgment interest. The court
also denied plaintiffs requests for rescission, rescissory damages or other
forms of relief. In its earlier decision before remand, the trial court had
determined that the value of the units was $25.84 per unit and, as mentioned
above, Hallwood paid the judgment amount plus interest in October 2001. Under
the trial courts decision on remand, Hallwood was required to pay an
additional amount of approximately $2,988,000, plus pre-judgment interest of
approximately $3,762,000. On July 25, 2003, the trial court entered                                                                                                                                                                                                                                                                                                                           

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|10 |  | COMMITMENTS AND CONTINGENCIES - (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | its final order and judgment on remand which provided, among other
things, that HRP pay plaintiff $3,000,000 in attorneys fees, cost and
expenses, which was funded by HRP to plaintiff in August 2003. On July
28, 2003, the plaintiff appealed the final order and judgment on remand
to the Delaware Supreme Court. On December 18, 2003, the Supreme Court
affirmed the July 8, 2003 Court of Chancerys final order and judgment
on remand, effectively ending this matter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | In August 2003, Hallwood paid $5,000,000 of the 2003 judgment. As of
December 31, 2003, $1,827,000, including interest, remained unpaid.
$1,781,000 of the unpaid balance due bears simple interest at the
statutory rate of 7% until paid and is reflected on HRPs balance sheet
as Receivable from Affiliates, net. HRP had recorded the cash
receipts of judgment and interest as Deferred Litigation Proceeds on
its balance sheet until the cases final outcome in December 2003. At
such time, HRP recorded $4,933,000 to Limited Partners Capital on
HRPs balance sheet ($6,405,000 of judgment for the additional purchase
price of the units, less an allocation of the $3,000,000 attorney fee
award, equal to $1,472,000); $5,123,000 to Proceeds from Litigation
on HRPs statement of income ($6,651,000 of pre-judgment interest, less
the remaining allocation of the attorney fee award, equal to
$1,528,000); and $175,000 of post-judgment interest to Interest
Income on HRPs statement of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | High River Limited Partnership v. Hallwood Realty Partners, L.P. -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | On April 23, 2003, an action styled High River Limited Partnership v.
Hallwood Realty, LLC, et al. (C.A. No. 20276) was filed in the Court of
Chancery of the State of Delaware against the General Partner, its
directors and HRP as nominal defendant by High River Limited
Partnership, which is indirectly wholly owned by Carl C. Icahn. The
action, as filed initially, challenged the unit purchase rights
agreement dated November 30, 1990, between HRP and Equiserve Trust
Company, N.A., as rights agent, as amended (the Rights Plan). High
River claimed in the suit that defendants have wrongfully utilized the
Rights Plan to prevent High River and other third parties from
purchasing 15 percent or more of the units of the Partnership, while at
the same time exempting the General Partner and its affiliates and
subsidiaries from the provisions of the Rights Plan. High River asserts
that if defendants make additional purchases of units, they could
render removal of the General Partner pursuant to the two-thirds removal
provision of the partnership agreement impossible, thereby impeding or
preventing the High River tender offer. High River also claims that
defendants wrongfully refused to redeem the rights and thereby
frustrated High Rivers tender offer. The complaint, as amended, seeks
as relief an order redeeming the rights, preventing defendants from
treating the General Partner as exempt from or otherwise not subject to
the definition of Acquiring Person under the Rights Agreement, or,
alternatively, preventing defendants from treating High River as an
Acquiring Person under the Rights Agreement or applying the Rights
Agreement to the High River tender offer.
|  
|   |  | On April 28, 2003, a putative class action lawsuit styled I.G. Holdings,
Inc., et al. v. Hallwood Realty LLC, et al. (C.A. No. 20283) was filed
in the Court of Chancery of the State of Delaware against the General
Partner, its directors and HRP as nominal defendant by three purported
unitholders of HRP. The action asserts that in allegedly refusing to
consider the High River tender offer, the defendants are not acting in
good faith and are deriving an improper personal benefit in impeding a
potential removal of the General Partner or a sale of control of HRP, in
breach of their fiduciary duties under the partnership agreement. The
action further asserts that HRPs Schedule 14D-9 issued in response to
the High River tender offer fails to disclose material information
relating to the General Partners recommendation regarding the offer.
The complaint seeks as relief an order requiring the General Partner to
consider the High River tender offer, an order preventing the General
Partner or its affiliates from acquiring units or otherwise improperly
entrenching the General Partner or impeding a transaction that would
maximize value for the public unitholders, an order directing the
defendants to use the Rights Plan fairly and disclose all material
information in connection with the tender offer and the General
Partners recommendations and conclusions with respect thereto, and
damages. This matter was coordinated with the High River action
(discussed above) for discovery and trial purposes.                                                                                                                                                                         
|  
|   |  | On October 7-8, 2003, a trial in the two coordinated actions discussed
above was held in the Delaware Court of Chancery. Subsequent to the
trial, the Delaware Court of Chancery held several status conferences
relating to these matters. On February 10, 2004, plaintiffs in C.A. No.
20283 moved to amend their complaint to add claims challenging the
potential allocation of consideration between Hallwood and its
affiliates on one hand, and the public unitholders on the other, that
would result upon the sale or merger of HRP, by alleging that Hallwood
and its principal shareholder have breached their fiduciary duties by
demanding more than 1% of the merger consideration. On February 11,
2004, the Court granted class plaintiffs motion to amend their
complaint to add these claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|10 |  | COMMITMENTS AND CONTINGENCIES - (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Other litigation -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | HRP is from time to time involved in various other legal proceedings and
claims which arise in the ordinary course of business. These matters
are generally covered by insurance. Management believes that the
resolution of these matters will not have a material adverse effect on
HRPs financial position, cash flows or operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Asbestos                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The environmental laws of the federal government and of certain state
and local governments impose liability on current property owners for
the cleanup of hazardous and toxic substances discharged on such
property. This liability may be imposed without regard to the timing,
cause or person responsible for the release of such substances onto the
property. HRP could be subject to additional liability in the event
that it owns properties having such environmental problems. Parklane
Towers, as well as certain other properties to a lesser extent, are
known to contain asbestos. Removal of asbestos at HRPs properties is
not required because it is cementitious, it is not friable and because
the procedures in HRPs site environmental program Operations and
Maintenance Manual are performed as required.                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Rights Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | HRP has a Unit Purchase Rights Agreement (Rights Plan) that provides
for a distribution of one right for each unit of HRP to holders of
record at the close of business as of December 10, 1990. The rights
will not trade separately from the units until, and will become
exercisable only in the event, with certain exceptions, an acquiring
party accumulates 15 percent or more of HRPs units, or if a party
commences or announces an intent to commence a tender offer or exchange
offer to acquire 30 percent or more of such units. Each right will
entitle the holder to buy one additional unit at a price of $250. In
addition, upon the occurrence of certain events, holders of the rights
will be entitled to purchase either HRP units or shares in an acquiring
entity at half of market value. HRP will generally be entitled to
redeem the rights at $.01 per right at any time on or prior to the tenth
day following the acquisition of a 15 percent or greater interest in its
units. Unless and until a triggering event under the Rights Plan
occurs, there is one right for each outstanding unit, the rights do not
trade separately from the units, and the rights are not currently
exercisable.
|  
|   |  | On March 28, 2003, HRP and EquiServe Trust Company, N.A. amended the
Unit Purchase Agreement (the Rights Agreement), which describes the
terms and conditions of the limited partner unit purchase rights (the
Rights) that were distributed in 1990. The Rights currently trade
automatically with HRPs units representing limited partner interests,
are not evidenced by separate certificates and are not exercisable until
the occurrence of events specified in the Rights Agreement. The Rights
Agreement was amended to extend the expiration date of the Rights
Agreement to March 31, 2008, to reflect the automatic adjustment that
occurred to the initial exercise price from $50 to $250 as a result of
the 1-for-5 reverse unit split effected by HRP in 1995 and otherwise to
update the Rights Agreement.                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | In connection with the announcement of an intent to conduct a tender
offer, on April 29, 2003, the board of directors of the General Partner
deferred the Distribution Date of the Rights (as each is defined in the
Rights Agreement) until the close of business on the tenth day after the
date of the filing of a tender offer statement on Schedule TO with the
Securities and Exchange Commission. Such a filing was made on May 1,
2003, and the board of directors of the General Partner subsequently
deferred the Distribution Date until a later date the General Partner
may determine. The action of the General Partner does not foreclose its
ability to, or indicate any intention not to, determine another
Distribution Date, in its sole discretion, and does not alter or affect
the provisions of the Rights Agreement with respect to any Distribution
Date that may occur upon an Unit Acquisition Date (as defined in the
Rights Agreement) or the provisions of the Rights Agreement with respect
to any tender or exchange offer other than the tender offer announced on
May 1, 2003.                                                                                                                  

