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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

(MARK ONE)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
                                       OR
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD
      FROM ___________________ TO ___________________


                          COMMISSION FILE NUMBER 1-6613

                              VALUE PROPERTY TRUST
             (Exact name of registrant as specified in its charter)

                MARYLAND                                       23-1862664
     (State or other jurisdiction of                        (I.R.S. employer
     incorporation or organization)                      identification number)

      120 ALBANY STREET, 8TH FLOOR                                08901
        NEW BRUNSWICK, NEW JERSEY                              (Zip code)
(Address of principal executive offices)

        Registrant's telephone number, including area code: 732-296-3080
               --------------------------------------------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                                          NAME OF EACH EXCHANGE
           TITLE OF EACH CLASS                             ON WHICH REGISTERED
--------------------------------------------------------------------------------
Common Shares, par value $1.00 per share                 New York Stock Exchange
 

         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 [X] No [ ]

         Indicate by check mark if the 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 the  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. [X]
<PAGE>
         Indicate by check mark whether the  registrant  has filed all documents
and reports  required  to be filed by Section 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [X] No[ ]

         The aggregate market value of the Common Shares held by  non-affiliates
of the registrant at December 2, 1997, computed by reference to the closing sale
price of such  shares as  reported  in the  Consolidated  Transaction  Reporting
System, was $24,698,928.  The number of Common Shares outstanding at December 2,
1997 was 11,226,310.
<PAGE>

                                     PART I

ITEM 1. BUSINESS.
                                     GENERAL

         Value Property Trust (the "Trust") is a self  administered  real estate
investment trust (a "REIT") engaged in the business of managing its portfolio of
real estate  investments.  The Trust was organized in 1970 under the laws of the
State of Maryland  as PNB  Mortgage  and Realty  Investors.  In 1984,  the Trust
changed  its name to  Mortgage  and Realty  Trust.  In October  1995,  the Trust
changed  its name to Value  Property  Trust.  The  Trust is  organized  under an
Amended  and  Restated  Declaration  of Trust  dated  September  29, 1995 and as
amended  through  October 26, 1995 (the  "Amended  and Restated  Declaration  of
Trust"),  and  conducts  its  business in such a fashion as to qualify as a REIT
under  Sections  856-860 of the Internal  Revenue Code of 1986,  as amended (the
"Code").

         As disclosed  previously  on Form 8-K filed on September  22, 1997 with
the  Securities  and  Exchange  Commission  ("SEC"),  the Trust  entered  into a
definitive  agreement  on September  18, 1997 to be acquired by  Wellsford  Real
Properties,  Inc.  ("Wellsford") in a merger transaction for cash and stock. The
proposed transaction, which will be accounted for by Wellsford as a purchase, is
subject to certain  closing  conditions and is expected to be completed in early
1998.  Franklin Mutual Advisors,  Inc.,  whose advisory  clients  currently hold
approximately  50% of the  Trust's  outstanding  shares,  has agreed to vote the
shares of the Trust  over  which it has  voting  power in favor of the  proposed
transaction.  The proposed transaction, if consummated,  will result in a change
of control of the Trust.

         As of September 30, 1997, the Trust had: (1) cash and cash  equivalents
of $81.4 million;  (2) restricted cash of $1.7 million which is restricted as to
use under terms of various  escrow and lease  agreements  and the New  Indenture
(See  "Liquidity and Capital  Resources"  under Item 7); and (3) invested assets
consisting of eight mortgage investments  (consisting of one commercial mortgage
loan and 111  residential  mortgage  loans) and 21  investments  in real  estate
owned. Based upon the amounts of the Trust's invested assets as of September 30,
1997,  approximately 36.96% of the Trust's portfolio was invested in California,
20.91% in Pennsylvania and 17.95% in New England states.  Nationally,  21.52% of
the amounts of its invested assets are in industrial or research and development
properties,  39.47% in office buildings,  26.57% in shopping centers,  11.67% in
apartments and 0.77% in other types of real estate properties.

         On November 3, 1997,  the Trust utilized a portion of available cash on
hand to retire its senior  indebtedness in full. The face amount  outstanding of
the Floating Rate Notes at the time of repayment was $18.2 million.

            PREVIOUS CHAPTER 11 CASE AND 1991 PLAN OF REORGANIZATION

         On  April  12,  1990,   the  Trust  filed  a  voluntary   petition  for
reorganization  under Chapter 11 in the United States  Bankruptcy  Court for the
Central District of California (the "Bankruptcy Court"), commencing a bankruptcy
case,  Bankruptcy  Case No. LA 90-08976-SB  (the "Prior  Bankruptcy  Case").  On
November 21, 1990, a Joint Plan of Reorganization  (the "1991 Plan") proposed by
the Trust, the creditors'  committee and the equity committee was filed with the
Bankruptcy  Court pursuant to section 1121 of the Bankruptcy Code. The 1991 Plan
was confirmed by the Bankruptcy Court by an order entered February 27, 1991. The
Prior Bankruptcy Case was closed on November 4, 1994,  pursuant to a final order
of the Bankruptcy Court.
<PAGE>
         The 1991 Plan  provided  that the holders of  outstanding  indebtedness
were to receive payments in installments  over a period ending on June 30, 1995,
with the  right of the  Trust to defer  payment  of  certain  amounts  for up to
twenty-four  months or until December 31, 1995, when all deferred payments would
be due.  Interest  was  payable  initially  at Bank of  America  N.T.  &  S.A.'s
reference  rate plus one  percent,  increasing  by 0.25% every six months,  with
interest on deferred amounts accruing at the adjusted rate plus two percent. The
1991 Plan also included certain financial,  affirmative and negative  covenants.
The  forecast  upon which the 1991 Plan was based  assumed  that the real estate
markets would begin to improve in fiscal 1992. However, the markets continued to
deteriorate materially. Despite these conditions, the Trust was able to make all
required  interest  payments  and to exceed the required  amortization  payments
through December 31, 1991. These results were achieved through liquidating Trust
assets at substantial discounts from their acquisition cost. However, due to the
continued deterioration of the real estate markets, the Trust could not meet the
amortization  payment at June 30, 1992,  which  required the Trust to reduce the
debt to  $291,250,000,  taking into account  deferrals  permitted under the 1991
Plan. This  deterioration  also precluded the Trust from maintaining  compliance
with the financial  covenants of the 1991 Plan.  Thus, the Trust determined that
it was necessary to defer a portion of the principal payments on the outstanding
debt and limit certain future cash interest  payments to allow  sufficient  time
for liquidity to return to the United States real estate  market.  Such deferral
was  accomplished  by an  out-of-court  modification to the 1991 Plan (the "1992
Restructuring").

                             THE 1992 RESTRUCTURING

         Pursuant to the Trust's negotiations with the creditors' committee,  on
June 15, 1992,  the Trust  commenced a  solicitation  of  acceptances to certain
modifications (the "1992  Modifications") to the outstanding debt obligations of
the Trust and to a prepackaged plan of reorganization (the "Proposed 1992 Plan")
to effect the 1992 Modifications. The 1992 Modifications to the outstanding debt
obligations  provided,  among  other  things,  for (i) an  increased  amount  of
required  principal  payments that could be deferred (while  retaining the final
payment date for deferred  payments at December 31, 1995),  (ii) an extension of
the permitted  repayment  period of such  deferred  amounts from 24 months to 30
months from the date a deferral is utilized,  (iii) the establishment of a limit
on the  maximum  rate of  interest  to be paid in cash on a current  basis at 9%
through  June 30, 1994,  with any excess being  accrued and paid at December 31,
1995,  (iv)  changes in certain  required  financial  covenants  to reflect  the
then-existing financial condition of the Trust and the then-existing real estate
market,  (v) with the approval of the holders of 66-2/3% of the outstanding debt
obligations,  the release of collateral for certain financings by the Trust, and
(vi) the payment of additional  consideration  to the holders of the outstanding
debt obligations equal to one percent of the principal amount of the outstanding
debt  obligations,  payable in four semi-annual  installments  commencing on the
date the 1992 Restructuring became effective. The Trust received 100% acceptance
of the  1992  Modifications  and,  on July  15,  1992,  the  Trust  successfully
restructured  its  outstanding  debt by issuance of new notes in accordance with
the proposed 1992  Modifications (the "Old Notes") and entered into an indenture
(the "Old Note Indenture")  with Wilmington Trust Company,  as trustee (the "Old
Note Trustee"),  entered into a second amendment to the Trust's then outstanding
Collateral and Security Agreement dated as of February 21, 1991 (as amended, the
"Old Collateral  Agreement")  and amended the 1991 Plan (as amended  pursuant to
the 1992 Restructuring, the "Prior Plan").
<PAGE>
       RECENT CHAPTER 11 CASE AND 1995 PREPACKAGED PLAN OF REORGANIZATION

         The financial  projections upon which the 1992  Restructuring was based
assumed that the real estate  markets  would stop or slow their  decline by 1993
with some  improvement  in 1994.  Instead,  after the effective date of the 1992
Restructuring,  these markets failed to improve materially. The Trust's business
operations,  including its ongoing  efforts to refinance and sell property,  did
not  generate  cash flow  sufficient  to service the Old Notes during the fiscal
years ended  September  30,  1993 and 1994.  Because  its  operating  income had
declined due to the  continued  deterioration  of the real estate  markets,  the
Trust was not able to meet its scheduled June 30, 1993 principal  payment on the
Old  Notes of  $20,000,000,  and  subsequently  the  Trust  also  failed to make
additional principal payments, constituting events of default under the Old Note
Indenture.  The Trust also failed to make interest payments on the Old Notes. In
addition,  the Trust  failed to meet certain  ratios set forth in the  financial
covenants  of the Old Note  Indenture  which  constituted  additional  events of
default under the Old Note Indenture.

         Throughout  the second and third  quarters of fiscal 1994,  the Trust's
management and advisors continued  discussions with certain principal holders of
the Old Notes and their  representatives  to explore  various  alternatives  for
restructuring the Old Notes. In March 1994, the principal holders requested that
the  Trust  agree to pay  certain  fees and  expenses  of legal  counsel  to the
principal  holders.  The Trust agreed,  and in March 1994, the principal holders
retained  counsel  to  advise  them  in  the  Trust's  financial  restructuring.
Thereafter,  in June 1994, the principal  holders requested and the Trust agreed
to pay certain fees and  expenses of a new  financial  advisor to the  principal
holders.  The negotiations among the Trust, the various creditor  constituencies
and other interested  parties in the Trust's financial  restructuring  continued
into the fourth quarter of fiscal 1994.

         On  November  17,  1994,  the  Trust  announced  that it had  reached a
non-binding  agreement in principle with the Old Note holders to restructure the
indebtedness represented by the Old Notes (the "1995 Restructuring").

         Under the 1995  Restructuring,  the  Trust  and the  Board of  Trustees
recommended to the Old Note holders that the Trust utilize a "prepackaged  plan"
of reorganization  (the  "Prepackaged  Plan") governed by Chapter 11 title 11 of
the United States Bankruptcy Code, as amended (the "Bankruptcy  Code").  The use
of the Prepackaged  Plan allowed the Trust, the Board of Trustees and holders of
the Old Notes to agree in advance  on the  method  and  course of  restructuring
prior to the filing of the  bankruptcy  petition in Chapter 11. To this end, the
Trust and certain  holders  who had  acquired a  significant  portion of the Old
Notes   entered  into  an  agreement  of   understanding   (the   "Agreement  of
Understanding")  pursuant to which the Trust agreed to distribute to the holders
of the Old Notes $25.0 million in cash prior to the Prepackaged  Plan's petition
date. Under this agreement,  the principal holders (who held in excess of 80% of
the Old Notes),  among other things,  agreed to vote in favor of the Prepackaged
Plan when solicited. On April 11, 1995, the Trust paid $25.0 million pursuant to
the  Agreement of  Understanding,  with such payment to be credited  against the
cash  payment of at least  $50.0  million  to be made to the  holders of the Old
Notes pursuant to the Prepackaged Plan.

         On July 12,  1995,  the  Trust  mailed  to each  holder  of Old  Notes,
outstanding   common  shares,   other  secured   claims  and  unsecured   claims
(collectively,  the  "Holders") as of the close of business on July 7, 1995 (the
"Record Date"),  a copy of the Disclosure  Statement and Proxy Statement for the
Solicitation  of  Votes  for  the  Prepackaged  Plan  of   Reorganization   (the
"Disclosure Statement").
<PAGE>
         Pursuant to the Disclosure  Statement,  the  solicitation of ballots in
favor of the Prepackaged  Plan expired at midnight (New York time) on August 17,
1995.   On  August  18,  1995,   the  Trust  filed  a  voluntary   petition  for
reorganization  under Chapter 11 in the Bankruptcy Court commencing a bankruptcy
case, Bankruptcy Case No. LA 95-31101-SB.  The Prepackaged Plan was confirmed by
the Bankruptcy  Court by an order entered  September 22, 1995. The Trust entered
into an amended and restated  indenture (the "Prior  Indenture") with Wilmington
Trust  Company as  trustee,  an amended and  restated  collateral  and  security
agreement  (the "Prior  Security  Agreement"),  a pledge  agreement  (the "Prior
Pledge  Agreement"),  and a registration  rights  agreement  (the  "Registration
Rights  Agreement").  The Prepackaged Plan became  effective  September 29, 1995
(the "Effective  Date") and provided for, among other things,  (i) a 1 for 33.33
reverse stock split of the outstanding  common shares affecting the shareholders
of record as of  September  29,  1995,  and (ii) the  issuance to holders of the
Trust's  debt  securities:  (a)  $110,000,000  principal  amount of newly issued
11-1/8%  Senior  Secured  Notes  due  2002  (the  "Prior  Senior  Notes"),   (b)
$71,000,000 in cash and (c)  approximately  10,889,430  new common  shares,  par
value $1.00 per share, representing, in the aggregate,  approximately 97% of the
common  shares   outstanding   after  the  Effective  Date  (all  common  shares
outstanding  after the  Effective  Date  hereinafter  referred to as the "Common
Shares").

                                  BUSINESS PLAN

         After the emergence  from  bankruptcy on September 29, 1995,  the Trust
determined  that its  strategic  goals  should focus on  maximizing  the Trust's
overall return to shareholders. The Trust conducted a thorough evaluation of its
real estate properties in order to determine the future direction of the Trust's
operations.  The Trust  refinanced its outstanding  long-term  indebtedness at a
substantially  lower rate of interest and sold substantially all of its mortgage
loan portfolio. The Trust entered into an engagement letter with Merrill Lynch &
Co. on October 15, 1996 to advise the Board with respect to options in achieving
its strategic goals,  including possible business  combinations or bulk sales of
assets.

         As a result of the property evaluations,  the Trust focused its ongoing
operating activities in the California (primarily San Francisco and Los Angeles)
and  Mid-Atlantic  markets.  Specifically,  the Trust  believed  an  opportunity
existed to enhance the value of its portfolio of retail,  industrial  and office
properties in these geographic regions through active management, improvement in
occupancy  levels and  market  appreciation.  Generally,  real  estate  holdings
outside those  geographic  regions and property  types that were not  consistent
with the strategic plan were to be divested in an orderly manner.

         Consistent  with this  policy,  the Trust  sold  nineteen  real  estate
properties,  three of nine buildings in an industrial park and a 7.6 acre parcel
of  unimproved  land from October 1, 1995  through  September  30, 1997.  During
fiscal 1996 and fiscal 1997, seven and six real estate properties, respectively,
were  transferred  from Held for  Investment  to Held for Sale. At September 30,
1997,  the Trust owned 21  properties  of which six are  classified  as Held for
Sale.

         In March of  fiscal  1996,  the  Trust  completed  the  disposition  of
substantially  all of its mortgage loan portfolio.  On April 30, 1996, the Trust
issued $67.4  million of Floating  Rate Notes which were used with $56.5 million
of  available  cash on hand to  prepay  the  Trust's  Senior  Secured  Notes and
Mortgage  Payable.  The face amount  outstanding of the Senior Secured Notes and
Mortgage  Payable at the time of repayment was $110.0 million and $13.9 million,
respectively.
<PAGE>
         Beginning in November 1996, Merrill Lynch contacted potential investors
regarding  the possible  acquisition  of some or all of the assets of the Trust.
The Board of Trustees considered and discussed various alternative  transactions
and  concluded  that  none  were  likely  to  realize  as  much  value  for  the
shareholders of the Trust as a business combination or the sale of substantially
all of the Trust's  assets and most would take longer to be  consummated.  Among
the alternatives considered were the refinancing of the Trust's indebtedness and
the  subsequent  sale of the  assets  of the  Trust  during a period of 12 to 18
months together with a liquidation of the Trust.

         On September 18, 1997 the Trust entered into a definitive  agreement to
be  acquired  by  Wellsford  Real  Properties,  Inc.  ("Wellsford")  in a merger
transaction for cash and stock.  The proposed  transaction is subject to certain
closing  conditions  and is expected to be completed in early 1998.  Pursuant to
the  terms  of the  Merger  Agreement,  Wellsford  will  pay to the the  Trust's
shareholders  approximately  $130 million in cash and issue an aggregate of 3.35
million shares of its common stock resulting in each Trust shareholder receiving
$11.58 in cash and  0.2984  common  shares of  Wellsford  for each  share of the
Trust.

                   COMPETITION, REGULATION, AND OTHER FACTORS

         The success of the Trust depends  upon,  among other  factors,  general
economic  conditions and trends,  including real estate trends,  interest rates,
government regulations and legislation, income tax laws and zoning laws.

         The  Trust's  real estate  investments  are located in markets in which
they face significant competition. Many of the Trust's investments, particularly
the  office  buildings,  are  located in markets  which have an  over-supply  of
available space, resulting in intense competition for tenants and low rents.

                              GOVERNMENT REGULATION

         The Trust's properties are subject to various federal,  state and local
regulatory   requirements  such  as  local  building  codes  and  other  similar
regulations. The Trust believes that the properties are currently in substantial
compliance with all applicable regulatory requirements, although expenditures at
properties  owned by the Trust may be required  to comply with  changes in these
laws. No material  expenditures are contemplated at this time in order to comply
with any such laws or regulations.

         The Trust  believes that it is in  compliance in all material  respects
with all federal,  state and local laws regarding hazardous or toxic substances.
To date,  compliance  with  federal,  state and local  environmental  protection
regulations has not had a material effect upon the Trust.

         The Trust has  received a ground water  monitoring  permit from the New
Hampshire Department of Environmental Protection. The Trust believes the cost of
the monitoring  program will not have a material adverse effect on the business,
financial condition or results of operations of the Trust.

                                OTHER INFORMATION

         As of September 30, 1997, the Trust employed 12 people.  The Trust also
has  engaged  11  independent  property  management  firms to  manage  17 of its
properties.  The Trust's current business constitutes a single business segment.
The Trust is not dependent upon a single tenant or a limited number of tenants.

         The  Trust's  principal  offices  are  currently  located at 120 Albany
Street,  8th Floor, New Brunswick,  New Jersey 08901 and 22120 Clarendon Street,
Suite 230,  Woodland Hills,  California 91367; the Trust's telephone numbers are
(732) 296-3080 and (818) 594-8586, respectively.
<PAGE>
                              FRESH START REPORTING

         In connection with its emergence from Chapter 11 proceedings, the Trust
implemented  Fresh Start  Reporting as provided in  Statement of Position  90-7,
"Financial  Reporting by Entities in  Reorganization  Under the Bankruptcy Code"
("Fresh Start Reporting"). As a result, as of September 30, 1995 all assets were
recorded at  reorganization  value and all liabilities  were recorded to reflect
their fair value. For additional information on this reporting method, see Notes
to  the  Consolidated   Financial  Statements  -  Note  1  "Basis  of  Financial
Information and Plan of Reorganization."

ITEM 2. PROPERTIES.
                                 INVESTED ASSETS

         Although the Trust has continued to fund previously existing investment
commitments  and to fund limited  tenant  improvements  and similar  investments
necessary  to  retain  or  obtain  tenants,  the  Trust  has  not  made  any new
investments  in loans or  properties  since its Prior  Bankruptcy  Case  filing,
except for one  occasion  in fiscal  1997.  In July 1997,  The Trust made a $6.2
million loan to facilitate the sale of a retail property  located in California.
The Trust continues to actively manage its investment portfolio.

         Loans are  guaranteed  by a first or  junior  mortgage  on  residential
properties and the one commercial  mortgage is guaranteed by a shopping  center.
Loans  made  by  the  Trust  were  secured  by  mortgages  on   income-producing
properties,  including office buildings,  shopping centers, industrial projects,
apartments and condominium projects. When the Trust made investments,  it abided
by  various  restrictions   consisting   principally  of  loan-to-value  ratios,
investment  ranges and percentage of total assets  invested in loans to a single
borrower.

         The Trust has 29 assets under  management  consisting of eight mortgage
investments  (consisting  of one  commercial  mortgage loan and 111  residential
mortgage loans) and 21 real estate investments. At September 30, 1997, the Trust
has classified these assets as follows:
<TABLE>
<CAPTION>
                                                             INVESTED ASSETS
                                                       ------------------------                   
                                             Number     Carrying Value  Percent
                                             ------    ---------------  -------
                                                    (dollars in thousands)
<S>                                            <C>       <C>             <C>
Assets Held for Sale:
  Investments in partnerships ..........          1      $  5,869          8.1%
  Real estate investments ..............          5        22,001         30.3%
                                               -----     --------        -----
                                                  6        27,870         38.4%
                                               -----     --------        -----
Assets Held for Investment:
  Mortgage loans .......................          8         6,805          9.4%
  Real estate investments ..............         15        37,934         52.2%
                                               -----     --------        -----
                                                 23        44,739         61.6%
                                               -----     --------        -----

Total Invested Assets ..................         29      $ 72,609        100.0%
                                               =====     ========        =====
</TABLE>
<PAGE>
         The Trust's invested assets are primarily located in major metropolitan
areas  throughout  the United  States.  As of September 30, 1997, the Trust held
investments in mortgage loans, investments in real estate and other interests in
real properties located in eleven states.

