FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

For the fiscal year ended   December 31, 2006
                          -----------------------------------------------------

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________________

Commission file number         0-6103
                       -----------------------------------------------------

                        Watermark Investors Realty Trust
             (Exact name of registrant as specified in the charter)

                  Texas                                75-1372785
------------------------------------------        ----------------------
     (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)               Identification No.)
     100 N. Tryon Street, Suite 5500,
        Charlotte, North Carolina                        28202
------------------------------------------        ----------------------
 (Address of principal executive offices)               (Zip Code)
Registrant's telephone number, including area code  704/343-9334
                                                  -----------------------------

Securities registered pursuant to Section 12(b) of the Act:

   Title of each class          Name of each exchange on which registered
         None                                     None
-------------------------       -----------------------------------------


           Securities registered pursuant to Section 12(g) of the Act

                 Shares of Beneficial Interest, $1.00 par value
                                (Title of class)

     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. Yes __ No X .
                                                        --

         Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes   __  No   X .
              --

     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  and 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 disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

<PAGE>

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

     Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Act). Yes __ No X .
                                            ---

     The aggregate  market value of the 542,413  shares of  beneficial  interest
(voting   securities)   held  by   non-affiliates   of  the  Registrant  is  not
ascertainable since no trading market presently exists for such shares.

     As of March 26,  2007,  there  were  542,413  common  shares of  beneficial
interest of the Registrant.


<PAGE>


                        WATERMARK INVESTORS REALTY TRUST

                                TABLE OF CONTENTS
                                -----------------

                                                                          Page
                                                                          ----
                                     Part I

Item 1.     Business.........................................................2
Item 1A.    Risk Factors.....................................................2
Item 1B.    Unresolved Staff Comments........................................5
Item 2.     Properties ......................................................5
Item 3.     Legal Proceedings ...............................................5
Item 4.     Submission of Matters to a Vote of Security Holders .............5

                                     Part II

Item 5.     Market For Registrant's Common Equity, Related Stockholder
            Matters and Issuer Purchases of Equity Securities................6
Item 6.     Selected Financial Data .........................................6
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations .......................................7
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk ......7
Item 8.     Financial Statements and Supplementary Data .....................8
Item 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure ........................................8
Item 9A.    Controls and Procedures .........................................8
Item 9B.    Other information ...............................................9

                                    Part III

Item 10.    Directors, Executive Officers and Corporate Governance ..........9
Item 11.    Executive Compensation .........................................11
Item 12.    Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters.................................11
Item 13.    Certain Relationships and Related Transactions,
            and Director Independence ......................................13
Item 14.    Principal Accountant Fees and Services .........................14

                               Part IV

Item 15.    Exhibits and Financial Statement Schedules .....................14
            Signatures .....................................................16


<PAGE>

                           FORWARD LOOKING INFORMATION

     Certain  matters  discussed  in this  Annual  Report on Form  10-K  contain
"forward-looking  statements"  for purposes of Section 27A of the Securities Act
of 1933, as amended and Section 21E of the  Securities  Exchange Act of 1934, as
amended,  or the "Exchange Act." These  forward-looking  statements are based on
current expectations and are not guarantees of future performance.

     All   statements   other   than   statements   of   historical   facts  are
forward-looking  statements, and can be identified by the use of forward-looking
terminology such as "may," "will,"  "might,"  "would,"  "expect,"  "anticipate,"
"estimate,"   "would,"  "could,"  "should,"   "believe,"   "intend,"  "project,"
"forecast,"  "target,"  "plan," or  "continue" or the negative of these words or
other variations or comparable terminology, are subject to certain risks, trends
and  uncertainties  that could cause actual  results to differ  materially  from
those   projected.   Because   these   statements   are  subject  to  risks  and
uncertainties,  actual  results may differ  materially  from those  expressed or
implied by the  forward-looking  statements.  We caution  you not to place undue
reliance on those statements, which speak only as of the date of this report.

     Among the factors that could cause actual results to differ materially are:

     o    general economic conditions, competition and the supply of and demand;

     o    interest rate levels and the availability of financing;

     o    potential environmental liability and other risks associated with the
          ownership, development and acquisition of our property;

     o    greater than anticipated construction or operating costs;

     o    inflationary and other general economic trends;

     o    other risks detailed from time to time in the reports filed by us with
          the Securities and Exchange Commission.

     You should  not place  undue  reliance  on our  forward-looking  statements
because  the  matters  they  describe  speak only as of the date of this  annual
report and are subject to known (and  unknown)  risks,  uncertainties  and other
unpredictable factors, many of which are beyond our control. Many relevant risks
are described  under the caption "Risk  Factors" on page 2 as well as throughout
this annual report and you should consider these important cautionary factors as
you read this document.

     Our actual results,  performance or achievements may differ materially from
the  anticipated  results,  performance  or  achievements  that are expressed or
implied by our  forward-looking  statements.  Among the factors that could cause
such a difference are:

     o    uncertainties relating to the Parker Road Property;

     o    uncertainties relating to our operations;

     o    uncertainties  relating to domestic  and  international  economic  and
          political conditions;

     o    uncertainties   regarding  the  impact  of  regulations,   changes  in
          government policy and industry competition; and

     o    other risks  detailed  from time to time in our reports filed with the
          SEC.

     The  cautionary  statements  contained or referred to in this annual report
should  be  considered  in  connection  with  any  subsequent  written  or  oral
forward-looking  statements  that may be issued by us or  persons  acting on our
behalf.  Except for our ongoing  obligations to disclose certain  information as
required by the federal  securities  laws, we undertake no obligation to release
publicly any revisions to any  forward-looking  statements to reflect  events or
circumstances  after the date of this annual report or to reflect the occurrence
of unanticipated events.


                                        1
<PAGE>

                                     PART I

Item 1.  Business.

     Watermark  Investors  Realty  Trust,  referred to in this annual  report as
"Watermark," was originally organized as Ryan Mortgage Investors pursuant to the
Texas  Real  Estate  Investment  Trust Act under a  Declaration  of Trust  dated
October 13, 1971.  On March 6, 1984,  its name was changed to  Arlington  Realty
Investors  pursuant to an Amendment to the  Declaration of Trust. On December 5,
1995,  Watermark's name was changed to Watermark Investors Realty Trust pursuant
to an Amendment to the Declaration of Trust. Watermark has elected to be treated
as a real estate investment trust ("REIT") under Sections 856 through 860 of the
Internal  Revenue  Code of 1986,  as amended.  Watermark  has, in the opinion of
Watermark's management, qualified for federal taxation as a REIT for each fiscal
year subsequent to December 31, 1971. Although not currently active, Watermark's
primary  business  and only  industry  segment  has  been  investing  in  equity
interests in real estate and related real estate activities.  During March 1995,
Watermark formed a wholly owned subsidiary,  Watermark Texas 1, Inc., a Maryland
corporation  referred  to in  this  annual  report  as  "Watermark  Texas,"  and
contributed to this  subsidiary its only  significant  asset  constituting  4.68
acres of  unimproved  land  located on Parker  Road in Houston,  Harris  County,
Texas, referred to as the "Parker Road Property."