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##### Table of Contents



HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2003



|11 |  | SELECTED QUARTERLY FINANCIAL DATA (unaudited)                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Set forth below is selected quarterly financial data for the years ended
December 31, 2003 and 2002 (in thousands, except per unit amounts) :

|                                                                                                                         |                   |      |    |      |         |   |        |                |  |         |        |              |   |             |        |      |  |   |        |      |  | 
|------------------------------------------------------------------------------------------------------------------------ | ----------------- | ---- | -- | ---- | ------- | - | ------ | -------------- |  | ------- | ------ | ------------ | - | ----------- | ------ | ---- |  | - | ------ | ---- |  | 
|                                                                                                                         |                   |      |    |      |         |   |        | Quarter Ending
|                                                                                                                         |                   |      |    |      |         |   |        |               
|                                                                                                                         |                   |      |    |      |         |   |        | March 31       |  | June 30 |        | September 30 |   | December 31
|                                                                                                                         |                   |      |    |      |         |   |        |                |  |         |        |              |   |            
|                                                                                                                         |                   | 2003 |    |      |         |   |        |                |  |         |        |              |   |             |        |      |  |   |        |      |  | 
|Total revenues                                                                                                           |                   |      |    |      |         | $ | 17,806 |                |  | $       | 17,736 |              |   | $           | 18,855 |      |  | $ | 18,059 |     
|Property operations revenues less property
operations expenses, general and administrative
expenses and litigation costs |                   |      | (a | )    |         |   | 8,279  |                |  |         | 3,805  |              |   |             | 7,609  |      |  |   | 6,121  |     
|Net income (loss)                                                                                                        |                   |      | (a | )(b) |         |   | 1,400  |                |  |         | (3,238 | )            |   |             | 394    |      |  |   | 4,250  |     
|Earnings per unit - basic                                                                                                |                   |      |    |      |         |   |        |                |  |         |        |              |   |             |        |      |  |   |        |     
|                                                                                                                         | Net income (loss) |      |    | (a   | )(b)    |   |        | 0.87           |  |         |        | (2.01        | ) |             |        | 0.24 |  |   |        | 2.64 | 
|Earnings per unit - assuming dilution                                                                                    |                   |      |    |      |         |   |        |                |  |         |        |              |   |             |        |      |  |   |        |     
|                                                                                                                         | Net income (loss) |      |    | (a   | )(b)(c) |   |        | 0.84           |  |         |        | (2.01        | ) |             |        | 0.24 |  |   |        | 2.55 | 
|                                                                                                                         |                   | 2002 |    |      |         |   |        |                |  |         |        |              |   |             |        |      |  |   |        |      |  | 
|Total revenues                                                                                                           |                   |      |    |      |         | $ | 18,067 |                |  | $       | 19,153 |              |   | $           | 17,781 |      |  | $ | 18,738 |     
|Property operations revenues less property
operations expenses, general and administrative
expenses and litigation costs |                   |      | (d | )    |         |   | 8,979  |                |  |         | 8,935  |              |   |             | 8,599  |      |  |   | 7,643  |     
|Net income                                                                                                               |                   |      | (d | )    |         |   | 2,474  |                |  |         | 1,942  |              |   |             | 1,843  |      |  |   | 672    |     
|Earnings per unit - basic                                                                                                |                   |      |    |      |         |   |        |                |  |         |        |              |   |             |        |      |  |   |        |     
|                                                                                                                         | Net income        |      |    | (d   | )       |   |        | 1.54           |  |         |        | 1.21         |   |             |        | 1.15 |  |   |        | 0.42 | 
|Earnings per unit - assuming dilution                                                                                    |                   |      |    |      |         |   |        |                |  |         |        |              |   |             |        |      |  |   |        |     
|                                                                                                                         | Net income        |      |    | (d   | )       |   |        | 1.49           |  |         |        | 1.17         |   |             |        | 1.11 |  |   |        | 0.40 | 



---

|(a) |  | Litigation costs were $377, $5,119, $1,173 and $1,216 in the
first, second, third, and fourth quarters of 2003, respectively
(see Note 10 to the Consolidated Financial Statements for more
information about litigation).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The fourth quarter of 2003 includes $5,123 of proceeds from
litigation (see Note 10 to the Consolidated Financial Statements
for more information about litigation).                                                      
|   
|(c) |  | Unit options are considered antidilutive in the second
quarter of 2003 and therefore are not taken into consideration in
the computation of earnings per unit assuming dilution.                                          
|   
|(d) |  | Litigation costs were $217, $148, $106 and $306 in the
first, second, third, and fourth quarters of 2002, respectively.                                                                                                   