         The location,  general character and occupancy information with respect
to the  Trust's  invested  assets  at  September  30,  1997 are set forth in the
schedules contained on the following pages.
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST
                                                       REAL ESTATE INVESTMENTS
                                                         SEPTEMBER 30, 1997

                                                                                        DATE                             OCCUPANCY
    ASSET NAME                     CITY                ST            ACQUIRED         OWNERSHIP         TOTAL SQ. FT.    @ 9/30/97
    ----------                     ----                --            --------         ---------         -------------    ---------
<S>                            <C>                     <C>            <C>                <C>           <C>               <C>
Villa del Cresta               Florissant              MO             Feb-92             100%            333,038 SF        91.80%
                                                                                                       ---------
TOTAL APARTMENTS                                                                                         333,038 SF        91.80%
                                                                                                       ---------          ------

Bay City Holdings*             Santa Monica            CA             Jan-95              85%            114,375 SF       100.00%
Moreno Valley                  Moreno Valley           CA             Nov-92             100%            251,090 SF       100.00%
Oaktree Industrial Park        San Dimas               CA             Oct-95             100%             27,095 SF        86.19%
Chino Business Park            Chino                   CA             Oct-95             100%             64,496 SF        64.36%
900 Bldg.                      Minneapolis             MN             Sep-93             100%            216,000 SF        75.57%
                                                                                                       ---------
TOTAL INDUSTRIAL                                                                                         673,056 SF        88.19%
                                                                                                       ---------          ------

Stadium Towers                 Anaheim                 CA             Aug-88             100%             64,574 SF        91.99%
Nash                           El Segundo              CA             Jan-94             100%             45,851 SF        86.64%
Clarewood                      Woodland Hills          CA             May-92             100%             38,568 SF        93.67%
Summer Street                  Boston                  MA             Jan-90             100%             67,216 SF       100.00%
Turnpike                       Canton                  MA             Jan-91             100%             43,157 SF       100.00%
Burtonsville Commerce          Burtonsville            MD             Mar-95             100%             91,274 SF        99.63%
Keewaydin                      Salem                   NH             Aug-92             100%            125,230 SF        53.69%
Hoes Lane                      Piscataway              NJ             Aug-91             100%             37,238 SF        86.94%
Two Executive Campus           Cherry Hill             NJ             Oct-92             100%            102,310 SF        72.20%
Chestnut Street                Philadelphia            PA             Jan-91             100%             49,953 SF        83.31%
Pinebrook I                    King of Prussia         PA             May-87             100%             57,835 SF       100.00%
Pinebrook II                   King of Prussia         PA             May-87             100%             58,521 SF        96.90%
Six Sentry Parkway             Blue Bell               PA             Jun-94             100%             89,781 SF        98.70%
                                                                                                       ---------
TOTAL OFFICE                                                                                             871,508 SF        86.61%
                                                                                                      ---------           -----
Berdon Plaza                   Fairhaven               MA             Apr-91             100%            113,482 SF        91.61%
Bradford Plaza                 West Chester            PA             Aug-95             100%            123,881 SF        88.19%
                                                                                                       ---------

TOTAL RETAIL                                                                                             237,363 SF        89.83%
                                                                                                       ---------          ------

TOTAL PORTFOLIO                                                                                        2,114,965 SF        88.29%
                                                                                                       =========          ======
</TABLE>
*The Trust has a partnership interest in this property.
 

See Notes to the Consolidated  Financial  Statements - Note 5 "Borrowings" for a
discussion of encumbrances on real estate properties.
<PAGE>
<TABLE>
<CAPTION>
                                                 VALUE PROPERTY TRUST

                                      GEOGRAPHIC DISTRIBUTION OF INVESTED ASSETS

                                                  SEPTEMBER 30, 1997


State                         Apartments               Industrial                  Office                   Retail
-----                         ----------               ----------                  ------                   ------
<S>                          <C>                      <C>                        <C>                      <C>
California                   $        --              $ 13,381,123               $ 7,176,637              $ 6,241,816
Delaware                              --                        --                        --                       --
Georgia                               --                        --                        --                       --
Maryland                              --                        --                 3,865,623                       --
Massachusetts                         --                        --                 2,796,317                7,638,819
Minnesota                             --                 2,243,444                        --                       --
Missouri                       8,474,206                        --                        --                       --
New Hampshire                         --                        --                 2,596,116                       --
New Jersey                            --                        --                 2,448,773                       --
Pennsylvania                          --                        --                 9,772,980                5,410,459
Virginia                              --                        --                        --                       --
                             -----------              ------------               -----------              -----------
Totals                       $ 8,474,206              $ 15,624,567               $28,656,446              $19,291,094
                             ===========              ============               ===========              ===========

Percentage                        11.67%                    21.52%                    39.47%                   26.57%
                             ===========              ============               ===========              ===========
<CAPTION>


                               Residential
State                           Mortgages               Totals                   Percentage
-----                           ---------               ------                   ----------
<S>                             <C>                   <C>                          <C>
California                      $ 33,430              $ 26,833,006                  36.96%
Delaware                          63,214                    63,214                   0.09%
Georgia                           31,317                    31,317                   0.04%
Maryland                         356,489                 4,222,112                   5.81%
Massachusetts                         --                10,435,136                  14.37%
Minnesota                             --                 2,243,444                   3.09%
Missouri                              --                 8,474,206                  11.67%
New Hampshire                         --                 2,596,116                   3.58%
New Jersey                            --                 2,448,773                   3.37%
Pennsylvania                          --                15,183,439                  20.91%
Virginia                          79,082                    79,082                   0.11%
                                --------              ------------                  -----
Totals                          $563,532              $ 72,609,845
                                ========              ============

Percentage                         0.77%                                           100.00%
                                =======                                            ======
</TABLE>
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS.

         A discussion of events  surrounding  the Trust's Prior  Bankruptcy Case
and an explanation of the material terms of the Trust's reorganization under the
Joint  Plan of  Reorganization  confirmed  by the  Bankruptcy  Court by an order
entered  February  27,  1991 are set  forth in the  section  entitled  "Previous
Chapter 11 Case and 1991 Plan of Reorganization."  The Prior Bankruptcy Case was
closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.

         A  discussion  of  events  surrounding  the  Trust's  1995  prepackaged
bankruptcy  filing  and an  explanation  of the  material  terms of the  Trust's
reorganization  under the Prepackaged Plan which became effective  September 29,
1995 (the  "Prepackaged  Plan") are set forth in the  section  entitled  "Recent
Chapter 11 Case and 1995  Prepackaged Plan of  Reorganization."  Notwithstanding
the  confirmation of the Trust's  Prepackaged Plan as of September 29, 1995, the
Bankruptcy Court continued to have  jurisdiction  among other things, to resolve
disputes that may arise under the Prepackaged Plan.

         Neither the Trust nor any of its  properties  are presently  subject to
any  material  litigation  nor,  to  the  Trust's  knowledge,  is  any  material
litigation  threatened  against the Trust or any of its  properties,  other than
routine  litigation  arising in the  ordinary  course of  business  and which is
expected to be covered by liability insurance.

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

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS.

                  (a) MARKET INFORMATION

         The Trust's  Common Shares are listed for trading on the New York Stock
Exchange ("NYSE") under the symbol "VLP". No dividends have been declared by the
Trust in the past two years.  The  following  table shows the high and low sales
prices of the Trust's  Common  Shares as reported by the NYSE during each fiscal
quarter for the past two years.
<TABLE>
<CAPTION>
                                                  High                Low
                                                  ----                ---
<S>                                             <C>                 <C>
         1997
           First Quarter                        $11-7/8             $11
           Second Quarter                       $13-3/8             $11-3/8
           Third Quarter                        $13-1/4             $12
           Fourth Quarter                       $15-7/8             $12-3/4

         1996
           First Quarter                        $11                 $10
           Second Quarter                       $13                 $10-1/2
           Third Quarter                        $12-5/8             $12-1/8
           Fourth Quarter                       $12-5/8             $11-3/4

</TABLE>
<PAGE>
         The Trust has net  operating  losses  ("NOLs") from fiscal 1992 through
1996 that can be carried  forward for tax  purposes.  Beginning  in fiscal 1998,
NOLs available to offset  taxable  income in future years will be  approximately
$107 million.  The NOLs  attributable  to each year can be carried forward up to
fifteen  years  from the year  the  loss was  generated.  The use of NOLs in any
taxable  year  (together  with  any  recognized  losses  that  are  economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation  under Section 382 of the Code. The Trust  estimates that this annual
limitation is currently approximately $6 million.

                  (b) HOLDERS OF COMMON SHARES

         There were  approximately  3,800 record  holders of the Trust's  Common
Shares at September 30, 1997.

                  (c) DIVIDENDS

         The Trust did not declare or pay any dividends during either the fiscal
year ended September 30, 1997 or the fiscal year ended September 30, 1996.
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
                                                       SELECTED FINANCIAL DATA
                                          (dollars in thousands, except for per share data)

                                                           Post-Confirmation                            Pre-Confirmation
                                                   -----------------------------            ----------------------------------------
                                                        Year Ended September 30,                    Years Ended September 30,
                                                   -----------------------------            ----------------------------------------
                                                        1997               1996               1995            1994           1993
                                                      --------          --------            --------        --------       --------
<S>                                                   <C>                <C>                <C>             <C>            <C>   
Total revenue                                         $ 26,736           $ 35,066       |   $ 39,464        $ 36,277       $ 38,342
Interest and other operating expenses                   17,415             25,746       |     52,120          47,668         43,967
Depreciation and amortization                            1,717              2,347       |      7,306           5,839          5,500
Provision for losses                                        --                 --       |      3,000           2,000         37,000
                                                      --------           --------       |   --------        --------       --------
Income (loss) from operations, before                                                   |
  reorganization items, gain on sale of                                                 |
  real estate and extraordinary items                    7,604              6,973       |    (22,962)        (19,230)       (48,125)
                                                                                        |
Reorganization items                                                                    |
Professional fees and other                                                             |
  expenses, net                                             --                 --       |      5,778           2,360          5,844
Write down of invested assets                                                           |
  to reorganization value                                   --                 --       |     66,597              --             --
                                                      --------           --------       |   --------        --------       --------
Income (loss) before gain on sale of                                                    |
  real estate and extraordinary item                     7,604              6,973       |    (95,337)        (21,590)       (53,969)
Gain on sale of real estate                             24,861                 --       |         --              --
                                                      --------           --------       |   --------        --------       --------
                                                                                        |
Income (loss) before extraordinary item                 32,465              6,973       |    (95,337)        (21,590)       (53,969)
Extraordinary item - gain on                                                            |
  extinguishment of debt                                    --                 --       |     75,304              --             --
                                                      --------           --------       |   --------        --------       --------
Net income (loss)                                     $ 32,465           $  6,973       |   $(20,033)       $(21,590)      $(53,969)
                                                      ========           ========       |   ========        ========       ======== 
Per share: *                                                                            |
Income from operations before                                                           |
  reorganization items, gain on sale of                                                 |
  real estate and extraordinary items *                 $ 0.68             $ 0.62       |
Gain on sale of real estate *                           $ 2.21             $   --       |
                                                      --------           --------       |
Net income *                                            $ 2.89             $ 0.62       |
                                                      ========           ========       |
OTHER DATA                                                                              |
Funds from Operations (a):                                                              |
  Net income (loss)                                   $ 32,465           $  6,973       |   $(20,033)       $(21,590)      $(53,969)
  Depreciation and amortization                          1,717              2,347       |      7,306           5,839          5,500
  Reorganization expenses                                   --                 --       |     72,375           2,360          5,844
  Gain on sale of real estate                          (24,861)                --       |         --              --             --
  Extraordinary item-gain on                                                            |
    the extinguishment of debt                              --                 --       |    (75,304)             --             --
                                                      --------           --------       |   --------        --------       --------
Total                                                 $  9,321           $  9,320       |   $(15,656)       $(13,391)      $(42,625)
                                                      ========           ========       |   ========        ========       ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                          Post-Confirmation                                  Pre-Confirmation
                                            --------------------------------------------               ----------------------------
                                            September 30,   September 30,   September 30,               September 30,  September 30,
                                                1997            1996            1995                        1994           1993
                                            -------------   -------------   -------------               -------------  -------------
<S>                                           <C>             <C>             <C>                            <C>            <C> 
BALANCE SHEET DATA                                                                              |
Invested assets                               $ 72,609        $125,735        $207,120          |            $309,973       $347,526
Total assets                                  $159,082        $172,411        $232,329          |            $364,740       $353,874
Allowance for losses                          $     --        $     --        $     --          |            $ 13,430       $ 11,808
Senior notes (due 1999)                       $ 18,222        $ 63,226        $     --          |            $     --       $     --
Senior notes (due 2002)                       $     --        $     --        $109,975          |            $     --       $     --
Senior notes (due 1995)                       $     --        $     --        $     --          |            $290,000       $290,000
Mortgage payable                              $     --        $     --        $ 17,535          |            $ 17,593       $ 17,572
Shareholders' equity                          $139,512        $107,047        $100,074          |            $ 20,033       $ 41,623
</TABLE>



*    Net  income  (loss)  per  share  for all  pre-confirmation  periods  is not
     presented  because this  information  is not  meaningful as a result of the
     Reorganization  and the  adoption of "Fresh Start  Reporting".  See Item 7.
     Management's  Discussion and Analysis of Financial Condition and Results of
     Operations.

(a)  The  definition  of Funds From  Operations  ("FFO")  was  clarified  in the
     National  Association of Real Estate  Investment  Trusts,  Inc.  ("NAREIT")
     White Paper,  adopted by the NAREIT Board of Governors on March 3, 1995, as
     net income  (computed in  accordance  with  generally  accepted  accounting
     principles  ("GAAP")), excluding gains (or losses) from debt  restructuring
     and sales of property,  plus  depreciation  and  amortization (in each case
     only on real estate related assets),  less preferred  dividends,  and after
     adjustments for uncolsolidated partnerships and joint ventures. The Trust's
     FFO is not  comparable  to FFO  reported  by other real  estate  investment
     trusts (REITs) that do not define FFO using the current  NAREIT  definition
     or that interpret the current NAREIT definition differently than the Trust.
     The  Trust  believes  that  to  facilitate  a  clear  understanding  of the
     historical  operating  results of the  Trust,  FFO  should be  examined  in
     conjunction  with income as presented  in the  Consolidated  Statements  of
     Operations.  FFO should not be considered as an  alternative  to net income
     (determined  in  accordance  with  GAAP)  as an  indicator  of the  Trust's
     financial performance, or cash flows from operating activity (determined in
     accordance  with GAAP) as a measure  of the  Trust's  liquidity,  nor is it
     indicative of funds available to fund the Trust's cash needs, including its
     ability to make distributions.
 
<PAGE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

                              MANAGEMENT DISCUSSION

         Value  Property  Trust is a Maryland  REIT  engaged in the  business of
managing its  portfolio  of real estate  investments.  On October 26, 1995,  the
Trust's name was changed from Mortgage and Realty Trust to Value Property Trust.
On September  29,  1995,  the Trust's  Prepackaged  Plan of  Reorganization  was
declared  effective  by the  United  States  Bankruptcy  Court  for the  Central
District of California.

         Under  the  Prepackaged  Plan,  holders  of  the  Trust's  $290,000,000
principal  amount of Old Notes received:  (i)  $110,000,000  principal amount of
newly issued Senior Notes;  (ii)  $71,000,000 in cash;  and (iii)  approximately
10,889,430 new Common Shares representing in the aggregate  approximately 97% of
the Common Shares  outstanding  after the Effective Date. In connection with the
Prepackaged  Plan,  the Trust  effected a 1 for 33.33 reverse stock split of its
outstanding Common Shares.

         In connection with its emergence from Chapter 11 proceedings, the Trust
implemented  Fresh  Start  Reporting  as of  September  30,  1995.  Fresh  Start
Reporting  was required  because:  (1) the  reorganization  value of the Trust's
assets  immediately  before the date of confirmation  was less than the total of
all  post-petition  liabilities;  (2) there  was more  than a 50%  change in the
ownership of the Trust;  and (3) there was a permanent and  substantive  loss of
control by existing  shareholders.  As a result, all assets and liabilities were
restated to reflect their appropriate value or fair value. The post-confirmation
financial  statements and schedules amounts have been segregated by a black line
in order to signify that the  financial  statements  and schedules are that of a
new reporting  entity and have been prepared on a basis which is not  comparable
to the  pre-confirmation  financial  statements  and schedules (See Notes to the
Consolidated  Financial Statements - Note 1 "Basis of Financial  Information and
Plan of  Reorganization"  for  additional  information  concerning  Fresh  Start
Reporting).

         The following section includes a discussion and analysis of the results
of operations for the years ended  September 30, 1997,  1996 and 1995 and should
be read in conjunction with the consolidated  financial statements and the notes
thereto.  The Trust  has,  for the past  several  years  prior to  fiscal  1996,
reported  significant net losses.  As a result of the 1995  Restructuring,  past
results should not be deemed indicative of future operating performance.  Future
results of  operations  of the Trust will not be  comparable  to the  historical
operating performance.

                              RESULTS OF OPERATIONS

         The Trust's net income for fiscal 1997 was $32.5 million,  or $2.89 per
share,  compared to $7.0 million,  or $0.62 per share, for fiscal 1996 and a net
loss  of  $20.0  million  for  fiscal  1995.   The  1995  loss   included:   (1)
reorganization  items of $5.8 million which included  professional  fees of $6.2
million and interest  income of $0.4  million;  (2) an  adjustment  that reduced
invested  assets by $66.6  million as a result of the  adoption  of Fresh  Start
Reporting; and (3) an extraordinary item of $75.3 million reflecting the gain on
extinguishment   of  debt.   The   Trust's   income  from   operations,   before
reorganization  items,  gain on sale of real estate and  extraordinary  item for
fiscal 1997 was $7.6 million,  or $0.68 per share,  compared to $7.0 million, or
$0.62 per share, for fiscal 1996 and the loss of $23.0 million for fiscal 1995.
<PAGE>
         Rental  income was $20.5  million  for fiscal  1997  compared  to $26.9
million for fiscal 1996 and $24.6 million for fiscal 1995. In addition to rental
income, the Trust received  reimbursement of certain operating expenses totaling
$3.0  million,  $3.6 million and $2.3  million for fiscal  1997,  1996 and 1995,
respectively.  Rental income and  reimbursement  of certain  operating  expenses
decreased in fiscal 1997 compared to fiscal 1996 as a result of a reduced number
of owned  properties.  At  September  30,  1997,  the Trust owned 21 real estate
properties  compared to 31 and 38 at September 30, 1996 and 1995,  respectively.
Rental income and  reimbursement of certain  operating  expenses for fiscal 1997
adjusted for sales  increased to $14.4  million and $1.6  million,  respectively
from $13.9 million and $1.5 million, respectively for fiscal 1996. The increases
in rental income and  reimbursed  expenses on rental  properties for fiscal 1996
from  fiscal  1995  were the  result of  continued  foreclosure  on real  estate
properties  and  improvement in occupancy  levels.  In the first month of fiscal
1996, two properties  were added as a result of  foreclosures.  Nine  properties
were sold  during  fiscal  1996,  of which  eight  occurred  during the last two
quarters.  Two of the eight  property  sales  occurred  during the last month of
fiscal  1996.  As a result of the timing of the  foreclosures  and the  property
sales, the Trust recorded operations on real estate properties for a longer time
period on a greater  number of  properties  during fiscal 1996 than fiscal 1995.
During fiscal 1997, the Trust sold ten real estate  properties and three of nine
buildings owned by the Trust in an industrial  park.  Occupancy levels increased
to 88.3% at September 30, 1997 compared to 87.5% and 81.1% at September 30, 1996
and 1995, respectively.  Occupancy levels, adjusted for sales increased to 88.3%
at September 30, 1997 compared to 84.8% at September 30, 1996.

         Interest  and fee income on mortgage  loans was $0.2 million for fiscal
1997 compared to $2.9 million in fiscal 1996 and $9.4 million in fiscal 1995. In
March 1996,  the Trust  completed the  disposition of  substantially  all of its
mortgage loan  portfolio.  The Trust received $55.5 million in net cash proceeds
through a series of transactions  which included loan repayments and a bulk sale
of certain  mortgage loans. As a result,  interest income earned on the mortgage
loan portfolio is substantially  less than that recorded in prior years.  During
the fourth quarter of fiscal 1997, the Trust provided mortgage financing of $6.2
million to facilitate the sale of a real estate property.