Item 1A. Risk Factors

     You should  carefully  consider  all of the  information  including in this
annual report,  including the matters  addressed in "Cautionary  Notes Regarding
Forward-Looking  Statements"  beginning  on  page 1. In  addition,  you  should
carefully consider the following risk factors  consideration by us, based on the
information available to us, to be material to Watermark.

     We have no  operating  assets or revenues and our  continuation  as a going
concern is  dependent  upon our ability to raise  additional  capital from third
parties.

     We have no  operating  assets or revenues and our  continuation  as a going
concern is  dependent  upon our ability to raise  additional  capital from third
parties.  We currently  have a note payable to Abbestate  Holding,  Inc. with an
interest  rate of 12%. A  shareholder  owning all of the  outstanding  shares of
Abbestate Holding,  Inc. is also a twenty-five  percent shareholder of Antapolis
N.V., a shareholder of Watermark owning thirty-four percent of our common shares
of beneficial  interest  outstanding  as of March 26, 2007.  We anticipate  that
Abbestate Holding will continue to provide us with financial  support,  however,
there can be no assurances that Abbestate  Holding will continue to provide this
financial  support or that we will be successful in raising  additional  capital
from other sources. Further, there can be no assurance, assuming we successfully
obtain  additional  financial  support,  that we will achieve  profitability  or
positive cash flow.

     We  expect  to incur  increasingly  significant  costs in  connection  with
Sarbanes-Oxley compliance and we may become subject to liability for any failure
to comply.

     The Sarbanes-Oxley Act and related laws, regulations and standards relating
to  corporate  governance  and  disclosure  requirements  applicable  to  public
companies  have  increased  the costs of  corporate  governance,  reporting  and
disclosure practices which are now required of us. We expect that our efforts to
comply with the  Sarbanes-Oxley  Act and applicable  laws and  regulations  will
continue to involve significant, and potentially increasing, costs. In addition,
these laws,  rules and  regulations  create new legal  bases for  administrative
enforcement,   civil   and   criminal   proceedings   against   us  in  case  of
non-compliance,   thereby  increasing  its  risks  of  liability  and  potential
sanctions.

     While  we  are  not  aware  of  any   material   non-compliance   with  the
Sarbanes-Oxley Act and related laws and regulations, we were formed prior to the
enactment of these new corporate governance standards and as a result we did not
have  all  necessary  procedures  and  policies  in  place  at the time of their
enactment.  Any failure to comply  could  result in fees,  fines,  penalties  or
administrative remedies.

     We have not paid  distributions to our  shareholders in recent years,  and,
since our cash  flow is not  assured,  we do not  anticipate  being  able to pay
distributions in the future.

     Due  to our  net  operating  losses,  no  distributions  were  made  to our
shareholders  during the year ended  December  31, 2006 and  distributions  have
never been made to our shareholders. Given our lack of business

                                        2
<PAGE>

operations and our current financial situation, we do not anticipate being able
to pay distributions to our shareholders in the future.

     Due to the risks  involved in the  ownership  of real  estate,  there is no
guarantee of any return on your  investment and you may lose some or all of your
investment.

     By owning our common shares of beneficial interest, our shareholders will
be subjected to the risks associated with owning real estate. Ownership of real
estate is subject to significant risks. The performance of your investment in us
is subject to risks related to the ownership and operation of real estate,
including:

     o    changes in the general economic climate;

     o    changes in local  conditions  such as an  oversupply  or  reduction in
          demand for real estate;

     o    changes in interest rates and the availability of financing; and

     o    changes  in  laws  and  governmental   regulations,   including  those
          governing real estate usage, zoning and taxes.

If our assets decrease in value, the value of your investment will likewise
decrease and you could lose some or all of your investment.

     Lack  of  diversification  and  illiquidity  of  real  estate  may  make it
difficult for us to sell underperforming properties or recover our investment in
one or more properties.

     Our business is subject to risks associated with investment  solely in real
estate. Real estate investments are relatively illiquid. Our ability to vary our
portfolio in response to changes in economic and other conditions is limited. We
cannot provide assurance that it will be able to dispose of our property when we
want or need to. Consequently,  the sale price for any property that we may now,
or in the future, own may not recoup or exceed the amount of our investment.

     Lack of geographic  diversity may expose us to regional economic  downturns
that  could  adversely  impact our  operations  or our  ability  to recover  our
investment in one or more properties.

     Our  portfolio  lacks  geographic  diversity,  as we own a single  property
located in Houston,  Texas.  This  geographic  concentration  of our  investment
exposes us to economic downturns in that region. A recession in that area of the
state could further adversely affect our ability to generate  operating revenues
or dispose of the property.

     Losses  for which we  either  could not or did not  obtain  insurance  will
adversely  affect our  earnings  and we may be unable to comply  with  insurance
requirements  contained in mortgage or other  agreements  due to high  insurance
costs.

     We endeavor to maintain comprehensive insurance on the Parker Road Property
in amounts  sufficient to permit the replacement of the property in the event of
a total loss, subject to applicable deductibles.  However, we could still suffer
a loss due to the cost to repair any damage to  properties  that are not insured
or are  underinsured.  There are types of losses,  generally  of a  catastrophic
nature, such as losses due to terrorism,  wars,  earthquakes,  floods or acts of
God  that  are  either  uninsurable  or not  economically  insurable.  If such a
catastrophic event were to occur, or cause the destruction of one or more of our
properties, we could lose both our invested capital and anticipated profits from
such  property  or  properties.  In  such  instances,  we  may  be  required  to
self-insure  against certain losses or seek other forms of financial  assurance.
Additionally, inflation, changes in applicable laws, regulations and ordinances,
environmental considerations, and other factors also might make it infeasible to
use  insurance  proceeds  to replace a property  if it is damaged or  destroyed.
Under such  circumstances,  the insurance  proceeds  received by us might not be
adequate to restore our economic position with respect to the affected property.

     There is currently no public market for our common  shares.  Therefore,  it
will  likely be  difficult  for you to sell your  shares and, if you are able to
sell your shares,  you may do so at a  substantial  discount  from the price you
paid.

     There  currently is no public  market for our common  shares of  beneficial
interest. It may be difficult for you to sell your shares promptly or at all. If
you are able to sell your common shares of beneficial interest,  you may only be
able to do so at a substantial discount from the price you paid.

                                        3
<PAGE>

     Our board of trustees may alter our investment policies at any time without
shareholder approval.

     Our board of trustees may alter our investment policies at any time without
shareholder  approval.  Changes  to these  policies  may  adversely  affect  our
financial performance and our ability to maintain or pay distributions.

     We may be harmed by changes in tax laws applicable to REITs, or the reduced
15% tax rate on certain corporate dividends.

     Changes to the laws and  regulations  affecting  us,  including  changes to
securities  laws and changes to the  Internal  Revenue  Code  applicable  to the
taxation of REITs may harm our business. New legislation may be enacted into law
or new  interpretations,  rulings or regulations could be adopted,  any of which
could harm us and our shareholders, potentially with retroactive effect.