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##### Table of Contents



HALLWOOD REALTY PARTNERS, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
(in thousands)



|                              |  |              |         |      |  |              |        |              |  |                            |         |              |  |               |        |                       |  |           |        |  |  |   |         |  |  |   |         | 
|----------------------------- |  | ------------ | ------- | ---- |  | ------------ | ------ | ------------ |  | -------------------------- | ------- | ------------ |  | ------------- | ------ | --------------------- |  | --------- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                              |  |              |         |      |  |              |        |              |  |                            |         |              |  | Costs         |        |                       |  |           |        |  |  |   |         |  |  |  
|                              |  |              |         |      |  |              |        |              |  |                            |         |              |  | Capitalized   |        |                       |  |           |        |  |  |   |         |  |  |  
|                              |  |              |         |      |  |              |        |              |  |                            |         |              |  | Subsequent To |        | Gross Amount At Which
|                              |  |              |         |      |  | Initial Cost |        | Acquisition  |  | Carried At Close Of Period
|                              |  |              |         |      |  |              |        |              |  |                           
|                              |  |              |         |      |  |              |        |              |  | Buildings                  |         | Buildings    |  |               |        |                       |  | Buildings |        |  |  |  
|                              |  |              |         |      |  |              |        |              |  | And                        |         | And          |  |               |        |                       |  | And       |        |  |  |  
|Description (A)               |  | Encumbrances |         | Land |  | Improvements |        | Improvements |  | Land                       |         | Improvements |  | Total (B)    
|                              |  |              |         |      |  |              |        |              |  |                            |         |              |  |              
|Airport Plaza                 |  | $            | 705     |      |  | $            | 300    |              |  | $                          | 4,013   |              |  | $             | 604    |                       |  | $         | 300    |  |  | $ | 4,617   |  |  | $ | 4,917   | 
|Allfirst Building             |  |              | 25,000  |      |  |              | 2,100  |              |  |                            | 43,772  |              |  |               | 3,205  |                       |  |           | 2,100  |  |  |   | 46,977  |  |  |   | 49,077  | 
|Bellevue Corporate Plaza      |  |              | 14,101  |      |  |              | 7,428  |              |  |                            | 17,617  |              |  |               | 2,455  |                       |  |           | 7,428  |  |  |   | 20,072  |  |  |   | 27,500  | 
|Bradshaw Business Parks       |  |              | 11,676  |      |  |              | 5,018  |              |  |                            | 15,563  |              |  |               | 5,625  |                       |  |           | 5,018  |  |  |   | 21,188  |  |  |   | 26,206  | 
|Corporate Square              |  |              | 37,184  |      |  |              | 6,142  |              |  |                            | 14,112  |              |  |               | 21,466 |                       |  |           | 6,142  |  |  |   | 35,578  |  |  |   | 41,720  | 
|Executive Park                |  |              | 47,365  |      |  |              | 15,243 |              |  |                            | 34,982  |              |  |               | 35,787 |                       |  |           | 15,243 |  |  |   | 70,769  |  |  |   | 86,012  | 
|Fairlane Commerce Park        |  |              | 18,684  |      |  |              | 4,883  |              |  |                            | 17,894  |              |  |               | 6,915  |                       |  |           | 4,883  |  |  |   | 24,809  |  |  |   | 29,692  | 
|Fountain View Business Center |  |              | 5,008   |      |  |              | 1,858  |              |  |                            | 5,933   |              |  |               | 757    |                       |  |           | 1,858  |  |  |   | 6,690   |  |  |   | 8,548   | 
|Gulley Road Industrial Park   |  |              | 3,775   |      |  |              | 1,227  |              |  |                            | 7,022   |              |  |               | 316    |                       |  |           | 1,227  |  |  |   | 7,338   |  |  |   | 8,565   | 
|Montrose Office Center        |  |              | 5,729   |      |  |              | 5,096  |              |  |                            | 15,754  |              |  |               | 4,155  |                       |  |           | 5,096  |  |  |   | 19,909  |  |  |   | 25,005  | 
|Parklane Towers               |  |              | 21,151  |      |  |              | 3,420  |              |  |                            | 37,592  |              |  |               | 9,056  |                       |  |           | 3,420  |  |  |   | 46,648  |  |  |   | 50,068  | 
|Raintree Industrial Park      |  |              | 9,871   |      |  |              | 1,191  |              |  |                            | 18,208  |              |  |               | 1,968  |                       |  |           | 1,191  |  |  |   | 20,176  |  |  |   | 21,367  | 
|Riverbank Plaza               |  |              | 2,301   |      |  |              | 710    |              |  |                            | 1,644   |              |  |               | 1,927  |                       |  |           | 710    |  |  |   | 3,571   |  |  |   | 4,281   | 
|Seattle Business Parks        |  |              | 7,004   |      |  |              | 4,399  |              |  |                            | 7,608   |              |  |               | 3,747  |                       |  |           | 4,399  |  |  |   | 11,355  |  |  |   | 15,754  | 
|Corporate
office - FF&E       |  |              |        |      |  |              |       |              |  |                            |        |              |  |               | 194    |                       |  |           |       |  |  |   | 194     |  |  |   | 194     | 
|                              |  |              |         |      |  |              |        |              |  |                            |         |              |  |               |        |                       |  |           |        |  |  |   |         |  |  |   |         | 
|TOTAL                         |  | $            | 209,554 |      |  | $            | 59,015 |              |  | $                          | 241,714 |              |  | $             | 98,177 |                       |  | $         | 59,015 |  |  | $ | 339,891 |  |  | $ | 398,906 | 
|                              |  |              |         |      |  |              |        |              |  |                            |         |              |  |               |        |                       |  |           |        |  |  |   |         |  |  |   |         | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                              |  |              |         |          |  |  |                   | 
|----------------------------- |  | ------------ | ------- | -------- |  |  | ----------------- | 
|                              |  | Accumulated  |         |          |  | 
|                              |  | Depreciation |         | Date(s) 
|Description (A)               |  | (B)(C)       |         | Acquired
|                              |  |              |         |         
|Airport Plaza                 |  | $            | 4,278   |          |  |  | 4/30/87           | 
|Allfirst Building             |  |              | 32,171  |          |  |  | 6/29/84           | 
|Bellevue Corporate Plaza      |  |              | 7,259   |          |  |  | 6/30/88           | 
|Bradshaw Business Parks       |  |              | 13,784  |          |  |  | 9/24/85           | 
|Corporate Square              |  |              | 15,472  |          |  |  | 8/2/85 & 10/1/92  | 
|Executive Park                |  |              | 35,145  |          |  |  | 12/19/85          | 
|Fairlane Commerce Park        |  |              | 14,106  |          |  |  | 12/30/86 & 7/1/87 | 
|Fountain View Business Center |  |              | 1,176   |          |  |  | 1⁄26/00             | 
|Gulley Road Industrial Park   |  |              | 1,546   |          |  |  | 10/29/99          | 
|Montrose Office Center        |  |              | 9,932   |          |  |  | 1/8/88            | 
|Parklane Towers               |  |              | 32,521  |          |  |  | 12/16/84          | 
|Raintree Industrial Park      |  |              | 12,421  |          |  |  | 7/17/86           | 
|Riverbank Plaza               |  |              | 1,562   |          |  |  | 8/19/99           | 
|Seattle Business Parks        |  |              | 7,562   |          |  |  | 4/24/86           | 
|Corporate office - FF&E       |  |              | 89      |          |  |  | various           | 
|                              |  |              |         |          |  |  |                   | 
|TOTAL                         |  | $            | 189,024 |          |  |  |                   | 
|                              |  |              |         |          |  |  |                   | 

See notes to Schedule III on following page.