         Interest on  short-term  investments  was $3.1  million for fiscal 1997
compared  to $1.7  million  and $3.1  million  for  fiscal  years 1996 and 1995,
respectively.  The increase in fiscal 1997  compared to fiscal 1996 is due to an
increase in available cash balances as a result of property sales.  The decrease
in fiscal 1996  compared to fiscal 1995 is due to the reduction in cash balances
as a result of a $25.0 million  payment made on April 11, 1995 and an additional
$46.0  million  payment  made on  September  29, 1995 to the Old Note Holders in
conjunction with the 1995 Restructuring.  Prior to these payments, the Trust was
continuing  to  accumulate  cash and  since  September  30,  1993,  had not made
payments of interest or principal on its  indebtedness.  Available cash averaged
$60.9  million for fiscal 1997  compared to $28.9  million and $57.6  million in
fiscal years 1996 and 1995,  respectively.  At September 30, 1997, cash and cash
equivalents,  including  restricted  cash, were $83.1 million  compared to $41.7
million at September 30, 1996.

         Interest expense for fiscal 1997 totaled $4.6 million compared to $10.5
million and $35.9 million for fiscal years 1996 and 1995,  respectively.  During
the first  quarter  of fiscal  1997,  the Trust used $7.0  million  from the net
proceeds from the sale of two encumbered  properties sold in September of fiscal
1996,  and $1.4  million from the net  proceeds  from the sale of an  encumbered
<PAGE>
property  sold  in  October  of  fiscal  1997  to  prepay  the  Trust's   senior
indebtedness.  During the remainder of fiscal 1997, the Trust used $36.6 million
from the fiscal 1997 net proceeds from the sale of six encumbered properties and
three of nine encumbered  buildings in an industrial park, to prepay the Trust's
senior  indebtedness.  The Trust's  average  borrowing  cost for fiscal 1997 was
10.8% compared to 10.6% and 13.3% for fiscal years 1996 and 1995,  respectively.
Included in interest  expense is the  amortization of deferred costs incurred in
obtaining  debt  financing  which  are  amortized  over  the  term  of the  debt
agreement.

         Operating  expenses on rental  properties  decreased to $9.0 million in
fiscal 1997 from $12.1 million for fiscal 1996 and from $11.7 million for fiscal
1995. At September 30, 1997 the Trust owned 21 real estate  properties  compared
to 31 and 38 at September 30, 1996 and 1995, respectively. In the first month of
fiscal  1996,  two  properties  were  added as a result  of  foreclosures.  Nine
properties were sold during fiscal 1996, of which eight occurred during the last
two quarters.  Two of the eight property sales occurred during the last month of
fiscal  1996.  The decrease in operating  expenses on rental  properties  is the
result of fiscal 1997 and fiscal 1996 property  sales.  During fiscal 1997,  ten
properties and three of nine buildings in an industrial park were sold, of which
seven  properties were sold during the second and third quarters of fiscal 1997.
During  fiscal 1996 the Trust sold nine real estate  properties,  eight of which
occurred  during  the last two  quarter  of  fiscal  1996.  Therefore  the Trust
recorded  operations  for a  longer  period  of  time  on a  greater  number  of
properties  in fiscal  1996  than  fiscal  1997.  Operating  expenses  on rental
properties, adjusted for sales decreased slightly to $6.4 million in fiscal 1997
from $6.8 million for fiscal 1996 as a result of lower  repairs and  maintenance
expenses.  The  increase in expenses  on rental  properties  in fiscal 1996 from
fiscal 1995 are the result of continued  foreclosure  of real estate  properties
and  improvement in occupancy  levels.  Occupancy  levels  increased to 88.3% at
September  30, 1997  compared to 87.5% and 81.1% at September 30, 1996 and 1995,
respectively.  Occupancy  levels,  adjusted  for  sales  increased  to  88.3% at
September 30, 1997 compared to 84.8% at September 30, 1996.

         Depreciation and amortization on rental  properties for fiscal 1997 was
$1.7 million compared to $2.3 million and $7.3 million for fiscal 1996 and 1995,
respectively.  The decrease is a result of (1) $12.6 million applied against the
carrying  values of assets Held For  Investment at September  30, 1996,  and (2)
properties  transferred to Held For Sale.  During fiscal 1996, the Trust reduced
the  carrying  values of long lived  assets by $12.6  million as a result of the
adoption of Fresh Start  Reporting on September  30, 1995.  All gains and losses
for a period of one year after such  adoption  are applied  against the carrying
values of long lived assets held for  investment.  During fiscal 1997, the Trust
reclassified  six  properties  totaling $35.7 million to Held for Sale from Held
for Investment.  The Trust depreciates the Held for Investment category over the
estimated  useful  lives  of the  assets.  The Held  for  Sale  category  is not
depreciated.  During  fiscal  1996,  the  Trust  reclassified  seven  properties
totaling $18.7 million to Held for Sale from Held for  Investment.  The decrease
in fiscal 1996 compared to fiscal 1995 was primarily a result of the adoption of
Fresh Start Reporting. Prior to Fresh Start Reporting, the Trust depreciated all
real estate  investments.  At September 30, 1995, the Trust  segregated the real
estate  portfolio into two  categories:  Held for Sale and Held for  Investment.
Additionally,  all assets and  liabilities of the Trust were restated to reflect
their respective reorganization value or fair value.
<PAGE>
         Other operating  expenses were $3.1 million for fiscal 1997 compared to
$3.2 million and $4.5 million for fiscal years 1996 and 1995, respectively.  The
fiscal  1996  decrease  from  fiscal  1995 was a  result  of  reduced  staffing,
insurance premiums,  occupancy costs, Trustee fees and expenses,  and office and
computer  expense.   Partially   offsetting  the  decline  was  an  increase  in
professional fees which includes legal fees and accounting fees.

         Liquidation   settlement  expense  for  fiscal  1997,   represents  the
negotiated  settlement of a suit filed against the Trust.  A third party alleged
the  existence  of a  purchase  contract  with  respect  to one  of the  Trust's
properties  which the Trust disputed.  This dispute led to litigation.  However,
the  Trust  believed  that  this  litigation,  when  resolved,  would not have a
material  adverse  effect on the  business,  financial  condition  or results of
operations of the Trust.  The Trust  negotiated  and paid $743,000 to settle the
suit. The Trust also paid $8,000 to settle a lawsuit that occurred from the bulk
sale of the mortgage loan portfolio in March of fiscal 1996.

         The Trust did not provide for a provision  for losses in fiscal 1997 or
fiscal 1996. The provision for losses was $3.0 million in fiscal 1995.  With the
implementation of Fresh Start Reporting, as of September 30, 1995, the allowance
for losses was reset to zero.  Further  provisions  for losses on mortgage loans
and related  investments  may be  necessary  if there is  deterioration  in real
estate  markets,  or there is a  significant  increase  in the  Trust's  cost of
capital.

         The  Trust,  in fiscal  1995,  recorded a $75.3  million  extraordinary
item-gain on extinguishment of debt against interest and principal due of $331.4
million on the Old Notes.

         As a result of  implementing  Fresh Start  Reporting on  September  30,
1995,  the Trust  wrote down its real  estate  investments  by $66.6  million to
reorganization value. In addition,  net reorganization  expenses incurred by the
Trust were $5.8 million in fiscal 1995.  These expenses  reflected  professional
fees incurred by the  representatives  of the  creditors,  shareholders  and the
Trust.  The 1995  Restructuring  was  completed in the fourth  quarter of fiscal
1995.

                         LIQUIDITY AND CAPITAL RESOURCES

         Prior to its 1995 Restructuring,  the Trust faced significant liquidity
problems. The Trust did not generate sufficient cash flow from normal operations
and was not able to  liquidate  mortgage  loans and real estate  investments  in
order to meet scheduled  amortization  on its  indebtedness.  As a result of the
1995 Restructuring,  cash flow from operating  activities has been sufficient to
meet minimum debt service requirements and commitments for capital expenditures.
The Trust expects to continue to fund capital  expenditures from available funds
from operations and cash on hand. However,  the Trust's present liquidity,  cash
flow from operating  activities and ability to liquidate existing assets to meet
its obligations  can be adversely  impacted by a negative change in the economy,
particularly as those changes may relate to real estate assets.

         Taxable  income  required to be  distributed  in order for the Trust to
maintain  its REIT  status  will be less  than  income  reported  for  financial
statement  purposes  under  generally  accepted  accounting  principles  due  to
differences  related to  depreciation,  use of NOLs (subject to the Code Section
382 limitations) and timing differences related to bad debt deductions.
<PAGE>
         On March 28, 1996, the Trust entered into a financing  agreement  which
provided  for the  issuance  of $67.4  million of  Floating  Rate  Notes,  which
issuance occurred on April 30, 1996. The Floating Rate Notes bear interest at 30
day LIBOR + 1.375 percent,  payable monthly,  and have a stated maturity date of
May 1, 1999.

         The proceeds  received  from the  issuance of the Floating  Rate Notes,
together with  approximately  $56.5 million of cash on hand, were used to prepay
the  Trust's  Senior  Secured  Notes  and  Mortgage  Payable.  The  face  amount
outstanding of the Senior Secured Notes and the Mortgage  Payable at the time of
repayment was $110.0 million and $13.9 million, respectively. The Senior Secured
Notes and Mortgage Payable were repaid in full on April 30, 1996.

         Effective  April 30,  1996,  the Trust  entered  into an interest  rate
protection  agreement  (the  "Cap")  that  serves to cap the  floating  interest
component of the Floating Rate Notes at eight percent. The Trust paid a one-time
fee of $377,000 to the counterparty to the Cap.

         The New Indenture  generally  requires  that, on a monthly  basis,  the
Trust  deposit into a Trapped  Funds  Account  maintained  by the New  Indenture
Trustee all Cash Flow and Asset Sale Proceeds.  Cash Flow from the Trapped Funds
Account  will  be  distributed  by the  New  Indenture  Trustee  to pay  the New
Indenture  Trustee's  expenses,  pay all  accrued  but  unpaid  interest  on the
Floating Rate Notes and maintain a Debt Service Reserve Account before any funds
are  released  to the Trust.  In the event of a sale of, or certain  casualty or
indemnification  events with respect to, any of the properties  mortgaged  under
the terms of the debt instruments, the proceeds therefrom will be used to retire
up to 125% of a portion of the  Floating  Rate Notes that has been  allocated to
such  property  before any funds are  released to the Trust.  The New  Indenture
includes  affirmative  covenants and negative covenants.  At September 30, 1997,
the Trust was in compliance with the New Indenture.

         On November 3, 1997,  the Trust utilized a portion of available cash on
hand to retire its senior  indebtedness in full. The face amount  outstanding of
the Floating Rate Notes at the time of repayment was $18.2 million.

         During fiscal 1997,  the Trust  reclassified  six  properties  totaling
$35.7 million to Real Estate Owned Held for Sale from Real Estate Owned Held for
Investment.  During fiscal 1997,  the Trust  received  $80.1 million in net cash
proceeds from the sale of ten real estate properties, three of nine buildings in
an  industrial  park and a 7.6 acre  parcel of  unimproved  land with a carrying
value of $61.9 million classified as Real Estate Owned Held for Sale.

         During fiscal 1996, the Trust  reclassified  seven properties  totaling
$18.7 million to Real Estate Owned Held for Sale from Real Estate Owned Held for
Investment. During fiscal 1996, the Trust received $26.6 million in net proceeds
from  the  sale of nine  properties  with a  carrying  value  of  $19.2  million
classified as Real Estate Owned Held for Sale.

         The  Trust's  cash  flow  is  derived  from  operating,  investing  and
financing activities.  Cash flow provided from operating activities increased to
$10.6  million in fiscal 1997  compared to an increase of $9.4 million in fiscal
1996.  In  1995,  cash  flow  provided  from  operating   activities   decreased
substantially as a result of a $32.6 million reduction in interest payable.
<PAGE>
         Cash  provided by investing  activities  decreased to $75.7  million in
fiscal 1997 compared to $79.8 million in fiscal 1996 and increased substantially
compared to $12.1 million in fiscal 1995 Real estate sales activity increased in
fiscal 1997 to $86.4  million from $27.1 million and $3.3 million in fiscal 1996
and 1995,  respectively.  In fiscal 1996, the Trust completed the disposition of
substantially   all  of  its  mortgage  loan  portfolio   through  a  series  of
transactions  which  contributed  $55.5  million  of the $79.8  million  in cash
provided by  investing  activities.  Repayments  on mortgage  loans  declined in
fiscal 1997 to $115,000 from $332,000 and $22.7 million in fiscal 1996 and 1995,
respectively.  Prior to the 1995 Restructuring,  the Trust had offered discounts
on the  repayment of mortgage  loans and had sold real estate  properties  in an
effort to  generate  cash to meet  principal  and  interest  payments on the Old
Notes.

         Cash used in financing  activities decreased to $34.5 million in fiscal
1997 compared to a decrease of $69.7 million and $8.5 million in fiscal 1996 and
1995, respectively. The fiscal 1997 decrease from fiscal 1996 is a result of the
reduction in  indebtedness  repayments.  During fiscal 1996,  the Trust used the
proceeds from the issuance of new Floating  Rate Notes along with  approximately
$56.5  million to repay its  indebtedness  of $123.9  million.  The fiscal  1996
increase from fiscal 1995 was  primarily due to the repayment of $114.1  million
and $17.5 million on its indebtedness and Mortgage Payable, respectively, offset
by the issuance of $67.4 million in Floating Rate Notes.

         Cash and cash  equivalents  increased  to $81.4  million in fiscal 1997
from $29.5 million and $10.0 million in fiscal 1996 and 1995,  respectively as a
result of increased  property sales.  In fiscal 1996, cash and cash  equivalents
increased to $29.5 million as a result of refinancing the Trust's  indebtedness,
the disposition of substantially all of the mortgage loan portfolio and the sale
of real estate properties.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial statements and supplementary data are as set forth in the
"Index to Financial Statements."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE.

         None.
                                    PART III

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Executive Officers of the Registrant

         The names and ages of all executive officers of the Trust and principal
occupation and business  experience during at least the last five years for each
are set forth below:
<TABLE>
<CAPTION>
Name                           Age             Position(1)
-----                          ---             -----------
<S>                            <C>             <C>
George R. Zoffinger            49              President, Chief Executive Officer and Trustee
Paul I. McArthur               45              Executive Vice President
Robert T. English              42              Secretary, Treasurer and Chief Financial Officer
--------------------
</TABLE>
<PAGE>
(1)      The  officers  of the Trust  serve a  one-year  term of office  and are
         elected  to their  positions  each year by the  Trustees  at the annual
         organization meeting of Trustees which normally immediately follows the
         Annual Meeting of the Shareholders.



         Mr.  Zoffinger  has held the  position of  President,  Chief  Executive
Officer,   and  Trustee  since  September,   1995.  For  information  about  Mr.
Zoffinger's professional background, see "Trustees of the Registrant."

         Mr.  McArthur  became  the  Executive  Vice  President  of the Trust in
January 1996.  From 1995 to 1996, he served as Vice  President of Corporate Real
Estate  Services  for Bushman  Jackson-Cross.  From 1985 to 1994,  Mr.  McArthur
served DKM  Properties  Corp.,  a  privately  held real  estate  management  and
development  firm  in  various  capacities,   including  as  Vice  President  of
Development and Senior Vice President of Operations.

         Mr. English became the Secretary, Treasurer and Chief Financial Officer
of the Trust in January 1996. Prior to January 1996, Mr. English was Senior Vice
President  and Chief  Financial  Officer of Garden State  Bancshares.  From 1982
until 1994, Mr. English served  Constellation  Bancorp and Constellation Bank in
various capacities, including as Senior Vice President and Comptroller from 1988
to 1994.

Trustees of the Registrant

         The following  table and  biographical  descriptions  set forth certain
information with respect to the seven Trustees based on information furnished to
the Trust by each Trustee.  There is no family relationship  between any Trustee
or executive officer of the Trust.
<TABLE>
<CAPTION>

                           Positions
Name, Age and Year          With the
First Became Trustee         Trust                            Principal Occupation and Other Directorships(1)
---------------------       ---------          -------------------------------------------------------------------------------------
<S>                        <C>                 <C>
Jeffrey A. Altman          Chairman,           Chairman  of the Board of  Trustees  of the Trust  since  October  1995.  Senior Vice
31 years                   Trustee             President of Franklin  Mutual  Advisers,  Inc. and Vice President of Franklin  Mutual
September, 1995                                Series Fund Inc.  since  November 1, 1996.  Vice President of Mutual Series Fund Inc.
                                               from May 1995 to October 1996.  Analyst with Heine  Securities Corp. from August 1988
                                               to October 1996. Director of Resurgence Properties Inc.


Martin Bernstein           Trustee             A private  investor  who has been  managing  family  funds since 1988.  Prior to this
60 years                                       period, Mr. Bernstein served as a founding General Partner of Halcyon Investments and
September, 1995                                Alan B. Slifka & Co. (investments).  Mr. Bernstein also currently serves on the Board
                                               of Directors of Astro Communications and MBO Properties, Inc.

Richard S. Frary           Trustee             The  founding  partner and   majority  shareholder  of Tallwood  Associates,  Inc., a
50 years                                       private  merchant  banking firm  specializing in  corporate  restructurings  and real
September,  1995                               estate,  and has served in that  capacity since March 1990.  Co-founder in 1993 and a
                                               member of the Board of  Directors  of  Brookwood  Financial  Co. Inc.,  a real estate
                                               syndication  company.  Mr.  Frary  currently  serves  on  the Board of  Directors  of
                                               Washington Homes, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                           Positions
Name, Age and Year          With the
First Became Trustee         Trust                            Principal Occupation and Other Directorships(1)
---------------------       ---------          -------------------------------------------------------------------------------------
<S>                        <C>                 <C>
Richard B. Jennings        Trustee             Currently  the  President  of  Realty  Capital  International  Inc.,  a  real  estate
54 years                                       investment  banking  firm,  and has served in that  capacity  since March  1991.  Mr.
September, 1995                                Jennings has also been President of Jennings Securities  Corporation since July 1995.
                                               Mr. Jennings currently serves on the Board of Directors of MBO Properties, Inc.

John B. Levy               Trustee             Currently  the  President of John B. Levy & Company,  Inc., a real estate  investment
50 years                                       banking firm based in Richmond,  Virginia, and has served in that capacity since June
September, 1995                                1995.  Mr.  Levy  was  an  Executive  Vice  President  of  Republic  Realty  Mortgage
                                               Corporation  from  1993  to  June 1995.  Prior  to 1993,  Mr.  Levy  acted  as Senior
                                               Vice President of NationsBanc Mortgage Corporation, and  was   charged   with  lender
                                               relations,   production   of  new income    property    loans   and management of the
                                               production offices.

Carl A. Mayer, Jr.         Trustee             A real estate investment banker who founded The Mayer Group in 1990, an advisor group
60 years                                       offering  consulting  and  marketing expertise and services to real estate investment
September, 1995                                companies who are seeking  investment  capital from the pension fund  community.  Mr.
                                               Mayer continues to serve  as a principal  of  The  Mayer  Group. From  August 1995 to
                                               the present, Mr. Mayer has sesrved as Chairman of Mayer-Bialer and Associates, Inc.

George R. Zoffinger        President,          President,  Chief  Executive Officer  and Trustee of  the Trust  since  October 1995.
49 years                   Chief Executive     Served as the Chairman  of CoreStates New Jersey  National Bank  from  April 1994 to
September, 1995            Officer, and        December 1996 and a member of the Board  of  Directors of Corestates Bank,  N.A. from
                           Trustee             April 1994 to  April 1997. From  December 1991 to April 1994,  Mr.  Zoffinger  served
                                               as  President and Chief Executive  Officer of Constellation Bancorp and Constellation
                                               Bank. He has served on the Board  of Directors  of the Multicare Companies, Inc. from
                                               April  1995  until  October,  1997 and as a member of the Board of  Directors  of New
                                               Jersey Resources, Inc. since May 1996.
</TABLE>
------------------
(1)      Included are only  directorships  in  companies  with a class of equity
         securities  registered  pursuant  to  Section  12  or  subject  to  the
         requirements  of Section 15(d) of the  Securities  Exchange Act of 1934
         and in financial institutions and insurance companies.



Compliance with Section 16(a) of the Exchange Act

         Section  16(a) of the  Exchange  Act  requires  the  Trust's  executive
officers and Trustees,  and persons who own more than 10% of a registered  class
of the Trust's  equity  securities,  to file reports of ownership and changes in
ownership with the Securities  and Exchange  Commission  (the "SEC") and the New
York Stock  Exchange  (the  "NYSE").  Officers,  Trustees  and greater  than 10%
shareholders are required by SEC regulation to furnish the Trust with copies for
all Section  16(a) forms they file.  To the Trust's  knowledge,  based solely on
review  of the  copies  of such  reports  furnished  to the  Trust  and  written
representations that no other reports were required during the fiscal year ended
September  30, 1997,  all Section  16(a) filing  requirements  applicable to its
executive  officers,  Trustees  and  greater  than 10%  beneficial  owners  were
satisfied.
<PAGE>
ITEM 11. TRUSTEE AND EXECUTIVE COMPENSATION.

         During the fiscal  years ended  September  30, 1997 and  September  30,
1996, the Trustees  received as compensation for their services as Trustees $750
for any  Trustee  or  committee  meeting  attended  in  person or  conducted  by
telephone  conference  except  that no  additional  compensation  was  paid  for
attendance at any additional  Trustee or committee  meeting held on the same day
as any Trustee or committee  meeting.  Non-local  Trustees were  reimbursed  for
hotel, airfare and automobile expenses.  In lieu of an annual retainer,  each of
the  non-officer  Trustees  was  granted  options in  October of fiscal  1996 to
purchase 35,000 Trust Shares under the 1995 Share Option Plan.