     Generally,  distributions  paid by REITs are not  eligible for the 15% U.S.
federal income tax rate on certain corporate dividends, with certain exceptions.
The more favorable treatment of regular corporate dividends could cause domestic
non-corporate  investors  to  consider  stocks  of other  corporations  that pay
dividends as more attractive  relative to stocks of REITs. It is not possible to
predict  whether the reduced 15% tax rate on certain  corporate  dividends  will
affect the value of our common stock or what the effect will be.

     We  anticipate  that  our  working  capital  reserves  and cash  flow  from
operations  may not be  adequate to cover all of our cash needs and we will have
to obtain financing from other sources.

     We  anticipate  that our working  capital  reserves will not be adequate to
cover  all of our cash  needs.  In order to cover  those  needs,  we may have to
obtain financing from other sources.  Sufficient  financing may not be available
or, if  available,  may not be available on  economically  feasible  terms or on
terms acceptable to us. Additional  borrowings for working capital purposes will
increase our interest  expense,  and therefore may harm our financial  condition
and results of operations.  In order to meet the corporate expenses and carrying
costs of the Parker Road Property, we may have to raise additional funds.

     We  have  debt   obligations   which  may  further   reduce  our  operating
performance.

     We have outstanding  debt and other  liabilities in the aggregate amount of
approximately $740,410. In addition, we may incur additional indebtedness in the
future. As a result,  we are subject to the risks normally  associated with debt
financing,  including the risk that our cash flow will be  insufficient  to meet
required  payments of principal and interest,  the risk that interest  rates may
increase on variable-rate  debt and the risk that indebtedness on our properties
cannot be refinanced at maturity or that the terms of such  refinancing will not
be as favorable as the terms of such indebtedness.

     If our internally  generated  cash is inadequate to repay our  indebtedness
upon maturity, then we will be required to repay debt through refinancing. If we
are unable to refinance  our  indebtedness  on acceptable  terms,  or at all, we
might be forced to dispose of our  property,  potentially  upon  disadvantageous
terms, which might result in losses.

     Our President and his affiliates  beneficially own approximately 11% of our
common shares of beneficial  interest and exercise  significant control over our
company which could delay, defer or prevent us from taking actions that would be
beneficial to our other shareholders.

     David  S.  Givner,   our  President   and  Treasurer  and  his   affiliates
beneficially  own  approximately  11% of our  outstanding  common  shares of the
beneficial  interest.  Accordingly,  Mr. Givner is able to exercise  significant
control over the outcome of  substantially  all matters required to be submitted
to our shareholders for approval,  including  decisions relating to the election
of our board of trustees and the  determination of our day-to-day  corporate and
management policies. Mr. Givner's ownership interest in Watermark may discourage
third parties from seeking to acquire  control of Watermark  which may adversely
affect the fair market value of our common shares of beneficial interest.

     Loss of Key Personnel Could Harm Our Business.

     Our ability to  successfully  manage our business  depends to a significant
degree upon the continued  contributions  of David S. Givner,  our President and
Treasurer.  There is no guarantee that Mr. Givner will remain  employed with us.
The loss of the services of Mr. Givner could have a material  adverse  effect on
our results of operations.


                                        4

<PAGE>

     Our declaration of trust contains  certain  provisions which may discourage
acquisition of our common shares.

     Our  declaration  of  trust  contains  certain  provisions  that  may  have
anti-takeover  effects  and  inhibit  an  acquisition  of our  common  shares of
beneficial interest.  For instance, our declaration of trust contains limits and
restrictions on transferability  of our common shares of beneficial  interest in
order to project our status as a REIT.  In  addition,  in the event our trustees
believe,  in good faith, that direct or indirect  ownership of our common shares
have  or  may  become  concentrated  to  an  extent  that  is  contrary  to  the
requirements  of the Internal  Revenue Code, then our trustees have the power to
redeem those shares in order to maintain our REIT status.  These  provisions may
have an effect of preventing,  or delaying,  an acquisition of our common shares
of beneficial interest.

Item 1B. Unresolved Staff Comments.

     None.

Item 2. Properties.

     As of  December  31,  2006,  Watermark's  only  significant  asset  was its
ownership  interest in its subsidiary,  Watermark  Texas,  which owns the Parker
Road  Property.  Since  2002,  Watermark  has  sought  to sell the  Parker  Road
Property, and currently plans to continue in its efforts to effectuate a sale of
the Parker Road Property by Watermark Texas at the first available  opportunity.
As of December 31, 2006, Watermark was involved in negotiations with a potential
purchaser,  Bayside Fish Market, a Texas corporation,  or Bayside. On January 5,
2007,  as  reported  by  Watermark  on the  Current  Report on Form 8-K filed on
January 11, 2007,  the Board of  Directors of Watermark  Texas voted to sell the
Parker Road Property and Watermark  Texas entered into an Agreement of Sale with
Bayside for the  purchase  and sale of the Parker Road  Property  for a purchase
price of $339,500. The proceeds of the sale will be used to pay down Watermark's
debts.  The sale  agreement  will be submitted to Watermark  for approval as the
sole shareholder of Watermark Texas, as well as to the shareholders of Watermark
prior to the closing of the sale.  The sale  agreement is filed with the Current
Report on Form 8-K  filed on  January  11,  2007 and is  incorporated  herein by
reference.

     The anticipated carrying costs associated with the Parker Road property are
currently limited to property taxes, insurance and maintenance.

Item 3. Legal Proceedings.

     On or about  February  13, 2007,  Watermark  received  notification  that a
lawsuit  entitled  Harris County et al v. Watermark Texas 1, Inc. had been filed
in the district  court,  80th  judicial  court,  Harris  County,  Texas  against
Watermark  Texas for delinquent ad valorem  taxes,  plus interest and penalties,
owed by Watermark  Texas with respect to the Parker Road  Property.  On February
28,  2007,  Watermark  agreed to pay to the City of Houston  an amount  equal to
$61,628.95  in  settlement  of the City's  claims.  This lawsuit  arose from the
nonpayment by a previous  owner of certain taxes on the Parker Road Property and
also  resulted  from a  discrepancy  in the acreage of the Parker Road  Property
actually owned by Watermark Texas.  Watermark Texas has historically  paid taxes
with respect to its ownership of 3.0905 acres of real property,  rather than the
4.68 acres of real property owned of record by Watermark Texas.

     As of December 31, 2006,  and  thereafter  through the date of this report,
Watermark was not a party, nor was any property or assets of Watermark  subject,
to any other material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.

                                        5

<PAGE>
                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

     Watermark's  common shares of beneficial  interest are traded on a sporadic
basis.  Watermark  believes  there has been no established  independent  trading
market for its common  shares  since they were  delisted  from NASDAQ in 1988. A
limited  number of common  shares are  believed to have been traded in privately
negotiated transactions.

     No regular dividends on our common shares of beneficial  interest were paid
in 2006 or 2005.  As of March  26,  2007,  542,413  common  shares  were held by
approximately 300 holders of record.

     Watermark  does not have any  compensation  plans in place  under which our
equity securities are authorized for issuance.

     Watermark has not sold any of its securities  during the fiscal years ended
December 31, 2006,  2005 or 2004 that were not  registered  under the Securities
Act of 1933, as amended.

Item 6. Selected Financial Data.

     The following table sets forth a summary of certain selected financial data
of Watermark.  This summary should be read in conjunction  with the Notes to the
Financial Statements beginning on page F-1.