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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO SCHEDULE III
December 31, 2003
(in thousands)



|(A) |  | Property locations are as follows:
|--- |  | ----------------------------------

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Airport Plaza                 |  | San Diego, California                    
|Allfirst Building             |  | Baltimore, Maryland                      
|Bellevue Corporate Plaza      |  | Bellevue, Washington                     
|Bradshaw Business Parks       |  | Sacramento and Rancho Cordova, California
|Corporate Square              |  | Atlanta, Georgia                         
|Executive Park                |  | Atlanta, Georgia                         
|Fairlane Commerce Park        |  | Dearborn, Michigan                       
|Fountain View Business Center |  | San Diego, California                    
|Gulley Road Industrial Park   |  | Dearborn, Michigan                       
|Montrose Office Center        |  | Rockville, Maryland                      
|Parklane Towers               |  | Dearborn, Michigan                       
|Raintree Industrial Park      |  | Solon, Ohio                              
|Riverbank Plaza               |  | San Diego, California                    
|Seattle Business Parks        |  | Kent and Tukwila, Washington             



|(B) |  | Reconciliation of carrying costs(in thousands):
|--- |  | -----------------------------------------------

|                           |                              |   |         |         |              |   |             |        |  
|-------------------------- | ---------------------------- | - | ------- | ------- | ------------ | - | ----------- | ------ | -
|                           |                              |   |         |         |              |   | Accumulated
|                           |                              |   | Cost    |         | Depreciation
|                           |                              |   |         |         |             
|Balance, January 1, 2001   |                              | $ | 377,262 |         |              | $ | 170,870     |       
|                           | Additions                    |   |         | 23,073  |              |   |             | 11,674 |  
|                           | Retirements and dispositions |   |         | (10,042 | )            |   |             | (5,825 | )
|                           |                              |   |         |         |              |   |             |       
|Balance, December 31, 2001 |                              |   | 390,293 |         |              |   | 176,719     |       
|                           | Additions                    |   |         | 8,344   |              |   |             | 12,080 |  
|                           | Retirements                  |   |         | (5,128  | )            |   |             | (5,128 | )
|                           |                              |   |         |         |              |   |             |       
|Balance, December 31, 2002 |                              |   | 393,509 |         |              |   | 183,671     |       
|                           | Additions                    |   |         | 12,518  |              |   |             | 12,474 |  
|                           | Retirements                  |   |         | (7,121  | )            |   |             | (7,121 | )
|                           |                              |   |         |         |              |   |             |       
|Balance, December 31, 2003 |                              | $ | 398,906 |         |              | $ | 189,024     |       
|                           |                              |   |         |         |              |   |             |       



|(C) |  | Computation of depreciation:                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Depreciation of buildings is computed using the straight-line
method over estimated useful lives ranging from 15 to 43 years.
Equipment and other improvements are depreciated on the
straight-line method over estimated useful lives ranging from 3
to 23 years. Tenant improvements are capitalized and amortized
over the term of the respective leases or useful life, if
shorter.

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

None.




ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

It is the conclusion of the registrants principal executive officer and
principal financial officer that the registrants disclosure controls (as
defined in Exchange Act rules 13a-14 and 15d-14), based on their
evaluation of these controls and procedures as of the end of the period
covered by this report, are effective.

Changes in internal controls.

There were no significant changes in the registrants internal controls or
in other factors during the registrants most recent fiscal year that
could significantly affect these controls subsequent to the date of their
evaluation.

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PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

HRP has no officers or directors. Realty, as general partner, performs
functions generally performed by officers and directors. Realty was
formed in Delaware as a corporation in January 1990 and became a limited
liability company in December 1998.

Business Experience of Directors and Officers of Realty -

Anthony J. Gumbiner, 59, Chairman of the Board and Director of Realty
Mr. Gumbiner has served as director and Chairman of the Board of Realty
since January 1990. He has served as a director and Chairman of the Board
since 1981 and Chief Executive Officer since 1984 of Hallwood. He has
also served as Hallwoods President and Chief Operating Officer since
December 21, 1999. Formerly, he served as Chairman of the Board and Chief
Executive Officer of Hallwood Energy Corporation and its predecessors
(HEC) from 1987 until HEC was sold in 2001. Mr. Gumbiner is also a
solicitor of the Supreme Court of Judicature of England.

William L. Guzzetti, 60, President and Director of RealtyMr. Guzzetti
has been President, Chief Operating Officer and a director of Realty since
January 1990. He has served as Executive-Vice President of Hallwood since
October 1989 and in that capacity may devote a portion of his time to the
activities of Hallwood, including the management of real estate
investments, acquisitions and restructurings of entities controlled by
Hallwood. He also served as President, Chief Operating Officer and a
director of HEC from 1985 until HEC was sold in 2001 and in that capacity
devoted a portion of his time to the activities of HEC. He is a member of
The Florida Bar and the State Bar of Texas.

John G. Tuthill, 60, Executive Vice President and SecretaryMr. Tuthill
has been an Executive Vice President and Secretary of Realty since January
1990. He joined Hallwood in October 1989 to head all property management
functions, having previously served as President of Southmark Commercial
Management since November 1986, where he was responsible for a diversified
real estate portfolio of over 18,000,000 square feet.

Udo H. Walther, 56, Senior Vice PresidentMr. Walther has been a Senior
Vice President of Realty since November 1998. Mr. Walther was a member of
the Board of Directors of Realty from June 1994 to November 1998. Mr.
Walther had been President and Chief Executive Officer of Walther Group,
Inc., a full service design and construction consultancy, and President of
Precept Builders, Inc. from 1991 to 1998. Previously, Mr. Walther was a
Partner at Trammell Crow Company, Project Manager with HCB Contractors and
Marketing Vice President for Researched Investments, Ltd. He was a
director of Realty from June 1994 to November 1998.

Jeffrey D. Gent, 56, Vice President
- FinanceMr. Gent joined Hallwood
in March 1990 as the Vice President-Finance. He previously served as Vice
President-Finance of Southmark Commercial Management since September 1984,
where he was responsible for the financial functions of a diversified real
estate portfolio of over 18,000,000 square feet.

Alan G. Crisp, 62, Director of RealtyMr. Crisp was Chairman and Chief
Executive Officer of Atlantic Metropolitan Holdings (U.K.) plc from 1979
until 1988, when he joined Interallianz Bank Zurich AG. From 1988 to 1993,
he was General Manager of the London Office of the Bank. Since 1994, Mr.
Crisp has been a consultant for various international and British
companies. He is a Fellow of the Royal Institution of Chartered Surveyors
and holds a B.A. (Hons) Degree and is a Master of Literature from Oxford
University. He has been a director of Realty since January 1991.

William F. Forsyth, 54, Director of RealtyMr. Forsyth has been
Chairman of Kildalton & Co., an investment management consultancy based in
Edinburgh, Scotland since 1992. Mr. Forsyth was recently appointed Chief
Executive of the Edinburgh-based investment management company, Charlotte
Square Managers. He graduated in law at Edinburgh University in 1971, and
is a member of the Society of Investment Analysts in the United Kingdom.
He has been a director of Realty since January 1991.

Hamilton P. Schrauff, 68, Director of RealtyMr. Schrauff, since 1997,
has served as an independent consultant and interim chief financial
officer for several entities, including Omega Oil Company, Inc., Calgary,
Alberta; The Omni Group, Inc., Dallas, Texas; and Burns Controls, Dallas,
Texas; and through Tatum CFO Partners in Dallas, Texas. Mr. Schrauff also
served as a director of Hallwood Energy Corporation, a company formerly
affiliated with the registrant, from June 1999 until its sale in May 2001.
Mr. Schrauff is a Certified Public Accountant and Certified Financial
Planner. He is a member of the American Institute of Certified Public
Accountants, the Texas Society of Certified Public Accountants and the
Financial Executives Institute. He has been a director of Realty since
May 2003.