Employment Agreement

         The  Trust  entered  into  an  Employment  Agreement  (the  "Employment
Agreement") with George R. Zoffinger on September 29, 1995. The original term of
the  Employment  Agreement  is three  years  and is  automatically  renewed  for
additional  one-year  periods  unless  otherwise  terminated by the Trust or Mr.
Zoffinger.  Pursuant to the Employment  Agreement,  Mr.  Zoffinger serves as the
President and Chief  Executive  Officer of the Trust,  and he receives an annual
base salary at a rate of  $200,000  ("Base  Salary")  per year.  The  Employment
Agreement provides that the Base Salary may be increased,  but not decreased, at
the  discretion of the  Compensation  and  Nominating  Committee of the Board of
Trustees. In addition, Mr. Zoffinger is eligible for compensation in the form of
bonuses  under the Trust's  Performance  Incentive  Bonus Plan and option grants
under the 1995 Share Option Plan.

         Mr.  Zoffinger has agreed to devote  substantially  all of his business
time and  efforts to the  business  and  affairs of the  Trust.  The  Employment
Agreement  includes a  non-competition  provision which provides that during the
term of employment Mr.  Zoffinger is prohibited,  without written consent of the
Board of Trustees,  from investing in any property or any business venture which
competes,  directly  or  indirectly,  with the Trust or which  investment  would
require Mr.  Zoffinger's active involvement in such business or venture or would
materially  impair  his  ability  to  perform  fully his  obligations  under the
Employment Agreement.  If Mr. Zoffinger terminates his employment without cause,
as defined in the  Employment  Agreement,  he must  continue  to comply with the
non-competition provision until the first anniversary of such termination date.

         If the  employment of Mr.  Zoffinger is terminated by the Trust without
cause or by Mr.  Zoffinger upon  occurrence of certain events such as a material
breach of the Employment  Agreement by the Trust, Mr. Zoffinger will be entitled
to  continue  to receive  the Base  Salary at the same rate for six (6)  months.
Additionally, any unexercised vested options will remain exercisable only to the
extent provided in the applicable share option plan and option agreement.

         The consummation of the proposed  transaction with Wellsford will cause
the occurrence of a certain event under the employment agreement.  Mr. Zoffinger
would continue to receive his base salary at the same rate for six months.
<PAGE>
Executive Compensation

         Summary  Compensation.  The following  table shows for the fiscal years
ended September 30, 1997, 1996, 1995, the annual  compensation paid by the Trust
to the Chief  Executive  Officer  and the four  other  most  highly  compensated
executive officers of the Trust who earned more than $100,000 during fiscal 1997
(collectively, the "Named Executive Officers").
 
<TABLE>
<CAPTION>

                                                           SUMMARY COMPENSATION TABLE
                                                 Annual Compensation(1)                Awards       Payouts
                                            ---------------------------------  -------------------- -------
                                                                 Other Annual  Restricted  Options/            All Other
                                 Fiscal      Salary       Bonus  Compensation    Shares     SARs(3)   LTIP   Compensation
Name and Principal Position       Year       ($)(2)        ($)        ($)          ($)       (#)    Payouts      ($)
----------------------------      ------      ------       -----  ------------  ----------  -------- -------  -------------
<S>                                <C>      <C>          <C>          <C>           <C>     <C>        <C>      <C>
George R. Zoffinger,               1997     $200,000     $50,000      -             -          -       -        $4,080(4)
President and Chief                1996     $200,000     $50,000      -             -       244,000    -        $7,080(5)
Executive Officer                  1995(6)      -           -         -             -          -       -          -

Paul I. McArthur, Executive        1997     $130,000     $59,459      -             -          -       -        $3,842(7)
Vice President                     1996      $97,500     $53,545      -             -       100,000    -        $3,842(8)
                                   1995         -           -         -             -          -       -          -

Robert T. English, Secretary,      1997     $111,904     $15,000      -             -          -       -        $3,728(9)
Treasurer and Chief                1996      $96,918     $15,000      -             -        25,000    -        $6,195(10)
Financial Officer                  1995         -           -         -             -          -       -          -
</TABLE>

-----------------
(1)      In the fiscal year ended September 30, 1997 and September 30, 1996, the
         Trust provided certain personal benefits to its executive officers. The
         amount of such benefits to each of the Named Executive Officers did not
         exceed the lesser of $50,000 or 10% of salary and bonus for such fiscal
         year.

(2)      Includes salary deferrals and employee  contributions under the Trust's
         401(k) plan.

(3)      These  options  were  granted  under the 1995  Share  Option  Plan,  as
         described in the Report of the Compensation and Nominating Committee.

(4)      $1,080 of this amount  represents  the full dollar  value of  insurance
         premiums  paid  by the  Trust  during  fiscal  1997  on  behalf  of Mr.
         Zoffinger  with respect to term life  insurance.  $3,000 of this amount
         represents matching  contributions made by the Trust on Mr. Zoffinger's
         behalf under the Trust's 401(k) plan.

(5)      $1,080 of this amount  represents  the full dollar  value of  insurance
         premiums  paid  by the  Trust  during  fiscal  1996  on  behalf  of Mr.
         Zoffinger  with respect to term life  insurance.  $6,000 of this amount
         represents matching  contributions made by the Trust on Mr. Zoffinger's
         behalf under the Trust's 401(k) plan.
<PAGE>
(6)      Between April 24, 1995 and September 29, 1995, the Trust paid a monthly
         consulting fee of $17,667 to GRZ, Inc. for the  consulting  services of
         George R.  Zoffinger.  Mr.  Zoffinger  became the  President  and Chief
         Executive  Officer of the Trust on September 29, 1995,  but he received
         no salary in fiscal 1995.

(7)      $842 of this  amount  represents  the full  dollar  value of  insurance
         premiums paid by the Trust during fiscal 1997 on behalf of Mr. McArthur
         with respect to term life insurance.  $3,000 of this amount  represents
         matching contributions made by the Trust on Mr. McArthur's behalf under
         the Trust's 401(k) plan.

(8)      $842 of this  amount  represents  the full  dollar  value of  insurance
         premiums paid by the Trust during fiscal 1996 on behalf of Mr. McArthur
         with respect to term life insurance.  $3,000 of this amount  represents
         matching contributions made by the Trust on Mr. McArthur's behalf under
         the Trust's 401(k) plan.

(9)      $728 of this  amount  represents  the full  dollar  value of  insurance
         premiums paid by the Trust during fiscal 1997 on behalf of Mr.  English
         with respect to term life insurance.  $3,000 of this amount  represents
         matching  contributions made by the Trust on Mr. English's behalf under
         the Trust's 401(k) plan.

(10)     $695 of this  amount  represents  the full  dollar  value of  insurance
         premiums paid by the Trust during fiscal 1996 on behalf of Mr.  English
         with respect to term life insurance.  $5,500 of this amount  represents
         matching  contributions made by the Trust on Mr. English's behalf under
         the Trust's 401(k) plan.


Option Exercises and Holdings

         The following table sets forth certain information concerning exercises
of stock options during fiscal 1996 by each of the Named Executive  Officers and
the number and value of options held by each of the Named Executive  Officers on
September 30, 1996.
<TABLE>
<CAPTION>
                                     Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

                                                                                Number of               Value of
                                                                               Securities              Unexercised
                                                                         Underlying Unexercised       In-the-Money
                                                                               Options at              Options at
                                       Number of                                Fiscal YE             Fiscal YE (1)
                                        Shares                           ----------------------    -------------------
                                      Acquired on         Value               Exercisable/            Exercisable/
                                       Exercise         Realized              Unexercisable           Unexercisable
                                      ------------      --------         ----------------------    -------------------
<S>                                      <C>               <C>            <C>                       <C>
George R. Zoffinger                      -0-               -0-            81,333 / 162,667          $447,831 / $955,669
Paul I. McArthur                         -0-               -0-            33,333 /  66,667          $174,998 / $350,002
Robert T. English                        -0-               -0-             8,333 /  16,667           $48,956 / $ 97,919
--------------------
</TABLE>

(1)      Based on the fair market  value of the Shares on  September  30,  1997,
         $15.875 per share, less the option exercise price.
<PAGE>
Board of Trustees

         The Trust is managed by a seven member Board of Trustees, a majority of
whom are independent of the Trust's management.  The Board of Trustees held nine
meetings during fiscal 1997.  Each of the Trustees  attended at least 75% of the
total number of meetings of the Board of Trustees and of the  committees  of the
Trust of which he was a member.

         The  Board  of  Trustees  has  appointed  an  Audit   Committee  and  a
Compensation and Nominating  Committee.  Descriptions of the Audit Committee and
the Compensation and Nominating Committee follow.

Audit Committee

         The Audit  Committee,  which  currently  consists  of Messrs.  Jennings
(Chairman), Bernstein and Mayer, makes recommendations concerning the engagement
of  independent  public   accountants,   reviews  with  the  independent  public
accountants the plans and results of the audit engagement, approves professional
services   provided  by  the  independent   public   accountants,   reviews  the
independence of the independent public accountants, considers the range of audit
and non-audit fees and reviews the adequacy of the Trust's  internal  accounting
controls. The Audit Committee met one time in fiscal 1997.

Compensation and Nominating Committee

         The Compensation and Nominating Committee,  which currently consists of
Messrs. Bernstein,  Chairman, Frary and Levy makes recommendations and exercises
all powers of the Board of  Trustees in  connection  with  certain  compensation
matters,  including  incentive  compensation and benefit plans. The Compensation
and Nominating Committee  administers,  and has authority to grant awards under,
the 1995 Share Option Plan to the employee  Trustees and management of the Trust
and its  subsidiaries  and other key employees.  The Compensation and Nominating
Committee is also responsible for recommending to the shareholders and the Board
of Trustees  individuals  to serve as Trustees  and  officers of the Trust.  The
Compensation   and  Nominating   Committee  met  three  times  in  fiscal  1997.
Recommendations  from  shareholders for nominees for election as Trustees may be
directed to Mr. Martin  Bernstein,  Chairman of the  Compensation and Nominating
Committee,  Value Property Trust,  120 Albany Street,  8th Floor, New Brunswick,
New Jersey 08901.

1995 Stock Option Plan

         Reference is made to the  information  contained in Note 7 of the Notes
to the  Consolidated  Financial  Statements  which  is  incorporated  herein  by
reference.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Security Ownership of Certain Beneficial Owners

         The table below sets forth  information  concerning  the only  persons,
entities or groups which the Trust  believes are the  beneficial  owners of five
percent or more of the  outstanding  shares of the Trust's  Shares as of October
30, 1997.
<TABLE>
<CAPTION>

Name and Address of                         Amount and nature of
  Beneficial Owner                          Beneficial Ownership            Percent of Class
--------------------                        --------------------            ----------------
<S>                                               <C>                            <C>
Franklin Mutual Advisers, Inc.(1)                 5,631,827                      50.05%
51 JFK Parkway
Short Hills, New Jersey 07078

Intermarket Corporation                           2,788,827                      24.84%
667 Madison Avenue
20th Floor
New York, New York 10021

Angelo Gordon & Co., L.P.                         1,215,232                      10.82%
245 Park Avenue
New York, New York 10167

Strome Susskind & Co.                               562,138                       5.01%
1250 Fourth Street
Santa Monica, California 90401

----------------
</TABLE>
<PAGE>

(1)      Franklin  Mutual  Advisers,  Inc.  ("FMAI"),  is an investment  adviser
         registered  under the  Investment  Advisers Act of 1940. One or more of
         FMAI's advisory  clients are the beneficial  owners of 5,631,827 shares
         of the Trust's  common  stock.  Includes  25,000 of the Trust's  common
         stock beneficially owned by Franklin's  advisory clients pursuant to an
         agreement between Mr. Altman and FMAI.  Pursuant to investment advisory
         agreements  with  its  advisory  clients,   FMAI  has  sole  investment
         discretion and voting authority with respect to such  securities.  FMAI
         has no  interest  in  dividends  or  proceeds  from  the  sale  of such
         securities  and disclaims  beneficial  ownership of all the  securities
         owned by FMAI's advisory clients.

Security Ownership of Management

         The following table sets forth information as of October 30, 1997, with
respect to the beneficial  ownership of Shares by each Named  Executive  Officer
and Trustee of the Trust and by all Trustees and executive  officers as a group.
The  information  set forth below is based upon filings with the  Securities and
Exchange Commission,  the Trust's Share records, and information obtained by the
Trust from the persons  named  below.  As of October 30,  1997,  one  individual
Trustee or officer had  beneficial  ownership  of 1% or more of the  outstanding
Shares and all Trustees and  executive  officers as a group  beneficially  owned
3.64% of the outstanding Shares.
<TABLE>
<CAPTION>
                                          Amount and Nature of           Percent
Name of Beneficial Owner(1)               Beneficial Ownership          of Class
----------------------------              --------------------          --------
<S>                                             <C>                       <C>
Jeffrey A. Altman                                25,000(2)                  *
Martin Bernstein                                 53,162(3)                  *
Robert T. English                                16,666                     *
Richard S. Frary                                 43,775                     *
Richard B. Jennings                              25,000                     *
John B. Levy                                     29,206(4)                  *
Carl A. Mayer, Jr.                               25,000                     *
Paul I. McArthur                                 33,333                     *
George R. Zoffinger                             171,109                   1.50%
Trustees and executive officers
  as a group (9 persons)                        422,251                   3.64%
-----------------
</TABLE>
* Less than one percent.

(1)      The address of all Named Executive Officers is in care of the Trust.

(2)      Beneficial  ownership  of  25,000  of the  Common  Shares  reported  as
         beneficially  owned by Mr.  Altman are  beneficially  owned by Franklin
         Mutual  Advisers,  Inc.'s  advisory  clients  pursuant to an  agreement
         between Mr. Altman and Franklin Mutual Advisers, Inc.

(3)      Includes   18,775  Common  Shares  owned  by  Evelyn   Bernstein,   Mr.
         Bernstein's wife. Mr. Bernstein disclaims  beneficial ownership of such
         Shares.

(4)      Includes  4,206 Common  Shares owned by Judith Brown Levy,  Mr.  Levy's
         wife. Mr. Levy disclaims beneficial ownership of such Shares.
<PAGE>
Change of Control

         On September 18, 1997, the Trust entered into a definitive agreement to
be  acquired  by  Wellsford  Real  Properties,  Inc.  ("Wellsford")  in a merger
transaction  for  cash  and  stock.  The  proposed  transaction,  which  will be
accounted  for by  Wellsford  as a  purchase,  is  subject  to  certain  closing
conditions  and is  expected to be  completed  in early  1998.  Franklin  Mutual
Advisors,  Inc., whose advisory clients currently hold  approximately 50% of the
Trust's  outstanding  shares,  has  agreed to vote the  shares of the Trust over
which it has voting  power in favor of the  proposed  transaction.  The proposed
transaction, if consummated, will result in a change of control of the Trust.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Reference is made to the information  contained in Note 14 of the Notes
to the  Consolidated  Financial  Statements  which  is  incorporated  herein  by
reference.
<PAGE>
                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

         (a) Documents Filed as a Part of the Report.

         The following documents are filed as part of this report.

         1. Financial Statements.  The financial statements of the Trust are set
         forth in the "INDEX TO FINANCIAL STATEMENTS".

         2. Financial Statement Schedules. See 3(d) below.

         3. Exhibits.

         (a)  Exhibits are as set forth in the "INDEX TO EXHIBITS".

         (b)  REPORTS ON FORM 8-K.

                  The Trust  filed a Current  Report on Form 8-K dated  June 24,
                  1997 under Item 2 and Item 7 of Form 8-K regarding the Trust's
                  disposition of three real estate  properties  during the prior
                  quarter.

                  The Trust  filed a Current  Report on Form 8-K dated  July 11,
                  1997 under Item 2 and Item 7 of Form 8-K regarding the Trust's
                  disposition of two real estate  properties  during the current
                  quarter  and the  mortgage  financing  provided  in one of the
                  transactions.

                  The Trust filed a Current  Report on Form 8-K dated  September
                  18,  1997  under Item 5 and Item 7 of Form 8-K  regarding  the
                  Trust's  entering  into a  definitive  merger  agreement to be
                  acquired  by  Wellsford  Real  Properties,  Inc.  in a  merger
                  transaction  for cash and stock valued at  approximately  $169
                  million.

         (c) EXHIBITS,  INCLUDING THOSE INCORPORATED BY REFERENCE.  Exhibits are
         set forth in the "INDEX TO EXHIBITS". Where so indicated by footnote in
         the index,  exhibits which were  previously  filed are  incorporated by
         reference.  For exhibits incorporated by reference, the location of the
         exhibit in the previous filing is indicated in  parentheses.  Copies of
         the exhibits are  available to  shareholders  upon payment of $0.25 per
         page fee to cover the Trust's expenses in furnishing the exhibits.  For
         copies contact: Value Property Trust, 120 Albany Street, 8th floor, New
         Brunswick, New Jersey 08901.

         (d) Financial Statement Schedules, except those indicated in the "INDEX
         TO  FINANCIAL  STATEMENTS",  have been  omitted  because  the  required
         information  is included in the financial  statements or notes thereto,
         or the amounts are not significant.

OTHER INFORMATION

         THIS FORM 10-K CONTAINS  FORWARD-LOOKING  STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE  SECURITIES  ACT OF 1993 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE TRUST'S ACTUAL  RESULTS COULD DIFFER  MATERIALLY  FROM
THOSE SET FORTH IN  FORWARD-LOOKING  STATEMENTS.  THOSE FACTORS THAT MIGHT CAUSE
SUCH  A  DIFFERENCE  INCLUDE  THOSE  SET  FORTH  UNDER  "LIQUIDITY  AND  CAPITAL
RESOURCES" SECTION OF ITEM 7.
<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                                  VALUE PROPERTY TRUST

                                                  By: /s/ George R. Zoffinger
                                                      --------------------------
                                                      George R. Zoffinger
                                                      President and Chief
                                                      Executive Officer

Date: December 15, 1997

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this Form 10-K has been signed below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

         Each person in so signing also makes constitutes and appoints George R.
Zoffinger,  President and Chief Executive  Officer of Value Property Trust,  and
each of them, his true and lawful attorney-in-fact, in his name, place and stead
to execute and cause to be filed with the Securities and Exchange Commission any
and all amendments to this report.


/s/ Jeffrey A. Altman           Chairman and Trustee           December 15, 1997
--------------------------
    Jeffrey A. Altman

/s/ George R. Zoffinger         President, Chief Executive     December 15, 1997
--------------------------      Officer and Trustee
    George R. Zoffinger         (Principal Executive Officer)

/s/ Robert T. English           Secretary, Treasurer and       December 15, 1997
--------------------------      Chief Financial Officer
    Robert T. English           (Principal Financial and
                                Accounting Officer)

/s/ Martin Bernstein            Trustee                        December 15, 1997
--------------------------
    Martin Bernstein

/s/ Richard S. Frary            Trustee                        December 15, 1997
--------------------------
    Richard S. Frary

/s/ Richard B. Jennings         Trustee                        December 15, 1997
--------------------------
    Richard B. Jennings

/s/ John B. Levy                Trustee                        December 15, 1997
--------------------------
    John B. Levy

/s/ Carl A. Mayer, Jr.          Trustee                        December 15, 1997
--------------------------
    Carl A. Mayer, Jr.
<PAGE>


                              VALUE PROPERTY TRUST

                          INDEX TO FINANCIAL STATEMENTS




Report of Independent Auditors

Consolidated Financial Statements

    Consolidated Statements of Operations
    (Years ended September 30, 1997, 1996 and 1995)

    Consolidated Balance Sheets
    (September 30, 1997 and 1996)

    Consolidated Statements of Cash Flows
    (Years ended September 30, 1997, 1996 and 1995)

    Consolidated Statements of Shareholders' Equity
    (Years ended September 30, 1997, 1996 and 1995)

Notes to the Consolidated Financial Statements

Financial Statements Schedules

    Schedule III -- Real Estate Accumulated
    Depreciation and Amortization (September 30, 1997)

    Schedule XII -- Mortgage Loans on Real Estate
    (September 30, 1997)




<PAGE>


                         REPORT OF INDEPENDENT AUDITORS











To the Trustees and Shareholders of
Value Property Trust:

We have audited the accompanying  consolidated  balance sheets of Value Property
Trust as of September 30, 1997 and 1996, and the related consolidated statements
of operations,  shareholders' equity and cash flows for the years then ended and
related financial statement schedules.  These financial statements and financial
statement  schedules  are the  responsibility  of the  Trust's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedules based on our audits. The financial  statements and
financial  statement schedules of Value Property Trust as of September 30, 1995,
and for the year then ended,  were audited by other  auditors whose report dated
November 10, 1995,  included an emphasis of matter paragraph which described the
reorganiation  and the  implementation  of Fresh Start Reporting as discussed in
Note 1 to the financial statements.

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

In our opinion, the 1997 and 1996 consolidated  financial statements referred to
above present fairly, in all material respects,  the financial position of Value
Property Trust as of September 30, 1997 and 1996, and the  consolidated  results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.  In addition, in our opinion, the
related 1997 and 1996  financial  statement  schedules  referred to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present fairly in all material aspects,  the information required to be included
therein.




                                                     /s/COOPERS & LYBRAND L.L.P.
                                                     ---------------------------
                                                     COOPERS & LYBRAND L.L.P.



New York, New York
November 28, 1997
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS





Trustees and Shareholders
Value Property Trust

         We have audited the balance sheets of Value  Property  Trust  (formerly
Mortgage  and  Realty  Trust) at  September  30,  1995 and 1994 and the  related
statements of operations,  shareholders'  equity, and cash flows for each of the
three years in the period ended September 30, 1995.  These financial  statements
are the  responsibility  of the Trust's  management.  Our  responsibility  is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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.