                    (dollars in thousands, except per share)
                        For the Years Ended December 31,
                                   2006      2005     2004       2003     2002

Statement of Operations Data
----------------------------
      Rental Operations, net         $-        $-       $-        $ -       $-
      Real estate sales, net          -         -        -          -        -
             Interest Income          -         -        -          -        -
        Gain on Sale of Land          -         -        -          -        -
         Net earnings (loss)     $(147)     $(69)    $(62)      (123)     (36)
   Earnings (loss) per share     $(.27)    $(.13)   $(.12)     $(.23)   $(.07)
     Distributions per share        $ -        $-       $-         $-      $ -
     Weighted average shares    542,413   542,413  542,413    542,413  542,413
                 outstanding
Balance Sheet Data
------------------
Total assets                         38        14       21         11        5
Shareholders' equity              (702)     (555)    (486)      (423)    (300)
(deficit)
Other Data
----------
Cash flow from:
Operating activities
Investing activities
Financing activities

                                        6

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operation.

     Results of Operations
     ---------------------

     Watermark has had no revenues for the three years ended  December 31, 2006,
2005 and 2004.  Watermark's  sole  significant  asset  property  consists of the
Parker Road  Property.  In February of 1995,  Watermark sold a 4,429 square foot
strip of the Parker Road  Property to the City of  Houston,  Texas,  for $3,765.
Watermark did not have any rental operations in 2004, 2005, or 2006.

     Liquidity and Capital Resources
     -------------------------------

     Management  currently  plans  for its  wholly-owned  subsidiary,  Watermark
Texas, to sell the Parker Road Property at the first available opportunity.  The
anticipated  carrying  costs  associated  with  the  Parker  Road  Property  are
currently  limited to property taxes,  insurance and  maintenance.  There are no
other known material  demands,  commitments,  events or uncertainties  that will
result in or that are  reasonably  likely to  result  in  Watermark's  liquidity
increasing  or  decreasing  in any  material  way.  However,  in  order  to meet
corporate expenses and the carrying costs of the Parker Road Property, Watermark
will have to  generate  additional  funds,  possibly  by selling or leasing  the
Parker  Road   property.   There  are  no  material   commitments   for  capital
expenditures.

     The following table sets forth certain  information  regarding  Watermark's
significant  contractual  obligations,  including  payments due by period, as of
December 31, 2006:

 ------------------------------------------------------------------------------
   Contractual Obligations                       Payments due by period
                                Total      Less       1-3    3-5     More than
                                        than 1 year  years   years    5 years
 ------------------------------------------------------------------------------
       Long-Term Debt         $395,000                                $395,000
 ------------------------------------------------------------------------------
  Capital Lease Obligations
 ------------------------------------------------------------------------------
      Operating Leases
 ------------------------------------------------------------------------------
    Purchase Obligations
 ------------------------------------------------------------------------------
 Other Long-Term Liabilities
Reflected on the Registrant's
  Balance Sheet under GAAP
 ------------------------------------------------------------------------------
             Total            $395,000                               $395,000
 ------------------------------------------------------------------------------

     Inflationary Factors
     --------------------

     In recent years,  inflation has neither increased Watermark's revenues from
operating  assets nor  beneficially  affected the current value of its remaining
real estate assets to any significant degree.

     Off-Balance Sheet Arrangements
     ------------------------------

     None.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     Management  does not believe that Watermark has any exposure to market risk
other than the risks commonly associated with ownership of real property.


                                        7

<PAGE>

Item 8. Financial Statements and Supplementary Data.

     The financial  statements and supplementary data required by Regulation S-X
are included in this Form 10-K commencing on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

     We have not made any changes  with  respect to our  independent  registered
public accounting firm. There were no disagreements with Farmer,  Fuqua, & Huff,
P.C., whether resolved or unresolved,  on any matter of accounting principles or
practices, financial statement disclosures, or auditing scope or procedure that,
if not resolved to by Farmer,  Fuqua, & Huff,  P.C.'s  satisfaction,  would have
caused by Farmer, Fuqua, & Huff, P.C. to make reference to the subject matter of
the disagreement in connection with its report for either of the two years ended
December 31, 2006 and 2005.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

     Watermark's  principal  executive  officer and principal  financial officer
have  concluded  that,  as of the end of the  period  covered  by  this  report,
Watermark's disclosure controls and procedures (as defined in Rules 13a-15(e) or
15d-15(e) of the Exchange Act) were effective,  based on the evaluation of these
controls and procedures  required by Rule 13a-15(b) or 15d-15(b) of the Exchange
Act.

     Watermark's  management is responsible  for  establishing  and  maintaining
adequate  internal  control  over  financial  reporting  to  provide  reasonable
assurance  regarding the reliability of Watermark's  financial reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles.  Internal  control  over  financial
reporting  includes  those  policies  and  procedures  that (i)  pertain  to the
maintenance of records that in reasonable  detail  accurately and fairly reflect
the  transactions  and  dispositions  of the assets of  Watermark;  (ii) provide
reasonable  assurance  that  transactions  are  recorded as  necessary to permit
preparation  of financial  statements  in  accordance  with  generally  accepted
accounting principles, and that receipts and expenditures of Watermark are being
made only in  accordance  with  authorizations  of  management  and directors of
Watermark; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition,  use or disposition of Watermark's assets
that could have a material effect on the financial statements.

Inherent Limitations on Effectiveness of Controls
-------------------------------------------------

     Watermark's  management,  including  its  principal  executive  officer and
principal financial officer, does not expect that our disclosure controls or our
internal  control over financial  reporting will prevent or detect all error and
all fraud.  A control  system,  no matter how well  designed and  operated,  can
provide only  reasonable,  not  absolute,  assurance  that the control  system's
objectives  will be met.  The design of a control  system must  reflect the fact
that there are  resource  constraints,  and the  benefits  of  controls  must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that  misstatements  due to error or fraud  will not  occur or that all  control
issues and instances of fraud,  if any,  within the company have been  detected.
These   inherent   limitations   include  the   realities   that   judgments  in
decision-making  can be faulty and that  breakdowns  can occur because of simple
error or mistake.  Controls can also be  circumvented  by the individual acts of
some persons,  by collusion of two or more people, or by management  override of
the  controls.  The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future  conditions.  Projections of any evaluation of controls  effectiveness to
future periods are subject to risks.  Over time,  controls may become inadequate
because of changes in  conditions or  deterioration  in the degree of compliance
with policies or procedures.

Changes in Internal Control Over Financial Reporting
----------------------------------------------------

     There  have  been  no  changes  in our  internal  controls  over  financial
reporting during the year ended December 31, 2006 that have materially affected,
or are  reasonably  likely to  materially  affect,  our internal  controls  over
financial reporting.


                                        8

<PAGE>


Item 9B. Other Information.

     None.

                                    PART III

Item 10. Directors, Executive Officers and Corporate Governance.