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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT- (continued)

Edward T. Story, 60, Director of RealtyMr. Story has been President
and Chief Executive Officer of SOCO International, plc, an oil and gas
company, since September, 1991. Prior to September 1991, he was Founder
and Chairman of Thaitex Petroleum Company, Co-founder and Chief Financial
Officer of Conquest Exploration Company, the Chief Financial Officer for
Superior Oil Company, and Exploration and Production Controller with Exxon
Corporation. He has been a director of Realty since June 1994.

Code of Ethics for Financial Officers

The Board of Directors of the General Partner has adopted a Code of
Business Conduct and Ethics that applies to all employees of the General
Partner, including those officers responsible for financial matters. The
Code of Business Conduct and Ethics may be accessed through HRPs website
at www.hallwood.com/hrp. Any unitholder may request a printed copy by
contacting the Investor Relations department at 800-225-0135. Any
amendments to, or waivers, of the Code of Business Conduct and Ethics will
be promptly disclosed on HRPs website.

Audit Committee of the General Partner

The General Partners audit committee members are Messrs. Alan G. Crisp,
William F. Forsyth, Hamilton P. Schrauff, and Edward T. Story. The Board
of Directors of the General Partner has determined that each of the
members of the audit committee is independent, as defined by the American
Stock Exchanges Listed Company Guide. The Board of Directors of the
General Partner has determined that each of Hamilton P. Schrauff and
Edward T. Story is an audit committee financial expert, as defined by
the SEC.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires the officers and directors of
Hallwood Realty, LLC and persons who own more than ten percent of HRPs
units to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten percent owners are required by
the SEC regulations to furnish HRP with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished
to HRP, or written representations from certain reporting persons that no
forms were required of those persons, HRP believes that during the period
January 1, 2003 to December 31, 2003, all officers and directors of
Hallwood Realty, LLC and ten percent owners complied with applicable
filing requirements.

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ITEM 11. EXECUTIVE COMPENSATION

Compensation Committee Interlocks, Insider Participation and Compensation
of Directors

Realty does not have a compensation committee and compensation decisions
are made by the Board of Directors of Realty. During 2003, Messrs.
Gumbiner and Guzzetti served on the Board of Directors of Realty. Mr.
Gumbiner is also Chief Executive Officer of Hallwood and Realty, and a
member of the Board of Directors of Hallwood, which serves as the
compensation committee for Hallwood. Mr. Guzzetti is also President and
Chief Operating Officer of Realty, and Executive Vice President of
Hallwood.

Effective April 2003, in addition to their fee for regular service, the
outside directors were paid $2,000 for each extraordinary meeting of
either the Board of Directors or audit committee attended. The following
table sets forth director fee payments made by HRP to the members of
Realtys Board of Directors (in thousands):

|                     |  |                 |    |                        |  |      |    |      |  |      |    |      |  |   |    |  |  |  |   |  |  |  |   | 
|-------------------- |  | --------------- | -- | ---------------------- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | - | -- |  |  |  | - |  |  |  | - | 
|                     |  | Regular Service |    | Extraordinary Meetings
|                     |  |                 |    |                       
|                     |  | 2003            |    | 2002                   |  | 2001 |    | 2003 |  | 2002 |    | 2001
|                     |  |                 |    |                        |  |      |    |      |  |      |    |     
|Anthony J. Gumbiner  |  | $               |   |                        |  |      |   |      |  |      |   |      |  | $ |   |  |  |  |  |  |  |  |  | 
|William L. Guzzetti  |  |                 |   |                        |  |      |   |      |  |      |   |      |  |   |   |  |  |  |  |  |  |  |  | 
|Alan G. Crisp        |  |                 | 40 |                        |  |      | 25 |      |  |      | 25 |      |  |   | 56 |  |  |  |  |  |  |  |  | 
|William F. Forsyth   |  |                 | 40 |                        |  |      | 25 |      |  |      | 25 |      |  |   | 52 |  |  |  |  |  |  |  |  | 
|Hamilton P. Schrauff |  |                 | 30 |                        |  |      |   |      |  |      |   |      |  |   | 54 |  |  |  |  |  |  |  |  | 
|Edward T. Story      |  |                 | 40 |                        |  |      | 25 |      |  |      | 25 |      |  |   | 54 |  |  |  |  |  |  |  |  | 

HRP pays certain fees to Realty in connection with its ongoing management,
including an asset management fee, acquisition fees and disposition fees.
Specifically, HRP pays an asset management fee equal to 1% of the net
aggregate base rents of the Properties, acquisition fees equal to 1% of
the purchase price of newly acquired properties, and disposition fees with
respect to real estate investments, other than the properties owned at the
time of HRPs formation in 1990, equal to 10% of the amount, by which the
sales price of a property exceeds the purchase price of the property.

HRP pays HCRE compensation in connection with the management of the
Properties, which includes a property management fee, lease commissions
and construction supervision fees. The management contracts expire June
30, 2004 and provide for basic compensation from a property management fee
in an amount equal to 2.85% of cash receipts collected from the
Properties tenants, lease commissions equal to the current commission
market rate as applied to the net aggregate rent (none exceeding 6% of the
net aggregate rent), and construction supervision fees for administering
all construction projects equal to 5% of the total contracted costs of
each capital expenditure or tenant improvement project.

HRP compensates Realty and HCRE for services provided to it and its
Properties as described above and HRP reimburses Realty and HCRE, at cost,
for certain costs and expenses. In particular, since HRP does not directly
employ any individuals, the compensation and other costs related to
approximately 90 employees rendering services on behalf of HRP and its
properties are reimbursed to Realty and HCRE by HRP. The following table
sets forth such compensation and reimbursements paid by HRP (in
thousands):

|                        |  |  |    |   |  |            |  |      |       |      |  |      |       |  |  |   |       |  |  | 
|----------------------- |  |  | -- | - |  | ---------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | 
|                        |  |  |    |   |  | Entity     |  |      |       |      |  |      |       |  |  |   |       | 
|                        |  |  |    |   |  | Paid or    |  |      |       |      |  |      |       |  |  |   |       | 
|                        |  |  |    |   |  | Reimbursed |  | 2003 |       | 2002 |  | 2001
|                        |  |  |    |   |  |            |  |      |       |      |  |     
|Asset management fee    |  |  |    |   |  | Realty     |  | $    | 605   |      |  | $    | 618   |  |  | $ | 609   | 
|Acquisition fee         |  |  |    |   |  | Realty     |  |      |      |      |  |      |      |  |  |   |      | 
|Disposition fee         |  |  |    |   |  | Realty     |  |      |      |      |  |      |      |  |  |   | 120   | 
|Reimbursement of costs  |  |  | (a | ) |  | Realty     |  |      | 3,908 |      |  |      | 3,477 |  |  |   | 3,161 | 
|Property management fee |  |  |    |   |  | HCRE       |  |      | 1,987 |      |  |      | 2,022 |  |  |   | 2,005 | 
|Lease commissions       |  |  | (b | ) |  | HCRE       |  |      | 1,556 |      |  |      | 2,151 |  |  |   | 2,158 | 
|Construction fees       |  |  |    |   |  | HCRE       |  |      | 698   |      |  |      | 582   |  |  |   | 1,204 | 
|Reimbursement of costs  |  |  | (c | ) |  | HCRE       |  |      | 3,932 |      |  |      | 3,916 |  |  |   | 3,826 | 