         As more fully described in the financial  statements,  on September 22,
1995, the Bankruptcy  Court confirmed the Trust's plan of  reorganization  which
was  consummated  on  September  29,  1995  permitting  the Trust to emerge from
proceedings  under the Bankruptcy Code. The Trust implemented the guidance as to
the accounting  for entities  emerging from Chapter 11 set forth in Statement of
Position  90-7,  "Financial  Reporting by Entities in  Reorganization  under the
Bankruptcy Code" ("Fresh Start  Reporting") as of September 30, 1995. Due to the
reorganization  and the  implementation  of Fresh Start  Reporting,  assets were
recorded at reorganization  value,  liabilities were recorded at fair values and
outstanding  obligations  were  discharged  primarily in exchange for cash,  new
indebtedness  and equity.  As a result,  the balance sheet at September 30, 1995
reflects  a new basis of  accounting  and,  accordingly,  is not  comparable  to
balance sheets prior to that date.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the  financial  position of Value  Property
Trust, at September 30, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended  September  30, 1995,
in conformity with generally accepted accounting principles.



/s/ERNST & YOUNG LLP
--------------------
ERNST & YOUNG LLP



Philadelphia, Pennsylvania
November 10, 1995
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                  FOR THE YEARS ENDED SEPTEMBER 30
                                               (dollars in thousands except per share)

                                                                                           POST-                           PRE-
                                                                                       CONFIRMATION                    CONFIRMATION
                                                                            -----------------------------------        ------------
                                                                                1997                  1996                   1995
                                                                            ------------          ------------           ----------
<S>                                                                           <C>                    <C>                   <C> 
Revenue:                                                                                                            |
Rental properties:                                                                                                  |
  Rental income                                                               $ 20,486               $ 26,925       |      $ 24,608
  Operating expense reimbursement                                                2,975                  3,557       |         2,286
Interest and fee income on mortgage loans                                          202                  2,853       |         9,353
Interest on short-term investments                                               3,064                  1,713       |         3,086
Other                                                                                9                     18       |           131
                                                                              --------               --------       |      --------
Total Revenue                                                                   26,736                 35,066       |        39,464
                                                                              --------               --------       |      --------
Expenses:                                                                                                           |
Interest                                                                         4,640                 10,489       |        35,900
Rental properties:                                                                                                  |
  Operating                                                                      8,971                 12,084       |        11,702
  Depreciation and amortization                                                  1,717                  2,347       |         7,306
Other operating expenses                                                         3,053                  3,173       |         4,518
Litigation settlement                                                              751                     --       |            --
Provision for losses on mortgage loans and related investments                      --                     --       |         3,000
                                                                              --------               --------       |      --------
Total Expenses                                                                  19,132                 28,093       |        62,426
                                                                              --------               --------       |      --------
Income (loss) from operations before reorganization items,                                                          |
  and gain on sale of real estate and extraordinary item                         7,604                  6,973       |       (22,962)
                                                                              --------               --------       |      --------
Reorganization items:                                                                                               |
  Professional fees and other                                                       --                     --       |         6,219
  Interest income                                                                   --                     --       |          (441)
  Write down of invested assets to reorganization value                             --                     --       |        66,597
                                                                              --------               --------       |      --------
Total reorganization items                                                          --                     --       |        72,375
                                                                              --------               --------       |      --------
Income (loss) before gain on sale of real estate and                                                                |
  extraordinary item                                                             7,604                  6,973       |       (95,337)
                                                                              --------               --------       |      --------
Gain on sale of real estate                                                     24,861                     --       |            --
                                                                              --------               --------       |      --------
Income (loss) from operations before extraordinary item                         32,465                  6,973       |       (95,337)
Extraordinary item-gain on extinguishment of debt                                   --                     --       |        75,304
                                                                              --------               --------       |      --------
Net income (loss)                                                             $ 32,465               $  6,973       |      $(20,033)
                                                                              ========               ========       |      ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                  FOR THE YEARS ENDED SEPTEMBER 30
                                               (dollars in thousands except per share)
                                                              (continued)                   

                                                                                           POST-                           PRE-
                                                                                       CONFIRMATION                    CONFIRMATION
                                                                            -----------------------------------        ------------
                                                                                1997                  1996                   1995
                                                                            ------------          ------------           ----------
<S>                                                                           <C>                    <C>                   <C> 
Per share:                                                                                                          |
Income from operations before reorganization items,                                                                 |
  gain on sale of real estate and extraordinary item *                        $   0.68               $   0.62       |
Gain on sale of real estate *                                                 $   2.21               $   0.00       |
                                                                              --------               --------       |
Net income *                                                                  $   2.89               $   0.62       |
                                                                              ========               ========       |
                                                                                                                    |
Weighted average number of common shares outstanding                            11,226                 11,226       |        11,226

</TABLE>

*        Net  income  (loss)  per share for the  pre-confirmation  period is not
         presented because this information is not meaningful as a result of the
         Reorganization and the adoption of "Fresh Start Reporting". See Item 7.
         Management's Discussion and Analysis of Financial Condition and Results
         of Operations.






          See accompanying notes to consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>
                                  VALUE PROPERTY TRUST

                              CONSOLIDATED BALANCE SHEETS
                                   AS OF SEPTEMBER 30

                                 (dollars in thousands)

                                                                   1997         1996
                                                                 --------     --------
                                ASSETS
<S>                                                              <C>          <C>
Assets Held For Sale:
     Investment in partnerships ............................     $  5,869     $ 10,219
     Real estate owned .....................................       22,001       38,171
                                                                 --------     --------
Total Assets Held For Sale                                         27,870       48,390
                                                                 --------     --------
Assets Held For Investment:
     Mortgage loans ........................................        6,805          663
     Investment in partnerships ............................           --       13,486
     Real estate owned .....................................       37,934       63,196
                                                                 --------     --------
Total Assets Held For Investment                                   44,739       77,345
                                                                 --------     --------

Total Invested Assets ......................................       72,609      125,735

Cash and cash equivalents ..................................       81,409       29,501
Restricted cash ............................................        1,673       12,213
Interest receivable and other assets .......................        3,391        4,962
                                                                 --------     --------
Total Assets ...............................................     $159,082     $172,411
                                                                 ========     ========

                            LIABILITIES

Senior Secured Notes (Due 1999) ............................     $ 18,222     $ 63,226
Accounts payable and accrued expenses ......................        1,245        1,804
Interest payable ...........................................          103          334
                                                                 --------     --------
Total Liabilities ..........................................       19,570       65,364
                                                                 --------     --------
Commitments and contingencies
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                  VALUE PROPERTY TRUST

                              CONSOLIDATED BALANCE SHEETS
                                   AS OF SEPTEMBER 30

                                 (dollars in thousands)
                                      (continued)

                                                                   1997         1996
                                                                 --------     --------
                                 
<S>                                                              <C>          <C>
                      SHAREHOLDERS' EQUITY

Preferred Shares, $1 par value: 3,500,000 shares authorized,
  none issued ..............................................           --           --
Common Shares, $1 par value: 20,000,000 shares authorized,
  11,226,310 in fiscal 1997 and fiscal 1996 shares issued
  and outstanding...........................................       11,226       11,226
Additional paid-in capital .................................       88,848       88,848
Accumulated earnings .......................................       39,438        6,973
                                                                 --------     --------
Total Shareholders' Equity .................................      139,512      107,047
                                                                 --------     --------
Total Liabilities and Shareholders' Equity .................     $159,082     $172,411
                                                                 ========     ========
</TABLE>
          See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                  FOR THE YEARS ENDED SEPTEMBER 30

                                                       (dollars in thousands)

                                                                                                POST-                       PRE-
                                                                                             CONFIRMATION               CONFIRMATION
                                                                                    ----------------------------        ------------
                                                                                        1997              1996               1995
                                                                                    ------------       ---------          ---------
<S>                                                                                    <C>              <C>               <C>  
Cash flows from operating activities:                                                                                |
 Net income (loss) ...........................................................         $ 32,465         $   6,973    |    $ (20,033)
 Adjustments to reconcile net income (loss) to net cash                                                              |
  provided by (used in) operating activities:                                                                        |
    Write down of invested assets to reorganization value ....................               --                --    |       66,597
    Extraordinary item-gain on extinguishment of debt ........................               --                --    |      (75,304)
    Depreciation and amortization on real estate .............................            1,717             2,347    |        7,306
    Provision for losses .....................................................               --                --    |        3,000
 (Decrease) increase in accounts payable and accrued expenses ................             (559)           (2,942)   |          199
 (Decrease) increase in interest payable .....................................             (231)              334    |      (32,568)
 Decrease (increase) in receivables and other assets .........................            2,095             2,675    |         (576)
 Net change in interest reserves, deferred income ............................               --                --    |         (162)
 Recoveries of charge-offs to allowance for losses ...........................               --                --    |          631
 Gain on sale of real estate..................................................          (24,861)               --    |           --
                                                                                      ---------         ---------    |    ---------
Total adjustments ............................................................          (21,839)            2,414    |      (30,877)
                                                                                      ---------         ---------    |    ---------
Net cash provided by (used in) operating activities ..........................           10,626             9,387    |      (50,910)
                                                                                      ---------         ---------    |    ---------
Cash flows from investing activities:                                                                                |
 Investment in real estate:                                                                                          |
    Real estate owned ........................................................           (3,716)           (4,550)   |      (11,283)
    Advances on mortgage loans ...............................................           (6,257)              (73)   |         (733)
    Partnerships .............................................................             (813)             (344)   |       (2,211)
 Principal repayments on mortgage loan receivables ...........................              115               332    |       22,711
 Proceeds from the sale of real estate .......................................           86,417            27,093    |        3,350
 Proceeds from the sale of mortgage loans and notes receivable ...............               --            57,047    |           --
 Repayments on notes receivable ..............................................               --               338    |          217
                                                                                      ---------         ---------    |    ---------
Net cash provided by investing activities ....................................           75,746            79,843    |       12,051
                                                                                      ---------         ---------    |    ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                  FOR THE YEARS ENDED SEPTEMBER 30

                                                       (dollars in thousands)
                                                            (continued)

                                                                                                POST-                       PRE-
                                                                                             CONFIRMATION               CONFIRMATION
                                                                                    ----------------------------        ------------
                                                                                        1997              1996               1995
                                                                                    ------------       ---------          ---------
<S>                                                                                    <C>              <C>               <C>  
Cash flows from financing activities:                                                                                |
 Payment of mortgage payable .................................................               --           (17,535)   |          (58)
 Principal payment of senior secured notes (due 2002) ........................               --          (109,975)   |       (4,647)
 Principal payment of senior secured notes (due 1999) ........................          (45,004)           (4,153)   |           --
 Borrowing of senior notes (due 1999) ........................................               --            67,379    |           --
 Decrease (increase) in restricted cash ......................................           10,540            (5,422)   |       (3,808)
                                                                                      ---------         ---------    |    ---------
Net cash used in financing activities ........................................          (34,464)          (69,706)   |       (8,513)
                                                                                      ---------         ---------    |    ---------
Net increase (decrease) in cash and cash equivalents .........................           51,908            19,524    |      (47,372)
Cash and cash equivalent at beginning of period ..............................           29,501             9,977    |       57,349
                                                                                      ---------         ---------    |    ---------
Cash and cash equivalent at end of period ....................................        $  81,409         $  29,501    |    $   9,977
                                                                                      ---------         ---------    |    ---------
                                                                                                                     |
Supplemental schedule of non-cash investing activities:                                                              |
  Charge-offs against allowance for losses ...................................        $      --         $      --    |    $   5,515
  Transfer of mortgage loans to real estate owned ............................        $      --         $   5,120    |    $  10,900
                                                                                                                     |
Interest Paid ................................................................        $   3,230         $   9,972    |    $      --


</TABLE>
          See accompanying notes to consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                        FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

                                           (Dollars in thousands except number of shares)

                                                                         ADDITIONAL           ACCUMULATED                TOTAL
                                               COMMON SHARES              PAID-IN              (DEFICIT)             SHAREHOLDERS'
                                           SHARES        AMOUNT           CAPITAL              EARNINGS                 EQUITY
                                           ------       --------          --------             --------                --------
<S>                                       <C>            <C>              <C>                  <C>                     <C>
Balance at September 30, 1994              11,226         11,226           182,375             (173,568)                 20,033

Net loss                                       --             --                --              (20,033)                (20,033)

Reverse stock split                       (10,889)       (10,889)         (268,905)                  --                (279,794)
Issuance of Common Stock                   10,889         10,889           175,378                   --                 186,267

Adjustment to restate
  accumulated deficit to zero                  --             --                --              193,601                 193,601
                                           ------       --------          --------             --------                --------



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



Balance at September 30, 1995              11,226         11,226            88,848                    0                 100,074
                                           ------       --------          --------             --------                --------

Net income                                     --             --                --                6,973                   6,973
                                           ------       --------          --------             --------                --------

Balance at September 30, 1996              11,226       $ 11,226          $ 88,848             $  6,973                $107,047


Net income                                     --             --                --               32,465                  32,465
                                           ------       --------          --------             --------                --------

Balance at September 30, 1997              11,226       $ 11,226          $ 88,848             $ 39,438                $139,512
                                           ======       ========          ========             ========                ========


</TABLE>

          See accompanying notes to consolidated financial statements.
<PAGE>
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION

         On September 29, 1995, the Trust's  Prepackaged Plan of  Reorganization
was declared  effective by the United  States  Bankruptcy  Court for the Central
District of California.

         Under  the  Prepackaged  Plan,  holders  of  the  Trust's  $290,000,000
principal  amount of Senior Secured  Uncertificated  Notes due 1995 received (i)
$110,000,000  principal  amount of newly issued 11-1/8% Senior Secured Notes due
2002,  (ii)  $71,000,000  ($25,000,000  paid in April  1995)  in cash and  (iii)
approximately  10,889,430  newly  issued  Common  Shares  representing,  in  the
aggregate,  approximately  97%  of  the  Common  Shares  outstanding  after  the
effective date. In connection with the Prepackaged  Plan, the Trust effected a 1
for 33.33 reverse stock split of all outstanding Common Shares.

         In connection  with its emergence from the Chapter 11  proceeding,  the
Trust  implemented  Fresh Start Reporting as of September 30, 1995, as set forth
in Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy  Code." The Trust adopted Fresh Start Reporting because (i)
the holders of existing voting shares immediately before filing and confirmation
of the  Prepackaged  Plan received less than 50% of the voting shares of the new
entity  and  (ii)  the  reorganization  value  immediately  before  the  date of
confirmation  was less  than  the  total of all  post-petition  liabilities  and
allowed claims, as shown below:

                                                                      ($ in 000)
                                                                      ---------
Total post-petition liabilities and allowed claims ...........        $ 351,833
Reorganization value .........................................         (278,354)
                                                                      ---------

Excess of liabilities over reorganization value ..............        $  73,479
                                                                      =========


         The  post-confirmation  financial statements and schedules amounts have
been  segregated  by a  black  line in  order  to  signify  that  the  financial
statements  and  schedules  are that of a new  reporting  entity  and have  been
prepared on a basis which is not  comparable to the  pre-confirmation  financial
statements and schedules.

         The Trust based the reorganization  value of assets on the mid-point of
the range of values  prepared by  independent  specialists  in the field of real
estate valuation.  The valuation of its real estate  investments was prepared as
of March 31, 1995 and was  adjusted to September  30, 1995 for various  accounts
such as cash and cash equivalents, accounts receivable and accounts payable.

         The Trust's liabilities were stated at their fair value. The difference
between reorganization value of the assets and the fair value of the liabilities
was  recorded as an  adjustment  to  shareholders'  equity with the  accumulated
deficit restated to zero.

         The real estate valuation analysis reflected the selection of 26 assets
which represented 81% of the Trust's book value at March 31, 1995. The selection
was divided  between east coast and west coast assets and generally  represented
the highest dollar values in the portfolio.
<PAGE>
         The  analysis  factored  in,  among other  things,  (i) the most recent
property  cash  flow  projections  for  the  properties  selected,   (ii)  where
applicable,  the most recent operating rent roll and other financial information
relative to the assets selected,  (iii) the most recent third party, independent
appraisals, where applicable and available, (iv) discussions with the respective
asset  managers to determine  loan  status,  property  characteristics,  current
occupancy,  existing market rental rates, new leases, current payoff discussions
and  asset  sales,  and (v) a  review  of  limited  market  information  for the
properties.

         The valuation of the asset portfolio assumed continued operation of the
portfolio  for several  years.  Sales and  pay-offs of certain  assets  occurred
throughout the analysis  period (six years) and no additional  investments  were
made.  Property cash flows,  loan payments and pay-offs,  and reversion  amounts
(based on normalized capital expenditures in the reversion year) were discounted
to present  value at 12 percent per year.  Amounts do not include  extraordinary
expenses for reorganization or litigation.

         The going  concern value was reduced by other  operating  expenses that
would be incurred  over a six year  period.  The present  value of expenses  was
calculated by applying a capitalization  rate of 10 percent to Year 6 stabilized
other expenses and discounting both the capitalized,  stabilized Year 6 expenses
and the annual  expenses  at 12  percent.  The net  present  value of  operating
expenses was $27.3 million.

         The effect of the Fresh Start Reporting on the Trust's  historical cost
balance sheet at September 30, 1995 is as follows:
<TABLE>
<CAPTION>
                                                     PRE-               REORGANIZATION           FRESH START             POST-
                                                 CONFIRMATION             ADJUSTMENTS            ADJUSTMENTS         CONFIRMATION
                                                 ------------             -----------            -----------         ------------
(dollars in thousands)
<S>                                                 <C>                  <C>                   <C>                      <C>
ASSETS Assets held for sale:
         Mortgage loans                             $ 30,225                                   ($  8,259) (E)           $ 21,966
         Investments in partnerships                   6,478                                      (1,258) (E)              5,220
         Real estate owned                            50,406                                      (8,347) (E)             42,059
                                                    --------             --------              ---------                --------
                                                      87,109                    0                (17,864) (E)             69,245
                                                    --------             --------              ---------                --------
     Assets held for investment:
         Mortgage loans                               46,721                                     (11,708) (E)             35,013
         Investments in partnerships                  26,249                                      (5,601) (E)             20,648
         Notes receivable                                700                                         (67) (E)                633
         Real estate owned                           124,484                                     (42,903) (E)             81,581
                                                    --------             --------              ---------                --------
                                                     198,154                    0                (60,279) (E)            137,875
                                                    --------             --------              ---------                --------
                                                     285,263                    0                (78,143) (E)            207,120
Less: allowance for losses                           (11,546)                                     11,546  (E)                  0
                                                    --------             --------              ---------                --------
                                                     273,717                    0                (66,597) (E)            207,120

Cash and cash equivalents                             56,002              (46,025) (A)                                     9,977
Restricted cash                                        6,791                                                               6,791
Interest receivable and other assets                   8,441                                                               8,441
                                                    --------             --------              ---------                --------
         Total Assets                               $344,951             ($46,025)              ($66,597)               $232,329
                                                    --------             --------              ---------                --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                     PRE-               REORGANIZATION           FRESH START             POST-
                                                 CONFIRMATION             ADJUSTMENTS            ADJUSTMENTS         CONFIRMATION
                                                 ------------             -----------            -----------         ------------
(dollars in thousands)
<S>                                                 <C>                  <C>                   <C>                      <C>
LIABILITIES
     Senior Notes Due 1995                          $290,000            ($290,000) (B)                                  $      0
     Senior Notes Due 2002                                 0              109,975  (B)                                   109,975
     Mortgage payable                                 17,535                                                              17,535
     Interest payable                                 41,378              (41,378) (B)                                         0
     Accounts payable and other                        2,920                1,825  (C)                                     4,745
                                                    --------             --------              ---------                --------
         Total Liabilities                           351,833             (219,578)                     0                 132,255
                                                    --------             --------              ---------                --------
SHAREHOLDERS' EQUITY
     Common Stock at par                              11,226                                                              11,226
     Additional paid in capital                      182,375              175,378  (D)          (268,905) (F)             88,848
     Accumulated deficit                            (200,483)              (1,825) (C)           202,308  (F)                  0
                                                    --------             --------              ---------                --------

         Total Shareholders' Equity                   (6,882)             173,553                (66,597)                100,074
                                                    --------             --------              ---------                --------
         Total Liabilities and
           Shareholders' Equity                     $344,951             $(46,025)             $ (66,597)               $232,329
                                                    ========             ========              =========                ========
</TABLE>

                      ADJUSTMENTS TO REFLECT REORGANIZATION

(A)      Reflects a $46,025 payment to creditors made at  implementation  of the
         plan.

(B)      Reflects the  cancellation  of the Senior Secured Notes due 1995 in the
         face amount of $290,000 and the related interest payable on these notes
         of $41,378 and the  recording  of the new Senior  Notes due 2002 in the
         face amount of $109,975.

(C)      Reflects the cost of the termination pay plan (See Note 9) ($1,325) and
         the cost associated with the restructuring ($500).