     The business  affairs of Watermark  are managed by, or under the  direction
of,  the  Board of  Trustees.  The  Trustees  are  responsible  for the  general
investment  policies  of  Watermark  and for  such  general  supervision  of the
business of  Watermark  conducted  by officers,  agents,  employees,  investment
advisors or  independent  contractors of Watermark as may be necessary to insure
that such  business  conforms to the  provisions  of the  Declaration  of Trust.
Pursuant to Article II, Section 2.1 of the Declaration of Trust, as amended,  of
Watermark,  there shall not be less than two (2),  nor more than  fifteen  (15),
Trustees of Watermark.  The number of Trustees shall be determined  from time to
time by resolution of the Trustees and the current  number of Trustees is set at
three (3).  Trustees  may succeed  themselves  in office and are  required to be
individuals  at least 21 years old not  under  legal  disability  and at least a
majority must be natural  persons.  Commencing  with the 1996 annual  meeting of
shareholders,  the Board of Trustees of  Watermark  has been  divided into three
classes, each class consists as nearly as possible of one-third of the Trustees.
The term of office of one class of Trustees  expires each year.  The Trustees of
the class elected at each annual meeting of shareholders  hold office for a term
of three years.

     Board of Trustees
     -----------------

     The  current  Trustees  of  Watermark  (two of whom are also the  executive
officers) are listed below,  together with their ages, all positions and offices
with  Watermark  and  their  principal  occupations,   business  experience  and
directorships with other companies during the last five years or more.

             Name         Age   Principal Occupation, Business Experience,
                                Other Directorships or Trusteeships held

   David S. Givner        62    Mr. Givner has been Trustee, President and
                                Treasurer of Watermark since December 5, 1995,
                                and is also the President/Managing Director
                                of HPI Management, LP.  Since 1992, Mr. Givner
                                has been President and Chief Operating Officer
                                of various affiliates of HPI Management, LP.
                                From 1987 until 1992, he was Senior
                                Vice President/Director of Leasing and
                                Consulting Services for Williams Real Estate
                                Company based in New York, New York. Mr.
                                Givner is also the sole shareholder and the
                                President of DAGI Corporation,
                                a Delaware corporation and the general partner
                                of DAGI Limited Partnership, a Delaware limited
                                partnership.

   Simon Mizrachi         57    Mr. Mizrachi has been Trustee of Watermark
                                since December 5, 1995 and is also the
                                President of Midatlantic Agency, Inc. a Florida
                                corporation and financial consulting company.
                                Mr. Mizrachi has served as President of
                                Midatlantic Agency, Inc. since 1992.
                                Mr. Mizrachi and Midatlantic Agency, Inc. are
                                the sole partners of MIZ Investors Associates,
                                a Delaware general partnership. Mr. Mizrachi
                                has been a director and officer of PAZ
                                Securities, Inc., an NASD broker/dealer firm,
                                since 1978.  Mr. Mizrachi is an officer with
                                PAK Investors, Inc., Pudgie's Chicken, Inc.,
                                Topaz Securities, Inc., Topaz, Inc.,
                                Cal-Mar, Inc., TMT Hanes, Inc., and TMT
                                Sales, Inc. Mr. Mizrachi is also an officer of
                                various affiliates of MIZ Investors Associates
                                and Midatlantic Agency, Inc.


                                        9

<PAGE>

   Michael S. Verruto     45    Mr. Verruto has been Trustee, Vice President
                                and Secretary of Watermark since
                                December 5, 1995 and is also the
                                Vice President/Managing Director of HPI
                                Management, LP and HPI Capital, Inc.,
                                a Florida corporation that develops
                                real estate. Since January 1990, Mr. Verruto
                                has held various positions with various
                                affiliates of HPI Management, LP, all of which
                                are active in real estate development and
                                management. Mr. Verruto is also the
                                sole shareholder and the President and
                                Treasurer of Fletcher Napolitano
                                Styles and Verruto Holding Company, Inc.,
                                a Delaware corporation and the general partner
                                of Fletcher Napolitano Styles and
                                Verruto Family Property Partners, L.P.,
                                a Delaware limited partnership.

Executive Officers
------------------

     Our executive officers are as follows:


          Name           Age                          Position

David S. Givner          62       President and Treasurer of Watermark

Michael S. Verruto       45       Vice President and Secretary of Watermark

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

     Section 16(a) of the Exchange Act requires our trustees, executive officers
and persons who own more than ten percent of our  outstanding  common  shares of
beneficial  interest,  to file with the SEC  initial  reports of  ownership  and
reports of changes in  ownership of common  stock.  Such persons are required by
SEC regulations to furnish us with copies of all such reports they file.


     To our  knowledge,  based  solely on a review of the copies of such reports
furnished to us and written  representations that no other reports are required,
all Section 16(a) filing requirements  applicable to our officers,  trustees and
greater than ten percent  beneficial  owners have been  complied with during the
fiscal year ended December 31, 2006.

Code of Ethics
--------------

     Since we are  currently  inactive  and our  trustees  and  officers are not
presently  conducting  ongoing  operations for Watermark,  we have not adopted a
code of ethics.

Shareholder Nominations
-----------------------

     Since we are  currently  inactive,  our board of trustees has no nomination
policy with regard to the consideration of any trustee candidates recommended by
our  shareholders  and the  board  of  trustees  has not  established  a  formal
procedure for our shareholders to follow when  recommending a trustee  candidate
other than  submitting  nominees to our corporate  secretary.  During the fiscal
year ending December 31, 2006,  there were no material changes to the procedures
by which shareholders may recommend nominees to our board of trustees.

Identification of the Audit Committee
-------------------------------------

     Since we are currently inactive and have no business operations,  our board
of  trustees  has   determined   that  there  is  no  need  for  us  to  have  a
separately-designated  standing audit  committee  established in accordance with
Section  3(a)(58)(A)  of the  Exchange  Act, or a committee  performing  similar
functions.

Audit Committee Financial Expert
--------------------------------

     Since we do not have an audit committee,  we do not have a financial expert
on any such committee.

                                       10

<PAGE>

Item 11. Executive Compensation.

Compensation Discussion and Analysis
------------------------------------

     Neither our trustees nor our executive  officers received salaries or other
cash  compensation  from Watermark for acting in such capacities during the year
ended  December 31, 2006 or since the year ended  December 31, 1996.  Based upon
the our  current  financial  situation  and  lack of  operations,  our  board of
trustees does not believe any form of compensation  will be paid or given in the
near future. Since we do not pay any compensation to our executive officers, and
have not done so since the year  ended  December  31,  1996,  we do not have any
objectives, policies, analyses, or decisions to report with respect to executive
compensation. In addition, since we do not pay any compensation to our executive
officers  and  trustees,  we do not have any  processes  or  procedures  for the
consideration and determination of executive and director compensation.

Summary Compensation Table; Grants of Plan-Based Awards; Outstanding Equity
---------------------------------------------------------------------------

Awards, Option Exercises and Stock Vested; Pension Benefits; Nonqualified
-------------------------------------------------------------------------

Deferred Compensation
---------------------

     None of our executive officers have been granted any form of salary, bonus,
pension  benefits,  nonqualified  compensation,  or any grants of common shares,
restricted stock,  options to purchase common shares,  warrants,  rights,  stock
appreciation rights or any other equity based compensation during the year ended
December  31,  2006 or since the year  ended  December  31,  1996.  There are no
outstanding  equity  awards as of  December  31,  2006.  We have no  retirement,
annuity or pension plans  covering our trustees or officers.  Based upon the our
current financial  situation and lack of operations,  our board of trustees does
not believe any form of compensation will be paid or given in the near future.