---



|(a) |  | These expenses are recorded as general
and administrative expenses and represent
reimbursement to Realty for administrative level
employee and director compensation, officer and
director liability insurance, and allocated overhead
costs. HRP pays its account balance with Realty on a
monthly basis.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | As of December 31, 2002, $567,000 of
the 2002 lease commissions accrued were related to
the development project at Executive Park and were
paid in 2003.                                                                                                                                                  
|   
|(c) |  | These costs are recorded as property
operating expenses and represent reimbursement to
HCRE for property-level employee compensation and
related expenses.                                                                                                                                                

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ITEM 11. EXECUTIVE COMPENSATION - (continued)

Cash Compensation of Executive Officers

HRP has no executive officers, however, employees of Realty, as general
partner, perform all functions ordinarily performed by executive officers.
The following table sets forth the compensation paid for services
performed for HRP to the Chief Executive Officer and the four other
executive officers. Bonuses are with respect to years presented and are
usually paid in the following year.

|                            |  |                            |      |            |  |       |         |                  |  |   |         |  |  |              |       | 
|--------------------------- |  | -------------------------- | ---- | ---------- |  | ----- | ------- | ---------------- |  | - | ------- |  |  | ------------ | ----- | 
|                            |  | SUMMARY COMPENSATION TABLE
|                            |  |                           
|                            |  | Annual Compensation       
|                            |  |                           
|                            |  |                            |      |            |  |       |         |                  |  |   |         |  |  | Other Annual
|Name and Principal Position |  | Year                       |      | Salary (a) |  | Bonus |         | Compensation (b)
|                            |  |                            |      |            |  |       |         |                 
|Anthony J. Gumbiner         |  |                            | 2003 |            |  | $     |        |                  |  | $ | 150,000 |  |  | $            |      | 
|Chairman of the Board and   |  |                            | 2002 |            |  |       |        |                  |  |   | 150,000 |  |  |              |      | 
|Chief Executive Officer     |  |                            | 2001 |            |  |       |        |                  |  |   | 150,000 |  |  |              |      | 
|William L. Guzzetti         |  |                            | 2003 |            |  |       | 200,000 |                  |  |   | 32,333  |  |  |              | 7,700 | 
|President and Chief         |  |                            | 2002 |            |  |       | 200,000 |                  |  |   | 32,333  |  |  |              |      | 
|Operating Officer           |  |                            | 2001 |            |  |       | 200,000 |                  |  |   | 32,333  |  |  |              |      | 
|John G. Tuthill             |  |                            | 2003 |            |  |       | 150,360 |                  |  |   | 68,265  |  |  |              | 7,700 | 
|Executive Vice President    |  |                            | 2002 |            |  |       | 150,360 |                  |  |   | 68,265  |  |  |              | 7,643 | 
|and Secretary               |  |                            | 2001 |            |  |       | 150,360 |                  |  |   | 68,265  |  |  |              | 7,895 | 
|Udo H. Walther              |  |                            | 2003 |            |  |       | 150,000 |                  |  |   | 68,250  |  |  |              | 7,700 | 
|Senior Vice President       |  |                            | 2002 |            |  |       | 150,000 |                  |  |   | 68,250  |  |  |              | 7,643 | 
|                            |  |                            | 2001 |            |  |       | 150,000 |                  |  |   | 68,250  |  |  |              | 7,895 | 
|Jeffrey D. Gent             |  |                            | 2003 |            |  |       | 133,079 |                  |  |   | 20,317  |  |  |              | 7,446 | 
|Vice
President - Finance    |  |                            | 2002 |            |  |       | 129,203 |                  |  |   | 20,075  |  |  |              | 6,308 | 
|                            |  |                            | 2001 |            |  |       | 120,750 |                  |  |   | 19,547  |  |  |              | 6,245 | 



---

|(a) |  | Represents executive officers gross salary before
contributions to the qualified 401(k) Tax Favored Savings
Plan.                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Represents employer matching contributions to the
401(k) Tax Favored Savings Plan or payments in lieu thereof
made under a special bonus arrangement.

In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty and HCRE with an exercise price of $11.875 per unit. The options
were vested over a three year period ending in 1997 and they expire on
February 27, 2005. As of December 31, 2003, a total of 21,200 options had
been exercised (17,200 in 2000 and 4,000 in 2003), none have been
canceled, and 64,800 options remained exercisable. No options have been
granted since 1995. The following table discloses for each of the
executive officers of Realty the number of these options held by each of
the executive officers and the potential realizable values for their
options at December 31, 2003. None of the executive officers exercised
any options during the year ended December 31, 2003 and HRP has not
granted SARs.

AGGREGATED OPTION/SAR EXERCISES IN 2003
AND OPTION/SAR VALUES AT DECEMBER 31, 2003

|                    |  |             |   |                   |  |                       |        |              |  |               |   |  |  |                      |           |  |  |   |   | 
|------------------- |  | ----------- | - | ----------------- |  | --------------------- | ------ | ------------ |  | ------------- | - |  |  | -------------------- | --------- |  |  | - | - | 
|                    |  |             |   |                   |  |                       |        |              |  |               |   |  |  | Value of Unexercised
|                    |  |             |   |                   |  | Number of Unexercised |        | In-the-Money
|                    |  |             |   |                   |  | Options at            |        | Options at  
|                    |  | Units       |   | December 31, 2003 |  | December 31, 2003    
|                    |  | Acquired    |   |                   |  |                      
|Name                |  | on Exercise |   | Exercisable       |  | Unexercisable         |        | Exercisable  |  | Unexercisable
|                    |  |             |   |                   |  |                       |        |              |  |              
|Anthony J. Gumbiner |  |             | 0 |                   |  |                       | 25,800 |              |  |               | 0 |  |  | $                    | 2,789,625 |  |  | $ | 0 | 
|William L. Guzzetti |  |             | 0 |                   |  |                       | 15,000 |              |  |               | 0 |  |  |                      | 1,621,875 |  |  |   | 0 | 
|John G. Tuthill     |  |             | 0 |                   |  |                       | 13,000 |              |  |               | 0 |  |  |                      | 1,405,625 |  |  |   | 0 | 
|Jeffrey D. Gent     |  |             | 0 |                   |  |                       | 7,000  |              |  |               | 0 |  |  |                      | 756,875   |  |  |   | 0 | 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of March 5, 2004 concerning
the number of HRP units owned beneficially by (l) the persons who, to the
knowledge of the management, beneficially owned more than 5% of the units
outstanding on such date, (2) each director and (3) the present directors
and executive officers of Realty as a group:

|                                                                                 |  |  |    |   |  |              |         |         |  |  |      |     
|-------------------------------------------------------------------------------- |  |  | -- | - |  | ------------ | ------- | ------- |  |  | ---- | ----
|                                                                                 |  |  |    |   |  | Amount       |         | Percent
|Name and Address of                                                              |  |  |    |   |  | Beneficially |         | of     
|Beneficial Owner                                                                 |  |  |    |   |  | Owned (a)    |         | Class  
|                                                                                 |  |  |    |   |  |              |         |        
|HWG, LLC                                                                         |  |  |    |   |  |              | 330,432 |         |  |  | 20.7 | %   
|c/o The Hallwood Group Incorporated
3710 Rawlins, Suite 1500
Dallas, Texas 75219 |  |  |    |   |  |              |         |         |  |  |      |     
|High River Limited Partnership                                                   |  |  |    |   |  |              | 235,000 |         |  |  | 14.7 | %   
|c/o Icahn Associates Corp.
767 Fifth Avenue, 47th Floor
New York, NY 10153       |  |  |    |   |  |              |         |         |  |  |      |     
|Interstate Properties                                                            |  |  |    |   |  |              | 155,200 |         |  |  | 9.7  | %   
|Park 80 West, Plaza II
Saddle Brook, NJ 07662                                    |  |  |    |   |  |              |         |         |  |  |      |     
|Alan G. Crisp                                                                    |  |  | (b | ) |  |              |        |         |  |  |     |     
|William F. Forsyth                                                               |  |  | (b | ) |  |              |        |         |  |  |     |     
|Anthony J. Gumbiner                                                              |  |  | (b | ) |  |              | 25,800  | (c)     |  |  | 1.6  | %(c)
|William L. Guzzetti                                                              |  |  | (b | ) |  |              | 15,100  | (d)     |  |  | 0.9  | %(d)
|Hamilton P. Schrauff                                                             |  |  | (b | ) |  |              |        |         |  |  |     |     
|Edward T. Story                                                                  |  |  | (b | ) |  |              |        |         |  |  |     |     
|All directors and executive
officers
as a group (8 persons)                      |  |  |    |   |  |              | 60,900  | (e)     |  |  | 3.7  | %(e)



---



|(a) |  | Unless otherwise indicated, each of the persons named has
sole voting and investment.                          
|--- |  | ---------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Represented by the following address: c/o Hallwood
Realty, LLC, 3710 Rawlins, Suite 1500, Dallas, Texas, 75219.
|   
|(c) |  | Comprised of currently exercisable options to purchase
25,800 units.                                           
|   
|(d) |  | Includes currently exercisable options to purchase 15,000
units.                                               
|   
|(e) |  | Includes currently exercisable options to purchase 60,800
units.                                               

Equity Compensation Plan Information

In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty and HCRE with an exercise price of $11.875 per unit. The options
were vested over a three year period ending in 1997 and they expire on
February 27, 2005. As of December 31, 2003, 21,200 options had been
exercised (17,200 in 2000 and 4,000 in 2003), none have been canceled, and
64,800 options remained exercisable. No options have been granted since
1995.

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

The following table provides information as of December 31, 2003 about
HRPs units that may be issued upon the exercise of options granted
pursuant to HRPs 1995 Unit Option Plan, as amended to date.

|                                                      |  |                         |        |                     |  |                                               |        |  |  |      |  | 
|----------------------------------------------------- |  | ----------------------- | ------ | ------------------- |  | --------------------------------------------- | ------ |  |  | ---- |  | 
|                                                      |  | A                       |        | B                   |  | C                                            
|                                                      |  | Number of units to be   |        | Weighted-average    |  | Number of units remaining available for      
|                                                      |  | issued upon exercise of |        | exercise price of   |  | future issuance under equity compensation    
|Plan category                                         |  | outstanding options     |        | outstanding options |  | plans (excluding units reflected in column A)
|                                                      |  |                         |        |                     |  |                                              
|Equity compensation
plans approved by
unitholders     |  |                         | None   |                     |  |                                               | n/a    |  |  | None
|                                                     
|Equity compensation
plans not approved
by unitholders |  |                         | 64,800 | (1)                 |  | $                                             | 11.875 |  |  | None



---

|(1) |  | HRP is a partnership and, as such, does not hold meetings of
its unitholders.
|--- |  | -----------------------------------------------------------------------------




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Note 4 to the Consolidated Financial Statements included in Item 8 for
information covered by this item.




ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Auditors Fees

All services rendered by Deloitte & Touche, LLP (D&T), HRPs independent
auditors, are pre-approved by the audit committee of the Board of Directors
of the General Partner. D&T has or is expected to provide services to HRP
in the following categories and amounts (in thousands) :

|                       |  |      |     |      |  |   |     | 
|---------------------- |  | ---- | --- | ---- |  | - | --- | 
|                       |  | 2003 |     | 2002
|                       |  |      |     |     
|Audit fees (1)         |  | $    | 173 |      |  | $ | 158 | 
|Audit related fees (2) |  |      | 25  |      |  |   | 26  | 
|Tax fees (3)           |  |      | n/a |      |  |   | n/a | 
|All other fees (4)     |  |      | 42  |      |  |   | 2   | 



---

|(1) |  | Audit Fees - These are fees for professional services
performed by D&T for the audit of HRPs annual financial
statements, the review of financial statements included in
HRPs Form 10-Q filings, and services that are normally
provided in connection with statutory regulatory filings or
engagements.                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Audit Related Fees - These are fees for assurance and
related services performed by D&T that are related to the
performance of the audit or review of HRPs financial
statements. The fees paid by HRP are for supplemental
reporting to certain lenders and/or tenants, as well as
consulting on financial accounting or reporting standards.
|   
|(3) |  | Tax Fees - The review of company prepared income tax
returns for HRP and its consolidated subsidiaries, tax
compliance advice, tax planning, and other tax related services
are not performed by D&T.                                                                                                                                         
|   
|(4) |  | All Other Fees - These are fees for other permissible
work performed by D&T that does not meet the above category
descriptions. The fees paid by HRP are for real estate tax
services and miscellaneous projects.                                                                                                                             

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES (continued)

Pre-Approval Policy

The General Partners audit committee pre-approval guidelines with respect
to pre-approval of audit and non-audit services are summarized below.

General

The audit committee is required to pre-approve the audit and non-audit
services performed by the independent auditor in order to assure that the
provision of such services does not impair the auditors independence.
Unless a type of service to be provided by the independent auditor has
received general pre-approval, it will require specific pre-approval by the
audit committee. Any proposed services exceeding pre-approved cost levels
requires specific pre-approval by the audit committee.

Audit Services

The annual audit services engagement terms and fees are subject to the
specific pre-approval of the audit committee. In addition to the annual
audit services engagement specifically approved by the audit committee, the
audit committee has granted general pre-approval for other audit services,
which are those services that only the independent auditor reasonably can
provide.

Audit-related Services

Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the
Partnerships financial statements and that are traditionally performed by
the independent auditor. The audit committee believes that the provision of
audit-related services does not impair the independence of the auditor.

Tax Services

The audit committee believes that the independent auditor can provide tax
services to HRP, such as tax compliance, tax planning and tax advice without
impairing the auditors independence. The audit committee will not permit
the retention of the independent auditor in connection with a transaction
initially recommended by the independent auditor, the purpose of which may
be tax avoidance and the tax treatment of which may not be supported in the
Internal Revenue Code and related regulations. However, HRPs independent
auditor, D&T, generally does not perform income tax-related services to HRP.

All Other Services

The audit committee has granted pre-approval to those permissible non-audit
services classified as all other services that it believes are routine and
recurring services, and would not impair the independence of the auditor.