(D)      Reflects the  conversion  of amounts  previously  owed under the Senior
         Secured Notes due 1995 converted to a 97% interest in the common shares
         of the reorganized Trust as follows:

                                                                      ($ in 000)
                                                                      ---------
Face amount of Senior Notes due 1995 .........................        $ 290,000
Interest payable .............................................           41,378
                                                                      ---------

Total amount payable to creditors ............................          331,378
Less: Senior Notes due 2002 ..................................         (109,975)
Less: Cash payment to creditors ..............................          (46,025)
                                                                      ---------

Amount previously due creditors converted to equity ..........        $ 175,378
                                                                      =========
<PAGE>
         The  following  unaudited  table  reflects  the  ownership  (as between
holders of Outstanding  Common Shares and holders of  Outstanding  Notes) of the
Trust's Common Shares before and after consummation of the 1995 Restructuring.
<TABLE>
<CAPTION>


                               COMMON SHARES BEFORE                   COMMON SHARES AFTER                       COMMON
                                REVERSE STOCK SPLIT                 REVERSE STOCK SPLIT BUT                  SHARES AFTER
                                  OR CONSUMMATION                   BEFORE CONSUMMATION OF                   CONSUMMATION
                               OF THE RESTRUCTURING                    THE RESTRUCTURING                 OF THE RESTRUCTURING
                           ------------------------------       -----------------------------        -------------------------------
                           NUMBER OF         PERCENT OF         NUMBER OF        PERCENT OF          NUMBER OF         PERCENT OF
                            SHARES          COMMON SHARES        SHARES         COMMON SHARES         SHARES          COMMON SHARES
                           ---------        -------------       ---------       -------------        ---------       ---------------
(in 000)
<S>                         <C>                 <C>                <C>               <C>              <C>                  <C>
Holders of Outstanding
   Notes                         0                0                  0                 0              10,889               97%
Holders of Outstanding
   Common Shares            11,226              100%               337               100%                337                3%
</TABLE>



                  ADJUSTMENT TO REFLECT FRESH START ACCOUNTING

(E)      Reflects  adjustment  made to  carrying  value of loans and owned  real
         estate to adjust to reorganization values.

(F)      Reflects an adjustment of the  accumulated  deficit to zero as a result
         of the  restructure and the adjustment of additional paid in capital as
         follows:

                                                                      ($ in 000)
                                                                      ---------
Adjust accumulated deficit to reset to zero .................         $(202,308)
Adjustment to carrying value of invested assets .............           (66,597)
                                                                      ---------
                                                                      $(268,905)
                                                                      =========

 
         The following  unaudited Pro Forma Statement of Operations is presented
as if the Prepackaged Plan of Reorganization  and  implementation of Fresh Start
Reporting  had  occurred as of October 1, 1994.  Such pro forma  information  is
based upon the  historical  financial  statements of Value  Property  Trust.  In
management's  opinion all adjustments  necessary to reflect the effects of those
transactions  have been made.  The following  unaudited  Pro Forma  Statement of
Operations  is  not  necessarily  indicative  of  what  the  actual  results  of
operations of the Trust would have been assuming such  transaction  had occurred
as of  October  1,  1994,  nor does it  purport  to  represent  the  results  of
operations for future periods.
<PAGE>
<TABLE>
<CAPTION>
                                                  PRO FORMA STATEMENT OF OPERATIONS
                                                    Year Ended September 30, 1995
                                                             (Unaudited)
                                               (dollars in thousands except per share)

                                                                                                       PRO FORMA
                                                                                    1995              ADJUSTMENTS          PRO FORMA
                                                                                  --------            -----------          ---------
<S>                                                                               <C>                  <C>                  <C>
Revenue:
Income of rental properties:
     Rental income ...................................................            $ 24,608             $   --               $ 24,608
     Operating expense reimbursements ................................               2,286                 --                  2,286
Interest and fee income on mortgage loans ............................               9,353                 --                  9,353
Interest on short-term investments ...................................               3,086               (2,586) (G)             500
Other ................................................................                 131                 --                    131
                                                                                  --------             --------             --------
                                                                                    39,464               (2,586)              36,878
                                                                                  --------             --------             --------
Expenses:
Interest .............................................................              35,900              (21,780) (H)          14,120
Expenses of rental properties:
     Depreciation and amortization ...................................               7,306               (2,390) (J)           4,916
     Operating .......................................................              11,702                 --                 11,702
Other operating expenses .............................................               4,518                 --                  4,518
Provision for losses on mortgage loans and related investments .......               3,000               (3,000) (I)            --
                                                                                  --------             --------             --------
                                                                                    62,426              (27,170)              35,256
                                                                                  --------             --------             --------
Income (loss) from operations before
     reorganization items, and extraordinary item ....................             (22,962)              24,584                1,622
Reorganization items:
     Professional fees and other .....................................              (6,219)               6,219  (K)            --
     Interest income .................................................                 441                 (441) (K)            --
     Write down of invested assets to
     reorganization value ............................................             (66,597)              66,597  (K)            --
                                                                                  --------             --------             --------
Total reorganization items ...........................................             (72,375)              72,375                 --
                                                                                  --------             --------             --------
Income (loss) before extraordinary item ..............................             (95,337)              96,959                1,622
                                                                                  --------             --------             --------

Extraordinary item-gain on extinguishment of debt ....................              75,304              (75,304) (L)            --
                                                                                  --------             --------             --------

Net income (loss) ....................................................            $(20,033)            $ 21,655             $  1,622
                                                                                  ========             ========             ========

Weighted average number of common shares outstanding .................              11,226                                    11,226
Net income per share .................................................                   *                                  $    .14
</TABLE>

          Net income (loss) per share is not presented  because this information
         is not meaningful as a result of the Reorganization and the adoption of
         "Fresh  Start  Reporting".  See  Item 7.  Management's  Discussion  and
         Analysis of Financial Condition and Results of Operations.
<PAGE>
              Notes To Unaudited Pro Forma Statement of Operations
                              Pro Forma Adjustments

(G)      Reflects an adjustment to investment  income to reflect an average cash
         position of approximately  $10.0 million at an average  investment rate
         of 5.0% for fiscal 1995.

(H)      Reflects the reversal of interest  expense  related to the  Outstanding
         Notes ($34.0 million) which were cancelled and the addition of interest
         expense for the New Senior Notes ($12.2 million) which bear interest at
         a fixed rate of 11.125%.

(I)      Reflects the reversal of the $3.0  million  provision  for losses which
         would be eliminated as a result of the adjustment of invested assets to
         reorganization value.

(J)      Reflects an adjustment to depreciation and amortization  resulting from
         the reduced basis in owned real estate as a result of the adjustment of
         invested assets to reorganization value.

(K)      Reflects  the  reversal  of  reorganization  expenses  based  upon  the
         assumption that the  Restructuring  was completed and no  non-recurring
         expenses related to the Restructuring were incurred.

(L)      Reflects the reversal of gain on  extinguishment of debt based upon the
         assumption that the Restructuring was completed October 1, 1994.


2. SIGNIFICANT ACCOUNTING POLICIES

           USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. The most significant of these estimates relate to the carrying
value of the assets held for sale and the estimated  useful lives of assets held
for investment. Actual results could differ from those estimates.

                           PRINCIPLES OF CONSOLIDATION

         The  accounts  of the  Trust  and its  wholly  owned  subsidiaries  are
consolidated  in  the  accompanying   financial   statements.   All  significant
intercompany balances and transactions have been eliminated in consolidation.

                                  INCOME TAXES

         The Trust is a real estate  investment  trust ("REIT") that has elected
to be taxed under  Sections  856-860 of the Internal  Revenue  Code of 1986,  as
amended (the "Code").  Accordingly, the Trust does not pay Federal income tax on
income as long as income distributed to shareholders is at least equal to 95% of
real estate  investment trust taxable income,  and pays no Federal income tax on
capital gains distributed to shareholders.
<PAGE>
         In July 1997,  the Trust  contacted the Internal  Revenue  Service (the
"IRS") regarding  interpretative  advice concerning a technical provision of the
REIT requirements of the Internal Revenue Code and, based upon such interpretive
advice,  potential violations of such provision during fiscal 1994 and 1995. The
Trust does not believe that any such potential  violations would have a material
adverse  effect  on  the  Trust.   However,   the  Trust  has  sought  the  IRS'
interpretation  of the  technical  provision  of the REIT  requirements  and its
concurrence that, if any technical violations were deemed to have occurred, such
violations would not affect the Trust's REIT status.  The Trust believes that if
its status as a REIT was terminated, potential corporate taxes for prior periods
would  not be  material  due to the net  operating  losses  available  in  prior
periods.  Moreover,  there  should be no material  adverse tax  consequences  to
shareholders  during  such prior  periods  since no  distributions  were made to
shareholders during such periods.  The effect of a termination of REIT status in
current and future periods would be based upon a number of factors;  because the
Trust is unable to predict the  occurrence or magnitude of such  factors;  it is
unable to predict the effect of a termination of REIT status on the Trust or its
shareholders for such periods.

         For the fiscal  years ended  September  30,  1996 and 1995,  there were
significant  differences  between  taxable  net loss and net  income  (loss)  as
reported  in the  financial  statements.  The  differences  were  related to the
recognition of bad debt deductions and accounting for  reorganization  costs and
Fresh  Start  Reporting.  For  financial  accounting  purposes,  these items are
expensed  currently,  while for tax  purposes  some  portion of these  items are
deferred to future  periods or may not be  deductible.  In  addition,  the Fresh
Start Reporting discussed in Note 1 is not recognized for tax purposes, and will
result in future years financial reporting and tax basis differences.

         The Trust has  approximately  $107 million in net operating losses (the
"NOLs") for tax purposes  attributable to losses  generated in fiscal years 1992
through 1996. The NOLs  attributable  to each year can be carried  forward up to
fifteen  years  from the year  the  loss was  generated.  The use of NOLs in any
taxable  year  (together  with  any  recognized  losses  that  are  economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation  under Section 382 of the Code. The Trust  estimates that this annual
limitation is approximately $6 million.

                                 INTEREST INCOME

         Interest income on each loan is recorded as earned.  Interest income is
not recognized if, in the opinion of the management, collection is doubtful. The
Trust  generally  considers  loans as delinquent  if payment of interest  and/or
principal,  as required by the terms of the note, is more than 60 days past due.
Accrual of interest income is generally  terminated and foreclosure  proceedings
are started if payment is more than 60 days past due.

                              ALLOWANCE FOR LOSSES

         Prior to the implementation of Fresh Start Reporting, the allowance for
losses on mortgage  loans and related  investments  was determined in accordance
with The  American  Institute  of  Certified  Public  Accountants  Statement  of
Position on  Accounting  Practices of Real Estate  Investment  Trusts 75-2 ("SOP
75-2"), as amended.  This statement required adjustment of the carrying value of
<PAGE>
mortgage  loans to the lower of their carrying value or estimated net realizable
value.  Estimated  net  realizable  value was the  estimated  selling price of a
property  offered for sale in the open market allowing a reasonable time to find
a buyer,  reduced  by the  estimated  cost to  complete  and  hold the  property
(including  the estimated cost of capital),  net of estimated cash income.  With
the  implementation  of Fresh Start  Reporting,  as of September  30, 1995,  the
allowance for losses was reset to zero.

         Effective  October 1, 1995, the Trust adopted the Financial  Accounting
Standards  Board SFAS No. 114,  "Accounting  by Creditors  for  Impairment  of a
Loan", which requires that impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's  effective  interest rate
or, as a practical expedient,  at the loan's observable market price or the fair
value of the  collateral if the loan is collateral  dependent.  Adoption of this
statement did not have a significant impact on the Trust's financial position or
results of operations.

                              NET INCOME PER SHARE

         Net income per share is  computed  using the  weighted  average  common
shares   outstanding   during   the   period.   Net  loss  per   share  for  all
pre-confirmation  periods  is not  presented  because  this  information  is not
meaningful as a result of the  Reorganization  and the  implementation of "Fresh
Start Reporting". See Note 1.

                          DEPRECIATION AND AMORTIZATION

         At September 30, 1995, as a result of Fresh Start Reporting, all assets
and  liabilities  of  the  Trust  were  restated  to  reflect  their  respective
reorganization value or fair value. The accumulated  depreciation on real estate
owned was reset to zero as a result of the adoption of Fresh Start Reporting. At
September 30, 1995,  the Trust  segregated  the real estate  portfolio  into two
categories:  Held for Sale and Held for  Investment.  The Trust  depreciates the
Held for Investment  category over the estimated useful lives of the assets;  40
years for buildings, three to five years for other property and over the term of
the related lease for lease  commissions and tenant  improvements.  The Held for
Sale category is not depreciated. During fiscal 1997, the Trust reclassified six
properties  totaling $35.7 million to real estate held for sale from real estate
held for investment and no longer depreciates these assets.  During fiscal 1996,
the Trust  reclassified  seven properties  totaling $18.7 million to real estate
held for sale from real estate  held for  investment  and no longer  depreciates
these assets.

                            CASH AND CASH EQUIVALENTS

         Cash  and cash  equivalents  and  restricted  cash  include  short-term
investments (high grade commercial  paper, bank CDs and US Treasury  Securities)
with original maturities not exceeding a term greater than 90 days.

                           INVESTMENT IN PARTNERSHIPS

         The  investment in partnership  represents the Trust's  investment in a
real estate  partnership.  The Trust owns a majority  percentage interest in the
partnership and receives  substantially all of the cash flow. The Trust accounts
for the partnership in a similar manner as real estate investments.
<PAGE>
                                REAL ESTATE OWNED

         Real  estate  and  leasehold   improvements  are  stated  at  cost.  In
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," the Trust records impairment  writedowns on long-lived assets,  when events
and circumstances  indicate that the assets might be impaired and the estimated
undiscounted  cash  flows to be  generated  by those  assets  are less  than the
carrying amounts of those assets. No such impairment losses have been recognized
in these financial statements.

         As of September 30, 1995, the Trust's  invested assets were adjusted to
reorganization  value which became the new historical cost basis.  Subsequently,
real estate held for investment is carried at historical cost less depreciation.
Real  estate  held for sale is  carried  at the lower of cost or net  realizable
value.  In conjunction  with the adoption of Fresh Start  Reporting on September
30, 1995,  all gains or losses for a period of one year after such  adoption are
applied  against the carrying  value of long lived  assets held for  investment.
Through  September 30, 1996, the Trust has reduced the carrying values of assets
Held for  Investment  by $12.6  million as a result of the net gains on both the
disposition  of  substantially  all of its mortgage loan portfolio in March 1996
and the sale of nine  properties  classified  as real estate  held for sale.  At
September 30, 1997, the Trust owned 21 properties of which six are classified as
Held for Sale.  The fiscal 1997 revenue and net operating  income from these six
properties were $5.8 million and $3.4 million, respectively.

                                 DEFERRED COSTS

         Included in other assets are costs incurred in obtaining debt financing
which are deferred and  amortized  over the term of the related debt  agreement.
Amortization  expense  is  included  in  interest  expense  in the  accompanying
statement of operations for fiscal 1997 and fiscal 1996. Net deferred  financing
costs  included in other assets in the  accompanying  balance sheet  amounted to
$0.5  million and $2.2  million at September  30, 1997 and  September  30, 1996,
respectively.

                               REVENUE RECOGNITION

         The Trust  recognizes  base  rental  revenue  for  financial  statement
purposes as earned over the term of the lease.

                          INTEREST RATE SWAP AGREEMENT

         The Trust is a party to an  interest  rate  protection  agreement  (the
"Cap") used to hedge its interest  rate exposure on floating rate debt (See Note
5  "Borrowings").  The  differential to be paid or received is recognized in the
period incurred and included in interest expense.
<PAGE>
3. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE AND PARTNERSHIPS

        The following table summarizes the Trust's mortgage loan portfolio:
<TABLE>
<CAPTION>

                                               SEPTEMBER 30, 1997                           SEPTEMBER 30, 1996
                                       --------------------------------             --------------------------------
                                        NUMBER OF              CARRYING              NUMBER OF              CARRYING
TYPE OF UNDERLYING SECURITY            INVESTMENTS              AMOUNT              INVESTMENTS              AMOUNT
---------------------------            -----------              ------              -----------              ------
                                             (Dollars in thousands)                        (Dollars in thousands)
<S>                                       <C>                   <C>                    <C>                    <C>
Residential/Condominium*                     7                  $   563                   7                   $  663
Retail Buildings                             1                    6,242                   -                       --
                                          ----                  -------                ----                   ------
Total                                        8                  $ 6,805                   7                   $  663
                                          ====                  =======                ====                   ======

----------------
</TABLE>

*Includes 111 residential  mortgage loans on 7 mortgage investments at September
30,  1997 and 117  residential  mortgage  loans  on 7  mortgage  investments  at
September 30, 1996.



         During the fourth quarter of fiscal 1997,  the Trust provided  mortgage
financing  in the amount of $6.2 million in  conjunction  with the sale one real
estate property.

         During  the second  quarter of fiscal  1996,  the Trust  completed  the
disposition  of  substantially  all of its mortgage  loan  portfolio.  The Trust
received  $55.5  million in net cash proceeds  through a series of  transactions
which included loan repayments and a bulk sale of certain  mortgage  loans.  The
carrying  value of the mortgage  loans  involved in these  transactions  totaled
$50.5 million. Early in fiscal 1996, the Trust foreclosed on the two non-earning
loans  totaling $5.1 million and has obtained  title to the related  properties.
During  fiscal  1995 loans  totaling  $38,834,000  were  extended  beyond  their
original  contractual   maturity  dates.  In  addition,   seven  loans  totaling
$26,101,000  had interest rate  reductions due to financial  difficulties of the
borrower.  Loan terms are extended or modified in the normal  course of business
due to financial difficulties of the borrower.

         At September 30, 1997 and 1996,  mortgage loans  outstanding  consisted
solely of fixed rate loans of $6.8 million and $0.7  million.  At September  30,
1997, the mortgage loan portfolio had interest rates ranging from 6.75% to 9.50%
with maturities  ranging from June 2000 to June 2009. At September 30, 1996, the
mortgage  loan  portfolio  had interest  rates  ranging from 6.20% to 9.50% with
maturities ranging from June 2000 to June 2009.
<PAGE>
         The following  table  summarizes the Trust's real estate owned,  net of
accumulated  depreciation of $2.5 million at September 30, 1997 and $1.9 million
at September 30, 1996:
<TABLE>
<CAPTION>
                                          SEPTEMBER 30, 1997                            SEPTEMBER 30, 1996
                                  --------------------------------             ----------------------------------
                                   NUMBER OF              CARRYING              NUMBER OF              CARRYING
TYPE OF PROPERTY                  INVESTMENTS              AMOUNT              INVESTMENTS              AMOUNT
----------------                  -----------             --------             -----------             ----------
                                        (Dollars in  thousands)                        (Dollars in thousands)
<S>                                  <C>                  <C>                     <C>                   <C>
Apartments                              1                 $  8,474                   2                  $ 16,166
Office Buildings                       13                   28,657                  14                    34,004
Industrial Buildings                    4                    9,755                   6                    14,892
Retail Buildings                        2                   13,049                   4                    36,305
                                     ----                 --------                ----                  --------
Total                                  20                 $ 59,935                  26                  $101,367
                                     ====                 ========                ====                  ========

</TABLE>

         The following table summarizes the Trust's  investment in partnerships,
net of accumulated depreciation of $26,000 at September 30, 1997 and $311,000 at
September 30, 1996:
<TABLE>
<CAPTION>

                                           SEPTEMBER 30, 1997                            SEPTEMBER 30, 1996
                                   --------------------------------             ----------------------------------
                                    NUMBER OF              CARRYING              NUMBER OF              CARRYING
TYPE OF PROPERTY                   INVESTMENTS              AMOUNT              INVESTMENTS              AMOUNT
----------------                   -----------             --------             -----------             ----------
                                         (Dollars in thousands)                         (Dollars in thousands)
<S>                                   <C>                  <C>                     <C>                   <C>
Industrial Buildings                     1                 $  5,869                   3                  $ 13,658
Retail Buildings                         -                       --                   2                    10,047
                                      ----                 --------                ----                  --------
Total                                    1                 $  5,869                   5                  $ 23,705
                                      ====                 ========                ====                  ========
</TABLE>

         The Trust may be liable for environmental  problems on sold properties.
At September 30, 1997, the Trust was not aware of any environmental  problems on
sold properties.
<PAGE>
4. ALLOWANCE FOR LOSSES

         The change in the allowance for losses for the year ended September 30,
1995 is as follows:
<TABLE>
<CAPTION>
                                                         1995
                                                       -------
                                                (dollars in thousands)
<S>                                                    <C>

Balance at beginning of year ....................      $13,430
Provisions charged to expense ...................        3,000
                                                       -------
                                                        16,430
Less charges against allowance, net of
  recoveries or reorganization adjustments ......       16,430
                                                       -------
Balance at end of year ..........................      $    --
                                                       =======
</TABLE>


         For the years  ended  September  30,  1997 and 1996,  the Trust did not
provide for an allowance for losses.

         The Trust adjusted the balance of allowance for losses at September 30,
1995 as part of "Fresh Start Reporting" (See Note 1).

5. BORROWINGS

                                MORTGAGE PAYABLE

         On April 30, 1996, the Trust prepaid the mortgage loan of $13.9 million
(the  "Mortgage  Payable").  See  discussion  below with  respect to the Trust's
prepayment of the Prior Notes.

                              SENIOR SECURED NOTES

         The Holders of the Prior Notes had a first  priority lien on all of the
Trust's collateral. The Prior Notes were governed by the Prior Indenture between
the Trust and Wilmington  Trust Co., as Trustee,  dated as of the effective date
of the Trust's reorganization  (September 29, 1995). Interest on the Prior Notes
accrued at 11-1/8%  per annum and was payable  semi-annually  in arrears on each
June 30 and December 31. The Prior  Indenture  included  affirmative  covenants,
negative covenants and financial covenants.