Trustee Compensation
--------------------

     None of our trustees have received salaries or other cash compensation,  or
any form of equity  awards,  non-equity  awards or  deferred  compensation  from
Watermark for acting in such capacities  during the year ended December 31, 2006
or since the year ended  December 31, 1996.  We have no  retirement,  annuity or
pension plans  covering our  trustees.  Based upon our current  operations,  our
board of  trustees  does not believe  compensation  will be paid or given in the
near future.

Potential Payments Upon Termination or Change-in-Control
--------------------------------------------------------

     There are no contracts, agreements, plans or arrangements, written or oral,
that  provide  payments  to a  named  executive  officer  at,  following,  or in
connection  with any termination of a named  executive  officer,  or a change of
control   of   Watermark,   or  a  change   in  a  named   executive   officer's
responsibilities.

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

     During 2006,  there were no  compensation  committee  interlocks or insider
participation.  In  addition,  during 2006,  no  executive  officer of Watermark
served (i) as a member of the  compensation  committee  or board of directors of
another  entity,  one of whose  executive  officers  served on the  compensation
committee,  or (ii) as a member of the compensation committee of another entity,
one of whose executive officers served on the board of directors.

Compensation Committee Report
-----------------------------

     Since we are currently inactive and have no business operations,  our board
of  trustees  has  determined  that  there is no need for us to have a  standing
compensation committee,  and therefore no such committee is in existence.  Since
we do not have a compensation committee, we do not have any reports submitted by
such committee to our shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters.

     The table below sets forth,  as of March 26, 2007, the number of our common
shares of beneficial interest which were owned beneficially by:

                                       11

<PAGE>


o    each  person  who is known by us to  beneficially  own more  than 5% of our
     common shares of beneficial interest;

o    each trustee and nominee for trustee;

o    each of the named  executive  officers  as  defined  in Item  402(a)(3)  of
     Regulation S-K promulgated by the SEC; and

o    all of our trustees and executive officers as a group.

     Unless otherwise  indicated,  the address of each of the individuals listed
in the table is c/o Watermark Investors Realty Trust, 100 N. Tryon Street, Suite
5500,  Charlotte,  NC 28202 and its  telephone  number at that  address is (704)
343-9334.

     The number of our common shares  beneficially  owned by each  individual or
group is based upon  information in documents filed by such person with the SEC,
other publicly available  information or information available to us. Percentage
ownership in the following table is based on 542,413 common shares of beneficial
interest outstanding as of March 26, 2007. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities.

                                                                   Percentage
                                                                 of Outstanding
                                                  Amount and         Common
Name and Address                             Nature of Beneficial    Shares
of Beneficial Owner                               Ownership         Owned(1)
-------------------------------------------- --------------------- ------------
Fletches Napolitano Styles and Verruto         59,665(2)
Family Property Partners, L.P.(3)                                  11%(2)

MIZ Investors Associates(4)
6971 North Federal Highway, Suite 203
Boca Raton, Florida 33487                      59,665(2)           11%(2)

DAGI Limited Partnership                       59,665(2)           11%(2)

Antapolis N.V.
c/o MeesPierson Trust (Curacao) N.V.
Number 6 Curacao
Netherlands, Antilles                          184,422(2)          34%(2)

David S. Givner, Trustee, President and
Treasurer(5)(6)                                59,665(2)           11%(2)

Simon Mizrachi, Trustee(4)(6)                  59,665(2)           11%(2)

Michael S. Verruto, Trustee, Vice
President and Secretary(3)(6)                  59,665(2)           11%(2)

All executive officers and trustees of
Watermark as a group (3 persons) (6)           178,995(2)          33%(2)

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

1. Based on 542,413 common shares of beneficial interest outstanding as of March
26, 2007.

2. Does not  include  common  shares  owned by others  in a group  that  filed a
Schedule  13D dated  November 10, 1994.  The group  consists  solely of the four
entities  listed  above,   which  collectively  own  363,417  common  shares  of
beneficial interest, or 67% of our common shares issued and outstanding.

3. Through his control of Fletcher Napolitano Styles and Verruto Family Property
Partners,  L.P.,  Michael  S.  Verruto is deemed to be the  beneficial  owner of
59,665 of our common shares of beneficial interest.

4. Through their control of MIZ Investors Associates,  Simon and Joseph Mizrachi
are  deemed to share  beneficial  ownership  of 59,665 of our  common  shares of
beneficial interest.

                                       12

<PAGE>

5. Through his control of DAGI Limited Partnership, David S. Givner is deemed to
be the beneficial owner of 59,665 of our common shares of beneficial interest.

6. None of the common shares of beneficial interest held are pledged as security
for indebtedness.

     As of December 31, 2006, Watermark had no compensation plans in place under
which Watermark's equity securities are authorized for issuance.

Item 13. Certain Relationships and Related Transactions, and Director
         Independence.

Transactions with Related Persons
---------------------------------

     Since  December  5, 1995,  HPI  Management,  LP, a North  Carolina  limited
partnership,  has provided  administrative and accounting  services to Watermark
under the  supervision of Watermark's  executive  officers,  Messrs.  Givner and
Verruto,  who are also officers HPI Management,  LP. HPI Management,  LP had not
been  compensated  by  Watermark  for any services  rendered to Watermark  until
January 2001, when HPI Management,  LP began charging  Watermark $1,000 per year
for administrative and accounting  services.  Neither Mr. Givner nor Mr. Verruto
received any direct or indirect compensation as a result of this transaction.

Review, Approval or Ratification of Transaction with Related Persons
--------------------------------------------------------------------

     Pursuant to our Declaration of Trust, we may not enter into any transaction
with our  trustees  or  officers,  or their  affiliates,  or with an  advisor to
Watermark other than the following:

o    transactions   incidental   to  employment  by  Watermark  or  any  of  our
     subsidiaries on terms consistent with general personnel  policies in effect
     at the time;

o    the purchase and sale of our  securities  on terms  generally  available to
     unrelated parties and the exercise of voting and other rights incidental to
     the ownership of our securities;

o    transactions  between us and our subsidiaries in which no trustee,  officer
     or their affiliates have any economic interest other than through Watermark
     or pursuant to their  employment with such  subsidiary on terms  consistent
     with its general personnel policies in effect at the time;

o    any  transactions  that have been approved or ratified by a majority of our
     trustees who are not affiliates of any party to the transaction, other than
     Watermark, and who do not otherwise have an interest in the transaction and
     to whom  the  interest  or  connection  of the  interested  party  has been
     disclosed  or is  known,  and the  transaction  is found by a  majority  of
     disinterested trustees to be fair and reasonable to our shareholders at the
     time of the approval or ratification of the transaction; and

o    the  transfer  of our  assets  to a  business  organization  formed  by our
     trustees  for the purpose of holding  title to those assets and as to which
     our trustees have no economic interest.

Independent Trustees
--------------------

     None of our trustees  are  "independent"  as such term is defined  pursuant
rules and  regulations  of either the SEC,  the New York Stock  Exchange  or the
Nasdaq Stock Market.