Pre-Approval Fee Levels

In order to facilitate managements day-to-day conduct of HRPs business,
the audit committee deemed it advisable and in the best interest of HRP to
permit certain routine, non-audit services without the necessity of
pre-approval by the audit committee. Therefore, a pre-approval fee level of
$10,000 per engagement was established by the audit committee. Any proposal
for services exceeding this level requires specific pre-approval by the
audit committee. Management may engage non-audit services from its
independent auditor within this limit, provided however, that no such
engagement would violate the SECs rules and regulations related to auditor
independence. These non-audit service engagements are to be reported to the
audit committee as promptly as practicable.

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PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.



| | (1) |  | Financial Statements.                                                                                                                                                                                                                                                                                               
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | See Index contained in Item 8.                                                                                                                                                                                                                                                                                      
|
| | (2) |  | Reports on Form 8-K.                                                                                                                                                                                                                                                                                                
|
| |     |  | A report on Form 8-K was furnished on November 14, 2003
containing a press release, dated November 11, 2003, setting
forth its third quarter 2003 results (such press release is not
incorporated by reference herein or deemed filed within the
meaning of Section 18 of the Securities Act of 1933, as
amended).
|
| | (3) |  | Exhibits.                                                                                                                                                                                                                                                                                                           
|
| |     |  | The response to this portion is incorporated by reference as
detailed in the Exhibit Index.                                                                                                                                                                                                                         
|
| | (4) |  | Financial Statement Schedules.                                                                                                                                                                                                                                                                                      
|
| |     |  | See Index contained in Item 8.                                                                                                                                                                                                                                                                                      

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

|                    |  |                                |  |                                       |  | 
|------------------- |  | ------------------------------ |  | ------------------------------------- |  | 
|                    |  | HALLWOOD REALTY PARTNERS, L.P.
|                    |  | BY:                            |  | HALLWOOD REALTY, LLC
General Partner  |  | 
|                    |  |                                |  |                                       |  | 
|DATE: March 9, 2004 |  | BY:                            |  | /s/ WILLIAM L. GUZZETTI               |  | 
|                    |  |                                |  |                                       |  | 
|                    |  |                                |  | William L. Guzzetti                   |  | 
|                    |  |                                |  | President and Chief Operating Officer |  | 

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K for the year ended December 31, 2003, has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the date indicated.

|                         |  |                                     |  |              
|------------------------ |  | ----------------------------------- |  | -------------
|Signature                |  | Capacity                            |  | Date         
|                         |  |                                     |  |              
|/s/ ANTHONY J. GUMBINER  |  | Chairman of the Board and Director, |  | March 9, 2004
|                         |  | Hallwood Realty, LLC                |  |              
|Anthony J. Gumbiner      |  | (Chief Executive Officer)           |  |              
|                         |  |                                     |  |              
|/s/ WILLIAM L. GUZZETTI  |  | President and Director,             |  | March 9, 2004
|                         |  | Hallwood Realty, LLC                |  |              
|William L. Guzzetti      |  | (Chief Operating Officer)           |  |              
|                         |  |                                     |  |              
|/s/ JEFFREY D. GENT      |  | Vice President-Finance,             |  | March 9, 2004
|                         |  | Hallwood Realty, LLC                |  |              
|Jeffrey D. Gent          |  | (Chief Accounting Officer)          |  |              
|                         |  |                                     |  |              
|/s/ ALAN G. CRISP        |  | Director,                           |  | March 9, 2004
|                         |  | Hallwood Realty, LLC                |  |              
|Alan G. Crisp            |  |                                     |  |              
|                         |  |                                     |  |              
|/s/ WILLIAM F. FORSYTH   |  | Director,                           |  | March 9, 2004
|                         |  | Hallwood Realty, LLC                |  |              
|William F. Forsyth       |  |                                     |  |              
|                         |  |                                     |  |              
|/s/ HAMILTON P. SCHRAUFF |  | Director,                           |  | March 9, 2004
|                         |  | Hallwood Realty, LLC                |  |              
|Hamilton P. Schrauff     |  |                                     |  |              
|                         |  |                                     |  |              
|/s/ EDWARD T. STORY      |  | Director,                           |  | March 9, 2004
|                         |  | Hallwood Realty, LLC                |  |              
|Edward T. Story          |  |                                     |  |              

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HALLWOOD REALTY PARTNERS, L.P.
EXHIBIT INDEX

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  |   |  | Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.1     |  |   |  | Certificate of Limited Partnership of Hallwood Realty Partners, L.P.,
dated January 10, 1990. (Filed as an Exhibit to Registration Statement No.
33-35621 on Form S-4 of the Partnership, filed with the Commission on June
28, 1990, as amended, on June 29, 1990 and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.2     |  |   |  | Amended and Restated Agreement of Limited Partnership of Hallwood Realty
Partners, L.P., dated June 7, 1990. (Filed as an Exhibit to Registration
Statement No. 33-35621 on Form S-4 of the Partnership, filed with the
Commission on June 28, 1990, as amended, on June 29, 1990 and incorporated
herein by reference.)                                                                                                                                                                                                                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.1     |  |   |  | Unit Purchase Rights Agreement, dated as of November 30, 1990, between
the Partnership and The First National Bank of Boston, as Rights Agent
(Filed as part of Exhibit 1 to Current Report of Form 8-K, dated November
30, 1990, and which is incorporated herein by reference - File No.1
-10643). (Incorporated by reference from exhibit 4.1 filed with Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.)                                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.2     |  |   |  | Amendment No. 1 to Unit Purchase Rights Agreement dated February 14, 2000
(Incorporated by reference from exhibit 4.2 filed with Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.)                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.1    |  | * |  | 1995 Unit Option Plan for Hallwood Realty Partners, L.P.
(Incorporated by reference as the exhibit indicated and
filed with Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.2    |  | * |  | 1995 Unit Option Plan Loan Program for Hallwood Realty
Partners, L.P. (Incorporated by reference as the exhibit
indicated and filed with Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.)                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.3    |  |   |  | Loan Agreement between Hallwood 95, L.P. and Nomura Asset Capital
Corporation. (Incorporated by reference from exhibit 2.1 filed with
Current Report on Form 8-K dated September 29, 1995.)                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|10.4    |  |   |  | Amended and Restated Agreement of Limited Partnership of Hallwood 95,
L.P. (Incorporated by reference from exhibit 10.17 filed with Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.5    |  |   |  | Management Agreement between Hallwood Real Estate Investors Fund XV and
Hallwood Commercial Real Estate, LLC dated July 1, 1999. (Agreement is
representative of each individual management agreement for real estate
properties owned by Hallwood Realty Partners, L.P. Differences in the
individual agreements include, but not limited to, owners name, property
name, and legal description. Exhibit D to this item is a schedule
reflecting the economic differences in leasing fee compensation.)
(Incorporated by reference from exhibit 10.5 filed with Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.)
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.6    |  |   |  | Executive Incentive and Retention Program (Incorporated by reference from
exhibit 10.6 filed with Quarterly Report on Form 10-Q for the quarter year
ended September 30, 2003.)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|31.1    |  |   |  | Certification of the Chief Executive Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|31.2    |  |   |  | Certification of the Chief Financial Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|32.1    |  |   |  | Certifications of the the Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



|* |  | Constitutes a management compensation plan.
|- |  | -------------------------------------------