         On March 28, 1996, the Trust entered into a financing  agreement  which
provided  for the  issuance  of $67.4  million of new  Floating  Rate Notes (the
"Floating Rate Notes"),  which issuance occurred on April 30, 1996. The Floating
Rate Notes bear interest at 30 day LIBOR + 1.375 percent,  payable monthly,  and
have a stated maturity date of May 1, 1999.

         The proceeds  received  from the  Floating  Rate Notes,  together  with
approximately  $56.5  million of cash on hand,  were used to prepay the  Trust's
Prior Notes and Mortgage Payable. The face amount outstanding of the Prior Notes
and the Mortgage  Payable at the time of repayment was $110.0  million and $13.9
million,  respectively. The Prior Notes and Mortgage Payable were repaid in full
on April 30, 1996.
<PAGE>
         Effective  April 30,  1996,  the Trust  entered  into an interest  rate
protection  agreement  (the  "Cap")  that  serves to cap the  floating  interest
component  of the  Floating  Rate Notes at 8%. The Trust paid a one-time  fee of
$377,000 to the counterparty to the Cap.

         The indenture relative to the Floating Rate Notes (the "New Indenture")
generally  requires that, on a monthly  basis,  the Trust deposit into a Trapped
Funds  Account,  as  defined,  maintained  by the  indenture  trustee  (the "New
Indenture  Trustee")  for the  Floating  Rate Notes all Cash Flow and Asset Sale
Proceeds  (each as defined  in the New  Indenture).  Cash Flow from the  Trapped
Funds Account will be distributed to pay the New Indenture  Trustee's  expenses,
pay all accrued but unpaid interest on the Floating Rate Notes and to maintain a
Debt Service  Reserve Account before any funds are released to the Trust. In the
event of a sale of, or certain casualty, or indemnification  events with respect
to  any  of  the  remaining  fifteen  properties  of  the  original  twenty-four
properties  mortgaged  under the terms of the  Floating  Rate Notes  (underlying
collateralized  carrying  value of $44.7  million at September  30,  1997),  the
proceeds  therefrom  will be  used to  retire  up to  125% of a  portion  of the
allocated debt of such property before any funds are released to the Trust.  The
New  Indenture  includes  affirmative  covenants  and  negative  covenants.   At
September 30, 1996, the Trust was in compliance with the New Indenture.

         During fiscal 1997, the Trust sold ten real estate properties, three of
the  nine  buildings  owned in an  industrial  park  and a 7.6  acre  parcel  of
unimproved  land.  Six of the real estate  properties  and the three of the nine
buildings  sold in  fiscal  1997  were  encumbered  under  the  terms of the New
Indenture.  The Trust  used a portion of the net  proceeds  from the sale of the
encumbered  properties  to prepay a  portion  of the  Floating  Rate  Notes,  as
required  under the terms of the New  Indenture.  During  the first  quarter  of
fiscal 1997,  the Trust used $7.0 million from the net proceeds from the sale of
two  encumbered  properties  sold in September of fiscal 1996,  and $1.4 million
from the net proceeds from the sale of an encumbered property sold in October of
fiscal 1997 to prepay the Trust's senior  indebtedness.  During the remainder of
fiscal 1997, the Trust used $36.6 million from the fiscal 1997 net proceeds from
the sale of six encumbered  properties and three of nine encumbered buildings in
an industrial park, to prepay the Trust's senior indebtedness.

         On November 3, 1997,  the Trust utilized a portion of available cash on
hand to retire its senior  indebtedness in full. The face amount  outstanding of
the Floating Rate Notes at the time of repayment was $18.2 million.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Financial Accounting Standards Board Statement No. 107 - Disclosure
of Fair Value of Financial  Statements ("SFAS 107") requires  disclosure of fair
value information about financial instruments,  whether or not recognized in the
balance  sheet,  for which it is  practicable  to estimate that value.  In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques.

         The carrying value of cash and cash equivalents approximates their fair
value because of the liquidity and short-term maturities of these instruments.

         The  carrying  value and fair  value of  off-balance  sheet  derivative
financial  instruments  used to manage  the  interest  rate  sensitivity  of the
Floating   Rate  Notes  were   $199,000  and  $2,000  at  September   30,  1997,
respectively.
<PAGE>
         Although the off-balance sheet derivative financial instrument does not
expose the Trust to credit risk equal to the notional  amount of $67.4  million,
the Trust is exposed  to credit  risk equal to the extent of the fair value gain
of an off-balance sheet derivative  financial instrument should the counterparty
fail to perform.  The Trust  minimized  such credit risk by dealing  only with a
high quality  counterparty.  In addition,  the Trust's policy is to require that
the CAP be governed by an International Swaps and Derivatives Association Master
Agreement.  Bilateral  collateral  arrangements  are in place for the all dealer
counterparty.

         The  carrying  value of the Floating  Rate Notes at September  30, 1996
approximates their fair value because of the floating rate of these instruments.

7. SHARE OPTION PLAN

                             1984 SHARE OPTION PLAN

         As part of the Plan of  Reorganization,  the 1984 Share Option Plan was
terminated and 348,500 common stock options were canceled.

                             1995 SHARE OPTION PLAN

         On October 2, 1995,  the Board of Trustees  adopted a 1995 Share Option
Plan (the "1995 Plan") for Trustees,  officers,  employees and other key persons
of the Trust.  On February  15,  1996,  the Trust's  shareholders  approved  the
adoption of the 1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.

         The 1995 Plan  provides  for the grant of  options  to  purchase  up to
870,000  common  shares at not less than  100% of the fair  market  value of the
common  shares,  subject to  adjustment  for share splits,  share  dividends and
similar  events.  To the extent that  awards  under the 1995 Plan do not vest or
otherwise revert to the Trust, the common shares  represented by such awards may
be the subject of subsequent awards.

         The 1995  Plan  provides  for the  grant  of  incentive  stock  options
("Incentive   Options")  which  qualify  under  Section  422  of  the  Code  and
non-qualified stock options ("Non-Qualified  Options").  Holders of options also
receive dividend  equivalent  rights.  Under the 1995 Plan,  894,000 shares were
granted with a price  ranging from $10.00 to $12.25 per share and 55,000  shares
were forfeited at a price of $10.00 per share during fiscal 1996.  During fiscal
1997, no shares were issued or forfeited. The weighted average exercise price is
$10.13 per share. The options vest equally over a three year period starting one
year from the date of grant.  The  options  expire  four  years from the date of
grant.

         The Trust accounts for the 1995 Plan using APB Opinion 25, accordingly,
no compensation  costs have been recognized for the 1995 Plan. The fair value of
each option  grant is  estimated  on the date of grant  using the  Black-Scholes
option-price model. The expected volatility and risk-free interest rate weighted
average   assumptions   for  the  1995  Plan   grants  were  25.0%  and  5.625%,
respectively.
<PAGE>
         The Trust has elected the  disclosures  only  requirements  of SFAS No.
123,  "Accounting for Stock-Based  Compensation".  Accordingly,  no compensation
cost has been recognized for the Stock Incentive Plan. Had compensation cost for
the Trust's Stock Incentive Plan been determined  based on the fair value at the
grant date for awards in fiscal  1997  consistent  with the  provisions  of SFAS
No.123,  the effect on the Trust's  earnings  and  earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                            Year ended September 30,
                    (Dollars in thousands, except per share)

                                          Post-Confirmation     Pre- Confirmation
                                         -------------------    -----------------
                                           1997        1996           1995
                                           ----        ----           ----
<S>                                       <C>         <C>           <C>
Net Earnings (loss) - as reported         $32,465     $6,673        ($20,033)

Net Earnings (loss) - pro forma           $31,651     $5,859        ($20,033)

Earnings (loss) per share as reported     $  2.89     $ 0.62               -*

Earnings (loss) per share - pro forma     $  2.78     $ 0.52               -*
</TABLE>

 *       Net earnings  (loss) per share for the  pre-confirmation  period is not
         presented because this information is not meaningful as a result of the
         Reorganization and the adoption of "Fresh Start Reporting".

         All the  outstanding  options  of 1995  Plan  will  fully  vest  and be
cancelled  upon  the  consummation  of  the  definitive  merger  agreement  with
Wellsford in early 1998.  Under the merger  agreement the options under the 1995
Plan will be cancelled  for the  aggregate  payment to the optionee  holders for
approximately $4.7 million, which will be treated as compensation at the time of
closing.

8. BENEFIT PLANS

                                  PENSION PLANS

         Effective  September  30,  1989,  the  Trustees  adopted an  Employees'
Retirement  Plan.  On December 16, 1992,  the Trustees  amended and restated the
Employees'  Retirement  Plan  effective  January 1, 1992 (as amended on July 20,
1994,  and  effective  January  1,  1994  and  as may be  further  amended,  the
"Retirement  Plan").  In November 1995, the Trustees amended the Retirement Plan
effective   January  1,  1996  to  switch  from  the  Pension  Benefit  Guaranty
Corporation  ("PBGC")  interest rate used for valuing lump sum  distributions to
the new General Agreement on Tariffs and Trade interest rate and mortality table
for  valuing  lump  sum  distributions.  In July  1996,  the  Trustees  voted to
terminate the pension plan effective July 1, 1996.

         All employees as of the  termination  date of the plan were eligible to
participate in the Retirement  Plan provided that they were at least 21 years of
age and had been employed for twelve consecutive months, during which period the
employee  completed at least 1000 hours of service.  Under the Retirement  Plan,
each eligible  employee after  completing  five years of vesting  service become
100% vested and entitled to a retirement pension.
<PAGE>
         The  Trust  has  submitted  the  required  applications  to the PBGC to
formally  terminate the plan.  There were 15 former employees who received final
payouts under the plan in fiscal 1996. There were four current employees and one
former  employee that were due benefits under the plan as of July 1, 1996.  Upon
the formal termination of the plan, the Trust distributed the remaining benefits
to the remaining eligible employees.

                           SAVINGS AND INVESTMENT PLAN

         The Trust  also  maintains  a 401(k)  profit  sharing  plan and  trust.
Employer contributions are limited to 6% of participant's  compensation,  with a
maximum per year of $3,000 per participant.  Profit sharing expense was $32,000,
$49,000  and  $72,000  for  years  ended  September  30,  1997,  1996 and  1995,
respectively.

                                 INCENTIVE PLAN

         During  fiscal  1996,  the Board of Trustees  adopted  the  Performance
Incentive Bonus Plan (the "Bonus Plan").  All of the Trust's executive  officers
and  employees  are eligible  for an annual cash bonus under the Bonus Plan.  In
determining  the  amount  of  annual  cash  bonuses,  if any,  to be  paid,  the
Compensation  Committee,  at the end of the fiscal year, reviews the performance
of the  Trust to the  performance  measurement  targeted  by the  Bonus  Plan to
promote the long-term  strategic  growth of the Trust.  The amount awarded under
the Bonus  Plan for fiscal  1997 and fiscal  1996 were  $217,000  and  $215,500,
respectively.

         The maximum  potential  payout under the  Performance  Incentive  Bonus
Plan, which is at the discretion of the Board of Trustees,  is $3.1 million. Any
award under the Bonus Plan as a result of the definitive  merger  agreement with
Wellsford  will be determined and paid  immediately  prior to the closing of the
proposed transaction.

                              EMPLOYMENT AGREEMENT

         The  Trust  entered  into  an  Employment  Agreement  (the  "Employment
Agreement") with George R. Zoffinger on September 29, 1995. The original term of
the  Employment  Agreement  is three  years  and is  automatically  renewed  for
additional  one-year  periods  unless  otherwise  terminated by the Trust or Mr.
Zoffinger.  In addition,  Mr. Zoffinger is eligible for compensation in the form
of bonuses under the Trust's Performance  Incentive Bonus Plan and option grants
under  the  1995  Share  Option  Plan.  Mr.   Zoffinger  has  agreed  to  devote
substantially  all of his business  time and efforts to the business and affairs
of the Trust.

         If the  employment of Mr.  Zoffinger is terminated by the Trust without
cause or by Mr.  Zoffinger upon  occurrence of certain events such as a material
breach of the Employment  Agreement by the Trust, Mr. Zoffinger will be entitled
to  continue  to receive  the Base  Salary at the same rate for six (6)  months.
Additionally, any unexercised vested options will remain exercisable only to the
extent provided in the applicable share option plan and option agreement.

         The consummation of the proposed  transaction with Wellsford will cause
the occurrence of a certain event under the employment agreement.  Mr. Zoffinger
would continue to receive his base salary at the same rate for six months.
<PAGE>
9. EMPLOYEE TERMINATION PLAN

         A  termination  pay  plan  was  established  to  cover  termination  of
employment without cause during the period that the Old Notes, as defined,  were
outstanding.  Employees were entitled to compensation  ranging from a minimum of
twelve weeks to a maximum of eighteen  months pay. In addition,  certain  health
benefits  would  continue to be paid by the Trust over a period of time equal to
the employee's  severance  period.  At September 30, 1995, the Trust accrued the
$1.3 million cost of the  Termination  Pay Plan.  After the fiscal year end, the
majority of existing  employees were terminated and the Trust commenced payments
to those employees. The Trust has liquidated the termination plan by payments to
those employees terminated and the repayment of the Old Notes on April 30, 1996.

10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

         The  quarterly  results  of  operations  for  fiscal  1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
                                                                       QUARTER ENDED
                                     ----------------------------------------------------------------------------------
                                     DECEMBER 31               MARCH 31             JUNE 30              SEPTEMBER 30
                                     -----------               --------             -------              ------------
                                                        (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>                     <C>                  <C>                     <C>
FISCAL 1997
Total revenue                          $  7,309                $  7,179             $  6,743                $  5,505
Interest expense                       $  1,382                $  1,391             $  1,389                $    478
Net income                             $  3,974                $  8,223             $ 13,716                $  6,552
                                       ========                ========             ========                ========

Net income per share                   $   0.35                $   0.74             $   1.22                $   0.58
                                       ========                ========             ========                ========

FISCAL 1996
Total revenue                          $  9,395                $  9,438             $  8,462                $  7,771
Interest expense                       $  3,565                $  3,420             $  2,064                $  1,440
Net income                             $  1,437                $  1,450             $  2,016                $  2,070
                                       ========                ========             ========                ========

Net income per share                   $   0.13                $   0.13             $   0.18                $   0.18
                                       ========                ========             ========                ========
</TABLE>

11. ACCOUNTING PRONOUNCEMENTS

         In February 1997,  the Financial  Accounting  Standards  Board ("FASB")
issued Statement of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings
Per  Share"  and  SFAS  No.  129,   "Disclosure  of  Information  about  Capital
Structure." SFAS No. 128 specifies the computation,  presentation and disclosure
requirements  for  earnings  per share  ("EPS").  It will  require  the Trust to
present both basic and diluted EPS amounts from income for continuing operations
and net  income  on the face of the  income  statement.  The  statement  will be
effective for financial  statements issued for periods ending after December 15,
1997, including interim periods.  SFAS No. 129 requires disclosure about capital
structure that had been included in a number of separate statements and opinions
of  authoritative  accounting  literature.  SFAS 129 is effective  for financial
statements issued for periods ending after December 15, 1997.
<PAGE>
         In June 1997, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income".  The  statement  establishes  standards  for  reporting  and display of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial statements.  SFAS No. 130 is effective for financial statements issued
for periods beginning after December 15, 1997.

         The Trust is currently  evaluating  the above  statements  and believes
that their adoption will not have a significant impact on the disclosures in the
financial statements of the Trust.

12. LEGAL PROCEEDINGS

         A discussion of events  surrounding  the Trust's Prior  Bankruptcy Case
and an explanation of the material terms of the Trust's reorganization under the
Joint  Plan of  Reorganization  confirmed  by the  Bankruptcy  Court by an order
entered  February  27,  1991 are set  forth in the  section  entitled  "Previous
Chapter 11 Case and 1991 Plan of Reorganization."  The Prior Bankruptcy Case was
closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.

         A  discussion  of  events  surrounding  the  Trust's  1995  prepackaged
bankruptcy  filing  and an  explanation  of the  material  terms of the  Trust's
reorganization  under the Prepackaged Plan which became effective  September 29,
1995 (the  "Prepackaged  Plan") are set forth in the  section  entitled  "Recent
Chapter 11 Case and 1995  Prepackaged Plan of  Reorganization."  Notwithstanding
the  confirmation of the Trust's  Prepackaged Plan as of September 29, 1995, the
Bankruptcy Court continued to have  jurisdiction  among other things, to resolve
disputes that may arise under the Prepackaged Plan.

         Neither the Trust nor any of its  properties  are presently  subject to
any  material  litigation  nor,  to  the  Trust's  knowledge,  is  any  material
litigation  threatened  against the Trust or any of its  properties,  other than
routine  litigation  arising in the  ordinary  course of  business  and which is
expected to be covered by liability insurance.

13. LEASING ARRANGEMENTS

         For real  estate  held for  investment  future  minimum  rentals  to be
received under existing non-cancelable operating leases as of September 30, 1997
are as follows:

                                             Amount
                 Year                (dollars in thousands)
                ------               ----------------------
                 1998                       $  8,893
                 1999                          7,738
                 2000                          5,538
                 2001                          4,172
                 2002                          2,507
                 thereafter                    5,506
                                            --------
                 Total                      $ 34,354
                                            ========

<PAGE>
14. RELATED PARTY TRANSACTIONS

         The Trust is subleasing a portion of the 8th floor of 120 Albany Street
from  the  New  Brunswick  Development  Authority,  a  not-for-profit  501(c)(3)
corporation  for the  benefit of the City of New  Brunswick  of which  George R.
Zoffinger,  C.E.O., President and Trustee of the Trust, is Chairman of the Board
of Trustees.  The sublease  covers 4000 square feet at an annual  rental rate of
$75,000.  The sublease is in effect until  December 31, 1997, at which point the
Trust has the option to renew at the same rate for another  year.  The Trust has
three more  subsequent  options to renew the sublease at the current rental rate
in December 1997, 1998 and 1999.

15.  SIGNIFICANT EVENTS.

  
         As disclosed  previously  on Form 8-K filed on September  22, 1997 with
the  Securities  and  Exchange  Commission  ("SEC"),  the Trust  entered  into a
definitive  agreement  on September  18, 1997 to be acquired by  Wellsford  Real
Properties,  Inc.  ("Wellsford") in a merger transaction for cash and stock. The
proposed transaction, which will be accounted for by Wellsford as a purchase, is
subject to certain  closing  conditions and is expected to be completed in early
1998.  Franklin Mutual Advisors,  Inc.,  whose advisory  clients  currently hold
approximately  50% of the  Trust's  outstanding  shares,  has agreed to vote the
shares of the Trust  over  which it has  voting  power in favor of the  proposed
transaction.  The proposed transaction, if consummated,  will result in a change
of control of the Trust.