                                       13

<PAGE>

Item 14. Principal Accountant Fees and Services.

     For services  rendered to us during or in  connection  with our years ended
December 31, 2006 and 2005, we were billed the following fees by Farmer,  Fuqua,
& Huff, P.C.:

                                        2006                       2005
                                 --------------------       -------------------

Audit Fees                             $4,250                    $4,250

Audit Related Fees                       $0                        $0

Tax Fees                                $750                      $750

All Other Fees                           $0                        $0

     Audit Fees.  Audit fees for 2006 were  incurred for  professional  services
rendered in connection with the audit of our consolidated  financial  statements
for the year ended  December 31, 2006,  and reviews of our interim  consolidated
financial statements which are included in each of our Quarterly Reports on Form
10-Q for the year ended December 31, 2006. Audit fees for 2005 were incurred for
professional  services rendered in connection with the audit of our consolidated
financial  statements  for the year ended  December 31, 2005, and reviews of our
interim  consolidated  financial  statements  which are  included in each of our
Quarterly Reports on Form 10-Q for the year ended December 31, 2005.

     Audit-Related Fees. We incurred no audit-related fees in 2006 or in 2005.

     Tax  Fees.  Tax  fees for 2006 and  2005  were  incurred  for  professional
services  rendered in connection  with the preparation and filing of our federal
income tax return.

     All Other Fees.  We incurred no other fees in 2006 or in 2005.

     Since we do not have an audit  committee,  none of the  services  described
above  provided  by  Farmer,  Fuqua,  & Huff,  P.C.  were  approved  by an audit
committee.

Pre-Approval Policies and Procedures
------------------------------------

     Since we do not  have an  audit  committee,  there  are no audit  committee
pre-approval policies and procedures in existence.

                                     PART IV

Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.

(a)  The following documents are included as a separate section and filed as
     part of this annual report:

     1.   Consolidated Financial Statements:

               Balance Sheets as of December 31, 2006 and 2005.

               Statements of Operations for the years ended December 31, 2006,
               2005 and 2004.

               Statements of Shareholders' Equity (Deficit) for the years ended
               December 31, 2006, 2005 and 2004.

               Statements of Cash Flows for the years ended December 31, 2006,
               2005 and 2004.

               Notes to Financial Statements.

                                       14

<PAGE>

     2.   Schedules:

               Schedule III - Real Estate Investments and Accumulated
               Depreciation.

               All other schedules are omitted since they are not required, are
               not applicable, or the information required is included in the
               financial statements or the notes thereto.

(b)  Exhibits: The following exhibits are filed as part of, or incorporated by
     reference into, this annual report.


       Exhibit
        Number      Description

          3.1       Declaration of Trust, as amended  (Incorporated by reference
                    to Exhibit 3.1 to Registrant's  Form 10-K for the year ended
                    December 31, 1995).

          3.2       By-laws,  as amended  (Incorporated  by reference to Exhibit
                    3.1 to  Registrant's  Form 10-K for the year ended  December
                    31, 1995).

          10.1      Agreement  of Sale,  dated as of  January  5,  2007,  by and
                    between Watermark Texas 1, Inc., a Maryland corporation, and
                    Bayside Fish Market,  a Texas  corporation,  incorporated by
                    reference  to Exhibit 2.1 of the Current  Report on Form 8-K
                    filed by Watermark on January 11, 2007.

          21.1      List of Subsidiaries of the Registrant (filed herewith).

          31.1      Certification   of  the  Principal   Executive   Officer  of
                    Watermark Investors Realty Trust, pursuant to Rule 13a-14(a)
                    or  15d-14(a),  as adopted  pursuant  to Section  302 of the
                    Sarbanes-Oxley Act of 2002 (filed herewith).

          31.2      Certification   of  the  Principal   Financial   Officer  of
                    Watermark  Investors Realty Trust pursuant to Rule 13a-14(a)
                    or  15d-14(a),  as adopted  pursuant  to Section  302 of the
                    Sarbanes-Oxley Act of 2002 (filed herewith).

          32.1      Certification   of  the  Principal   Executive   Officer  of
                    Watermark  Investors  Realty Trust furnished  pursuant to 18
                    U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002 (furnished herewith).

          32.2      Certification   of  the  Principal   Financial   Officer  of
                    Watermark  Investors  Realty Trust furnished  pursuant to 18
                    U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002 (furnished herewith).

                                       15
<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 report to be signed on
its behalf by the undersigned,  thereunto duly authorized,  on this the 27th day
of March 2007.

                                        WATERMARK INVESTORS REALTY TRUST




                                        By: /s/ David S. Givner
                                           -----------------------------------
                                           David S. Givner
                                           Trustee, President and Treasurer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the date indicated.

     Signature               Title                                 Date

/s/ David S. Givner      Trustee, President and Treasurer        March 27, 2007
----------------------   (Principal Executive Officer and
                         Principal Financial and Accounting
                         Officer)

/s/ Michael S. Verruto   Trustee, Vice President and Secretary    March 27, 2007
----------------------
Michael S. Verruto


                                       16
<PAGE>



                          INDEX TO FINANCIAL STATEMENTS
                          -----------------------------

                                                                            Page

Report of Independent Registered Public Accounting Firm....................F-1

Consolidated Balance Sheets as of December 31, 2006 and 2005...............F-2

Consolidated Statements of Operations for the years ended
    December 31, 2006, 2005 and 2004.......................................F-3

Consolidated Statements of Shareholders' Equity (Deficit) for the
   years end December 31, 2006, 2005 and 2004..............................F-4

Consolidated Statements of Cash Flows for the years ended
    December 31, 2006, 2005 and 2004.......................................F-5

Notes to Consolidated Financial Statements.................................F-6

Schedule III - Real Estate Investments and Accumulated
    Depreciation..........................................................F-11

All other schedules are omitted since they are not required, are not applicable,
or the financial information required is included in the financial statements or
the notes thereto.

<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Board of Trustees and Shareholders

Watermark Investors Realty Trust

We have  audited  the  accompanying  consolidated  balance  sheets of  Watermark
Investors  Realty Trust and subsidiary as of December 31, 2006 and 2005, and the
related  consolidated  statements of operations,  shareholders' equity (deficit)
and cash flows for the years  ended  December  31,  2006,  2005 and 2004.  These
consolidated   financial   statements  are  the  responsibility  of  Watermark's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated financial statements are free of material  misstatement.  The trust
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the company's  internal  control
over  financial  reporting.  Accordingly,  we express no such opinion.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  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 disclosed in Note 12 to the consolidated  financial  statements,  the Trust's
financial  statements  as of December 31, 2005 and for the years ended  December
31, 2005 and 2004 have been restated.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Watermark Investors Realty Trust and subsidiary as of December 31, 2006 and 2005
and the results of their  operations  and their cash flows for each of the years
ended December 31, 2006, 2005 and 2004, in conformity with accounting principles
generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that Watermark will continue as a going concern.  As discussed in Note 10 to the
consolidated  financial  statements,   Watermark  has  no  operating  assets  or
revenues, and is dependent upon the financial support of its shareholders. These
matters raise substantial doubt about Watermark's ability to continue as a going
concern.  Management's  plans in regard to these  matters are also  discussed in
Note 10. These consolidated  financial statements do not include any adjustments
that might result from this uncertainty.