<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                            SCHEDULE III

                                   REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                                                         SEPTEMBER 30, 1997
                                                       (Dollars in thousands)

                                                                    Reorganization Value (b)
                                                                    --------------------         Costs Capitalized
                                                                                                   Subsequent to
                                                                                                Reorganization Value
                                                                                               ---------------------     Adjust for
                                                                             Buildings &                 Buildings &       Unreal.
Classification                                    Encumbrances (a)  Land    Improvements       Land     Improvements       Gain (b)
--------------                                    ------------      ----    ------------       ----     ------------   ------------
<S>                                                   <C>           <C>           <C>           <C>        <C>             <C>
Apartments:

    Junipers of Yarmouth
    Yarmouth, ME ..............................           0         1,530         6,120           0          199              0

    Villa Del Cresta
    Florissant, MO ............................       6,868         1,640         6,568           0          266              0

Industrial:

    Parkway Business Center
    Richmond, CA ..............................           0           430         1,730           0           87           (302)

    Moreno Valley
    Moreno Valley, CA .........................       2,490           950         3,820           0            1           (655)

    Oaktree Industrial Park
    San Dimas, CA .............................         976             0             0         345        1,458           (235)

    Chino Business Park
    Chino, CA .................................       1,353             0             0         670        2,829              0

    Avenue Hall Executive Center
    Valencia, CA ..............................           0           450         1,800           0          145              0

    900 Building
    Minneapolis, MN ...........................       1,508           410         1,630           0          204              0

Office:

    Stadium Towers
    Anaheim, CA ...............................       1,842           700         2,810           0          482           (534)

    615 Nash Street
    El Segundo, CA ............................       1,325           470         1,870           0          276           (340)

    Clarewood
    Woodland Hills, CA ........................       1,124           400         1,580           0          362           (298) 
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                            SCHEDULE III

                                   REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                                                         SEPTEMBER 30, 1997
                                                       (Dollars in thousands)
                                                            (Continued)

                                                                    Reorganization Value (b)
                                                                    --------------------         Costs Capitalized
                                                                                                   Subsequent to
                                                                                                Reorganization Value
                                                                                               ---------------------     Adjust for
                                                                             Buildings &                 Buildings &       Unreal.
Classification                                    Encumbrances (a)  Land    Improvements       Land     Improvements       Gain (b)
--------------                                    ------------      ----    ------------       ----     ------------   ------------
<S>                                                   <C>           <C>           <C>           <C>        <C>             <C>
Office:
(continued)

    268 Summer Street
    Boston, MA ................................         823           330         1,327           0          229           (228)

    250 Turnpike Street
    Canton, MA ................................         721           290         1,150           0           73           (198)

    Burtonsville Commerce Center
    Burtonsville, MD ..........................       2,745           920         3,670           0          101           (634)

    Keewaydin Drive
    Salem, NH .................................       1,339           610         2,450           0          114           (429)

    501 Hoes Lane
    Piscataway, NJ ............................         551           180           715           0          238           (136)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                            SCHEDULE III

                                   REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                                                         SEPTEMBER 30, 1997
                                                       (Dollars in thousands)
                                                             (Continued)


                                               Gross Amount Carried at End of Period
                                               -------------------------------------
                                                           Buildings &                   Accumulated       Date of       Life for
Classification                                   Land     Improvements      Total       Depreciation    Construction   Depreciation
--------------                                   ----     ------------    ---------     ------------    ------------   ------------
<S>                                              <C>           <C>           <C>             <C>          <C>            <C>
Apartments:

    Junipers of Yarmouth
    Yarmouth, ME .........................           0             0             0             0          1971           (b)

    Villa Del Cresta
    Florissant, MO .......................       1,640         6,834         8,474             0          1967/1974      (b)


Industrial:

    Parkway Business Center
    Richmond, CA .........................           0             0             0             0          1986           3-40 years

    Moreno Valley
    Moreno Valley, CA ....................         950         3,166         4,116           175          1993           3-40 years

    Oaktree Industrial Park
    San Dimas, CA ........................         345         1,223         1,568            86          1985           3-40 years

    Chino Business Park
    Chino, CA ............................         405         1,712         2,117            28          1992           (b)

    Avenue Hall Executive Center
    Valencia, CA .........................           0             0             0             0          1988           (b)

    900 Building
    Minneapolis, MN ......................         410         1,834         2,244             1          1910           (b)

Office:

    Stadium Towers
    Anaheim, CA ..........................         700         2,758         3,458           238          1984           3-40 years

    615 Nash Street
    El Segundo, CA .......................         470         1,806         2,276           166          1987           3-40 years

    Clarewood
    Woodland Hills, CA ...................         400         1,644         2,044           197          1980           3-40 years
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                            SCHEDULE III

                                   REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                                                         SEPTEMBER 30, 1997
                                                       (Dollars in thousands)
                                                             (Continued)


                                               Gross Amount Carried at End of Period
                                               -------------------------------------
                                                           Buildings &                   Accumulated       Date of       Life for
Classification                                   Land     Improvements      Total       Depreciation    Construction   Depreciation
--------------                                   ----     ------------    ---------     ------------    ------------   ------------
<S>                                                <C>        <C>           <C>             <C>          <C>            <C>
Office:
(continued)
                                           
    268 Summer Street
    Boston, MA ...........................         330         1,328         1,658           121          1897           3-40 years

    250 Turnpike Street
    Canton, MA ...........................         290         1,025         1,315            56          1980           3-40 years

    Burtonsville Commerce Center
    Burtonsville, MD .....................         920         3,137         4,057           191          1989           3-40 years

    Keewaydin Drive
    Salem, NH ............................         610         2,135         2,745           149          1973           3-40 years

    501 Hoes Lane
    Piscataway, NJ .......................         180           817           997           104          1987           3-40 years
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                            SCHEDULE III

                                   REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                                                         SEPTEMBER 30, 1997
                                                       (Dollars in thousands)
                                                             (Continued)

                                                                    Reorganization Value (b)
                                                                    --------------------         Costs Capitalized
                                                                                                   Subsequent to
                                                                                                Reorganization Value
                                                                                               ---------------------     Adjust for
                                                                             Buildings &                 Buildings &       Unreal.
Classification                                    Encumbrances (a)  Land    Improvements       Land     Improvements       Gain (b)
--------------                                    ------------      ----    ------------       ----     ------------   ------------
Office:
(continued)
<S>                                                   <C>           <C>           <C>           <C>      <C>             <C>
    Two Executive Campus
    Cherry Hill, NJ ......................            894           240           939           0             413               0

    Riverside Centre
    Portland, OR .........................              0         1,170         4,680           0             557               0

    Pinebrook II
    King of Prussia, PA ..................              0             0         1,790           0             161            (251)

    421 Chestnut Street
    Philadelphia, PA .....................              0           500         2,020           0             140            (347)

    Pinebrook I
    King of Prussia, PA ..................              0             0         1,629           0             168            (232)

    Six Sentry Parkway
    Blue Bell, PA ........................              0           920         3,670           0             990            (680)

Retail:

    Gateway Plaza (Paseo)
    Fremont, CA ..........................              0         4,320        17,280         300             516          (3,042)

    Arcade Square
    Sacramento, CA .......................              0         1,120         4,460           0             563            (828)

    Berdon Plaza
    Fairhaven, MA ........................          4,157         1,350         5,403           0             891               0

    Bradford Plaza
    West Chester, PA .....................              0         1,330         5,081           0             187            (917)
                                                 --------      --------      --------    --------        --------        --------

Total Real Estate Owned ..................       $ 28,716      $ 20,260      $ 84,192    $  1,315        $ 11,650        $(10,286)
                                                 ========      ========      ========    ========        ========        ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                            SCHEDULE III

                                   REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                                                         SEPTEMBER 30, 1997
                                                       (Dollars in thousands)
                                                             (Continued)


                                               Gross Amount Carried at End of Period
                                               -------------------------------------
                                                           Buildings &                   Accumulated       Date of       Life for
Classification                                   Land     Improvements      Total       Depreciation    Construction   Depreciation
--------------                                   ----     ------------    ---------     ------------    ------------   ------------
<S>                                              <C>           <C>           <C>             <C>           <C>           <C>
Office:
(continued)

    Two Executive Campus
    Cherry Hill, NJ ......................         240         1,352         1,592               36        1970         (b)

    Riverside Centre
    Portland, OR .........................           0             0             0                0        1945         (b)

    Pinebrook II
    King of Prussia, PA ..................           0         1,700         1,700              116        1983          3-40 years

    421 Chestnut Street
    Philadelphia, PA .....................         500         1,813         2,313              116        1857          3-40 years

    Pinebrook I
    King of Prussia, PA ..................           0         1,565         1,565              119        1981          3-40 years

    Six Sentry Parkway
    Blue Bell, PA ........................         920         3,980         4,900              354        1990          3-40 years

Retail:

    Gateway Plaza (Paseo)
    Fremont, CA ..........................           0             0             0                0        1969          3-40 years

    Arcade Square
    Sacramento, CA .......................           0             0             0                0        1955          3-40 years

    Berdon Plaza
    Fairhaven, MA ........................       1,350         6,294         7,644                5        1968          (b)

    Bradford Plaza
    West Chester, PA .....................       1,330         4,351         5,681              271        1990          3-40 years
                                              --------      --------      --------         --------


Total Real Estate Owned ..................    $ 11,990      $ 50,474      $ 62,464 (c,d)   $  2,529
                                              ========      ========      ========         ========
</TABLE>
<PAGE>
                              VALUE PROPERTY TRUST

                                  SCHEDULE III

         REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                               SEPTEMBER 30, 1997

                             (Dollars in thousands)

NOTES:

(a)      The encumbrances of Senior Notes due 1999 are collateralized by a first
         priority Lien on 15 of the Trust's assets,  including personal property
         and real property held by the Trust or any subsidiary.

(b)      See  Note 2  "Significant  Accounting  Policies"  to  the  consolidated
         financial statements.

(c)      Cost for federal income tax purposes is approximately $96,000.

(d)      The changes in carrying  amounts  during the year ended  September  30,
         1997 are summarized as follows:
<TABLE>
<CAPTION>
<S>                                                             <C>
         Balance at September 30, 1996.................         $103,299
         Additions during the year:
            Improvements ..............................            3,443
         Deductions during the year:
            Sale of real estate .......................           44,278
                                                                --------
         Balance at September 30, 1997 ................         $ 62,464
                                                                ========

</TABLE>
         The changes in carrying  amounts  during the year ended  September  30,
1996 are summarized as follows:
<TABLE>
<CAPTION>
<S>                                                       <C>           <C>

         Balance at September 30, 1995 ................                 $123,640
         Reclassification from foreclosure property ...                    5,120
         Additions during year:
            Improvements ..............................                    4,551
         Deductions during year:
            Sale of real estate .......................   $ 19,726
            Adjustments for deferred gains ............     10,286        30,012
                                                          --------      --------
         Balance at September 30, 1996 ................                 $103,299
                                                                        ========

</TABLE>
<PAGE>
         The changes in carrying  amounts  during the year ended  September  30,
1995 are summarized as follows:
<TABLE>
<CAPTION>
<S>                                                         <C>         <C>
         Balance at September 30, 1994 ................                 $ 66,880
         Reclassification from foreclosure
            property and mortgage loans ...............                  109,565
         Additions during year:
            Improvements ..............................                   11,283
         Deductions during year:
            Sale of real estate .......................     $  3,350
            Charge off against allowance for losses ...        2,881
            Adjustments for fresh start reporting .....       57,857      64,088
                                                            --------    --------
         Balance at September 30, 1995 ................                 $123,640
                                                                        ========
</TABLE>
<PAGE>
                              VALUE PROPERTY TRUST

                                  SCHEDULE III

         REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION

                               SEPTEMBER 30, 1997

                             (Dollars in thousands)


         The change in accumulated depreciation and amortization during the year
ended September 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
<S>                                                                       <C>

         Balance at September 30, 1996 ...........................        $1,932
         Additions during year:
            Charge to income .....................................         1,601
         Deductions during year:
            Adjustment for sold properties .......................         1,004
                                                                          ------
         Balance at September 30, 1997 ...........................        $2,529
                                                                          ======

</TABLE>
         The change in accumulated depreciation and amortization during the year
ended September 30, 1996 is summarized as follows:
<TABLE>
<CAPTION>
<S>                                                                       <C>
         Balance at September 30, 1995 ...........................        $   --
         Additions during year:
            Charge to income .....................................         2,035
         Deductions during year:
            Adjustment for sold properties .......................           103
                                                                          ------
         Balance at September 30, 1996 ...........................        $1,932
                                                                          ======
</TABLE>

         The change in accumulated depreciation and amortization during the year
ended September 30, 1995 is summarized as follows:
<TABLE>
<CAPTION>
<S>                                                                      <C>
         Balance at September 30, 1994 .............................     $10,023
         Reclassification from foreclosure property ................       8,264
         Additions during year:
            Charge to income .......................................       6,608
         Deductions during year:
            Adjustment for fresh start reporting ...................      24,895
                                                                         -------
         Balance at September 30, 1995 .............................     $    --
                                                                         =======

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        VALUE PROPERTY TRUST

                                                            SCHEDULE XII

                                                    MORTGAGE LOANS ON REAL ESTATE

                                                         SEPTEMBER 30, 1997

                                                       (Dollars in thousands)

                                                                                                                        PRINCIPAL
                                                                                                                        AMOUNT OF
                                                                                                                      LOANS SUBJECT
                                              NUMBER                                                CONTRACTUAL       TO DELINQUENT
                                                OF         INTEREST               FINAL              AMOUNT OF          PRINCIPAL
TYPE OF LOANS                                  LOANS         RATE             MATURITY DATE          MORTGAGES         OR INTEREST
-------------                                 ------       --------           -------------         -----------       --------------
<S>                                            <C>        <C>              <C>                         <C>                <C>
ASSETS HELD FOR INVESTMENT:
Residential/Condominiums (a)                   111        6.75%-9.50%      June 2000-June 2009             904               --
Commercial Mortgage                              1           9.00%              July 1998                6,242
                                                                                                        ------            ------
Total contractual amount of mortgage loans                                                               7,146            $  --
                                                                                                        ======            ======

Adjust contractual amount to
  reorganization value of mortgage loans                                                                  (234)
Adjust contractual amount to reallocate
  unrealized gain on sale                                                                                 (107)
                                                                                                        ------
Carrying value of mortgage loans and
  investments                                                                                          $ 6,805 (b)(c)
                                                                                                       =======


</TABLE>
<PAGE>

                              VALUE PROPERTY TRUST

                                  SCHEDULE XII

                          MORTGAGE LOANS ON REAL ESTATE

                               SEPTEMBER 30, 1997

                            (Dollars in thousands)

NOTES:

(a)      Consists of 111 residential mortgage loans on 7 mortgage investments.

(b)      The aggregate cost for federal income tax purposes is $7,146.

(c)      The change in carrying  value of mortgage  loans  during the year ended
         September 30, 1997 were as follows:
<TABLE>
<CAPTION>
<S>                                                                    <C>
         Balance at September 30, 1996 .........................       $    663
         New commercial mortgage loan ..........................          6,257
                                                                       --------
                                                                          6,920
         Collections of principal ..............................           (115)
                                                                       --------
         Balance at September 30, 1997 .........................       $  6,805
                                                                       ========
</TABLE>
         The change in carrying  value of mortgage  loans  during the year ended
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
<S>                                                                   <C>
         Balance at September 30, 1995 .........................      $ 56,979
         Advances on mortgage loans ............................           100
                                                                      --------
                                                                        57,079
         Collections of principal ..............................       (51,188)
         Transfer to real estate ...............................        (5,120)
         Adjustment for unrealized gains .......................          (108)
                                                                      --------
         Balance at September 30, 1996 .........................      $    663
                                                                      ========
</TABLE>
<PAGE>
         The change in carrying  value of mortgage  loans  during the year ended
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
<S>                                                                    <C>
         Balance at September 30, 1994 .........................       $ 69,322
         Reclassification from in-substance foreclosure ........         29,441
         Advances on mortgage loans ............................            733
         Net change in interest reserves .......................            162
                                                                       --------
                                                                         99,658
         Collections of principal ..............................        (22,711)
         Adjustment for fresh start accounting .................        (19,968)
                                                                       --------
         Balance at September 30, 1995 .........................       $ 56,979
                                                                       ========
</TABLE>
<PAGE>
                              VALUE PROPERTY TRUST

                                INDEX TO EXHIBITS

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------

3.1(a)   Amended and Restated  Declaration of Trust dated September 29, 1995 (1)
         (Exhibit 3.1).

3.1(b)   October 26, 1995 Amendment to Amended and Restated Declaration of Trust
         dated September 29, 1995. (2)

3.2      By-Laws, as amended through June 20, 1984 (3) (Exhibit 3.3).

4.1(a)   Form of Certificate for Common Shares (2).

4.1(b)   Indenture  dated as of April 30,  1996 among  certain  subsidiaries  of
         Value Property Trust and LaSalle  National Bank, as trustee,  governing
         the Floating Rate Senior Notes due 1999 (4).

4.2(a)   Joint Plan of Reorganization  Proposed by Debtor,  Creditors' Committee
         and Equity Security Holders Committee (5) (Exhibit 10.11).

4.2(b)   Modification  to  Joint  Plan of  Reorganization  Proposed  by  Debtor,
         Creditors' Committee and Equity Security Holders Committee (6) (Exhibit
         2).

4.2(c)   Amendment  No.  1 and  Consent  to Plan of  Reorganization  dated as of
         September 30, 1991 (7) (Exhibit 4.4(c)).

4.2(d)   Amendment  No. 2 to Plan of  Reorganization,  dated as of July 15, 1992
         (8) (Exhibit 4.2(d)).

4.2(e)   Prepackaged Plan of Reorganization as confirmed by the Bankruptcy Court
         of the Central District of California (1) (Exhibit 2.1).

4.2(f)   Form of Mortgage, Assignment of Rents and Leases and Security Agreement
         between  certain  subsidiaries  of Value  Property  Trust  and  LaSalle
         National Bank, as trustee and mortgagee (4).

4.3(a)   Indenture  dated as of July 15, 1992 between  Mortgage and Realty Trust
         (predecessor to Value Property Trust) and Wilmington Trust Company,  as
         trustee, governing the registrant's Senior Secured Uncertificated Notes
         due 1995 (8) (Exhibit 4.3).

4.3(b)   Indenture  dated as of September  29, 1995 between  Mortgage and Realty
         Trust  (predecessor  to Value  Property  Trust)  and  Wilmington  Trust
         Company,  as trustee,  governing the registrants 11-1/8% Senior Secured
         Notes due 2002. (1) (Exhibit 4.1).

4.3(c)   Amended and Restated Collateral and Security Agreement between Mortgage
         and  Realty  Trust   (predecessor   to  Value  Property   Trust),   its
         Subsidiaries,  its Lenders and Wilmington  Trust Company and William J.
         Wade as Collateral  Agent,  dated as of September 29, 1995 (1) (Exhibit
         4.2).
<PAGE>
4.3(d)   Letter of Agreement  between Mortgage and Realty Trust  (predecessor to
         Value Property Trust) and Wilmington  Trust Company and William J. Wade
         as Collateral Agent, dated as of September 29, 1995 (1) (Exhibit 4.3).

4.3(e)   Pledge  Agreement  between  Mortgage and Realty Trust  (predecessor  to
         Value Property Trust) and Wilmington Trust Company as Collateral Agent,
         dated as of September 29, 1995 (1) (Exhibit 4.5).

4.3(f)   Form of  Security  Agreement  between  certain  subsidiaries  of  Value
         Property Trust and LaSalle National Bank, as trustee (4).

10.1(a)  1984 Share Option Plan (9) (Exhibit 19.1).

10.1(b)  Interest  Rate  Swap  Agreement  among  certain  subsidiaries  of Value
         Property  Trust and Merrill Lynch  Derivatives  Products AG dated April
         24, 1996, and effective April 30, 1996 (4).

10.2     Form of Incentive  Stock Option  Agreement  under the 1984 Share Option
         Plan (10) (Exhibit 10.9).

10.3     Form of  Non-Qualified  Stock  Option  Agreement  under the 1984  Share
         Option Plan (3) (Exhibit 10.19).

10.4     Amended and Restated Savings  Incentive Plan effective  January 1, 1992
         (8) (Exhibit 10.7).

10.5     Amended and Restated  Employees'  Retirement Plan effective  January 1,
         1992 (8) (Exhibit 10.8).

10.6     Pension Plan for Trustees dated October 1, 1989 (11) (Exhibit 10.13).

10.7     Employee'  Retention Plan dated October 17, 1990 as amended January 16,
         1991 and March 10, 1991 (12) (Exhibit 19.1).

10.8     Resolutions of Amendment to Amended and Restated Employees'  Retirement
         Plan (13) (Exhibit 10.8).

10.9     Registration   Rights  Agreement   between  Mutual  Series  Fund  Inc.,
         Intermarket Corporation,  Angelo, Gordon & Co., L.P., Emerald Partners,
         Strome-Susskind  & Co. and Mortgage and Realty  Trust  (predecessor  to
         Value  Property  Trust),  dated  September 29, 1995 (1) (Exhibit  10.1)
         November 28, 1995 Amendment to Registration.

10.10    Rights Agreement dated September 29, 1995 (2).

10.11    Employment  contract dated September 29, 1995 between the Trust and Mr.
         Zoffinger. (18)

10.12    Agreement and Plan of Merger among Value Property Trust, Wellsford Real
         Properties,  Inc. and Wellsford Capital Corporation dated September 18,
         1997. (19)

10.13    1995 Share Option Plan (20)

16       Change in certifying accountants (15).

20.1     Press Release (16) (Exhibit 20.1).

20.2     Term Sheet (16) (Exhibit 20.2).
<PAGE>
21       Subsidiaries (13) (Exhibit 21).

22       Press Release (17).

23.1(*)  Consent of Ernst & Young LLP dated December 15, 1997.

23.2(*)  Consent of Coopers & Lybrand L.L.P. dated December 15, 1997.

27(*)    Financial Data Schedule.
---------------

(1)      Filed on October 13,  1995 as an exhibit to the Current  Report on Form
         8-K (No. 1-6613) and incorporated herein by reference.
(2)      Filed on December  29, 1995 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(3)      Filed on  December  6, 1984 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(4)      Filed on August 14, 1996 as an exhibit to the Quarterly  Report on Form
         10-Q (No. 1-6613) and incorporated herein by reference.
(5)      Filed on December  28, 1990 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(6)      Filed on March 14, 1991 as an exhibit to the Current Report on Form 8-K
         (No. 1-6613) and incorporated herein by reference.
(7)      Filed on December  27, 1991 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(8)      Filed on December  22, 1992 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(9)      Filed on August 13, 1987 as an exhibit to the Quarterly  Report on Form
         10-Q (No. 1-6613) and incorporated herein by reference.
(10)     Filed on December  29, 1987 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(11)     Filed on December  21, 1989 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(12)     Filed on May 14,  1991 as an  exhibit to the  Quarterly  Report on Form
         10-Q (No. 1-6613) and incorporated herein by reference.
(13)     Filed on December  29, 1994 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(14)     Filed on December  12,  1995 as an Exhibit to the 1995 Proxy  Statement
         for fiscal year ended September 30, 1995.
(15)     Filed on April 16, 1996 as an exhibit to the Current Report on Form 8-K
         (No. 1-6613) and incorporated herein by reference.
(16)     Filed on November 28, 1994 as an exhibit to the Current  Report on Form
         8-K (No. 1-6613) and incorporated herein by reference.
(17)     Filed on February 26, 1996 as an exhibit to the Current  Report on Form
         8-K (No. 1-6613) and incorporated herein by reference.
(18)     Filed on December  27, 1996 as an exhibit to the Annual  Report on Form
         10-K (No. 1-6613) and incorporated herein by reference.
(19)     Filed on September 22, 1997 as an exhibit to the Current Report on Form
         8-K (No. 1-6613) and incorporated herein by reference.
(20)     Filed on  February 7, 1997 on Form S-8 (No.  1-6613)  and  incorporated
         herein by reference.
(*)      Exhibit filed with this Form 10-K.