As more  fully  described  in Note  2,  Watermark  Investors  Realty  Trust  was
operating under a Plan of Complete  Liquidation  and Termination  until June 30,
1994.  The  consolidated  financial  statements  include  adjustments to reflect
assets at their net realizable  value as determined by  Watermark's  management.
The ultimate  value of the assets will be determined at the time of sale and may
differ significantly from the value as determined by Watermark's management.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial  statements taken as a whole.  Schedule III is presented
for the purpose of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic consolidated financial statements.  This
schedule has been subjected to the auditing  procedures applied in the audits of
the basic consolidated financial statements and, in our opinion,  fairly states,
in all material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

FARMER, FUQUA, & HUFF, P.C.

Plano, Texas
March 16, 2007

                                      F-1
<PAGE>


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2006 and 2005


                                ASSETS
                                                         2006            2005
                                                         ----            ----
                                                                       Restated
                                                                       (Note12)
                                                                       --------
Real estate                                             $168,588      $168,588
Less allowance for possible losses                      (168,588)     (168,588)
                                                        --------      --------
                                                            ---         ---
Prepaid Expenses                                          25,000         ---
Cash                                                      12,850        13,907
                                                          ------        ------
        Total assets                                     $37,850       $13,907
                                                         =======       =======
           LIABILITIES AND SHAREHOLDERS'
           EQUITY (DEFICIT)
Liabilities
         Note payable - related party                     $395,000    $295,000
         Accounts payable and accrued liabilities          109,802      78,462
         Accounts payable - related party                    2,000       1,030
         Accrued interest payable - related party           13,434     174,549
         Unclaimed dividends                                20,174      20,174
                                                            ------      ------
                  Total liabilities                        740,410     569,215

Shareholders' Equity (Deficit)
         Preferred shares of beneficial interest; $.01
         par value; authorized,                                ---         ---
                  10,000,000 shares; -0- shares issued
                  and outstanding at
                  December 31, 2006 and 2005
         Common shares of beneficial interest; $1.00
         par value; authorized,                           196,235     196,235
                  10,000,000 shares; 542,413 shares
                  issued and outstanding at
                  December 31, 2006 and 2005
         Additional paid-in capital                        44,205      44,205
         Accumulated deficit                             (943,000)   (795,748)
                                                         --------    --------
                  Total shareholders' equity (deficit)   (702,560)   (555,308)
                                                         --------    --------
                  Total liabilities and shareholders'
                  equity (deficit)                        $37,850     $13,907
                                                          =======     =======

        The accompanying notes are an integral part of these statements.

                                      F-2
<PAGE>


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years Ended December 31, 2006, 2005 and 2004



                                                 2006        2005         2004
                                                 ----        ----         ----

                                                           Restated    Restated

                                                          (Note 12)   (Note 12)
Revenues                                     $    ---    $    ---     $   ---
                                                 -----       -----        ----
                                                  ---         ---         ---
                                                 -----       -----        ----
Expenses

  Interest - related party                       38,885      33,641      28,757
  Property tax penalties, interest and fees      1,046        2,766       1,001
  Property expenses                              12,140      12,792       5,956
  Legal and professional                         95,181      20,397      26,976
                                                 ------      ------      ------
           Total expenses                       147,252      69,596      62,690
                                                -------      ------      ------

NET LOSS                                     $(147,252)   $(69,596)   $(62,690)
                                             =========    ========    ========
Loss per share                                $ (.27)       $ (.13)     $ (.12)
                                              ======        ======      ======
Distributions per share                        $ ---        $ ---       $ ---
                                               =====        ======      ======
Weighted average shares of beneficial
     interest used in                          542,413      542,413     542,413
     computing loss per share                  =======      =======     =======


        The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                  Years Ended December 31, 2006, 2005 and 2004



<TABLE>
<CAPTION>


                                                  Shares of     Additional    Accumulated          Total
                                                 Beneficial        Paid-in      Deficit
                                                   Interest       Capital
<S>                                                <C>            <C>          <C>              <C>
Balance at January 1, 2004, as previously          $196,235       $ 44,205     $(609,644)       $(369,204)
                                                   ========       ========     =========        =========
reported
   Prior period adjustment for
   correction of an error
                                                      ---            ---         (53,818)         (53,818)
                                                   --------       --------     ---------        ---------
Balance at January 1, 2004, as restated            $196,235       $ 44,205     $(663,462)       $(423,022)
                                                   ========       ========     =========        =========
   Net loss for the year, as restated                 ---            ---        $(62,690)        $(62,690)
                                                   --------       -------      ---------        ---------
Balance at December 31, 2004                       $196,235       $44,205      $(726,152)       $(485,712)
                                                   ========       ========     =========        =========

   Net loss for the year, as restated                  ---            ---       $(69,596)        $(69,596)
                                                   --------       -------      ---------        ---------

Balance at December 31, 2005                       $196,235       $44,205      $(795,748)       $(555,308)
                                                   ========       ========     =========        =========

   Net loss for the year                              ---            ---       $(147,252)       $(147,252)
                                                   --------       -------      ---------        ---------

Balance at December 31, 2006                       $196,235       $44,205      $(943,000)       $(702,560)
                                                   ========       ========     =========        =========


</TABLE>

        The accompanying notes are an integral part of these statements.



                                      F-4
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2006, 2005 and 2004

<TABLE>
<CAPTION>

                                                                     2006                2005                 2004
                                                                     ----                ----                 ----
                                                                                        Restated            Restated

                                                                                        (Note 12)          (Note 12)
<S>                                                                  <C>                 <C>                 <C>
Cash flows from operating activities
   Net loss                                                         $(147,252)         $ (69,596)          $ (62,690)
      Adjustments to reconcile net loss to net cash used for
      operating activities                                             ---                 ---                ---
      Increase (decrease) in accounts payable and accrued
      liabilities
                                                                      71,195             37,337              28,318
      (Increase) decrease in prepaid assets                          (25,000)              ---                ---
                                                                     -------               ---                ---
   Net cash used for operating activities                           (101,057)           (32,259)            (34,372)
Cash flows from financing activities
   Proceeds from
   loans                                                              100,000             25,000             45,000
                                                                     --------            -------             ------
Net cash provided by financing activities                            $100,000            $25,000             45,000

Increase (decrease) in cash                                            (1,057)            (7,259)            10,628
Cash at beginning of year                                              13,907             21,166             10,538
                                                                     --------            -------            -------
Cash at end of year                                                   $12,850            $13,907            $21,166
                                                                     ========            =======            =======
Supplemental cash flow information
   Cash paid for interest                                            $   ---             $   ---            $   ---
                                                                     --------            -------            -------
   Cash paid for taxes                                               $    ---            $   ---            $   ---
                                                                     --------            -------            -------
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2006, 2005 and 2004


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations
-------------------------------------

     Watermark was originally  organized as Ryan Mortgage  Investors pursuant to
the Texas Real Estate  Investment  Trust Act under a Declaration  of Trust dated
October 13, 1971.  On March 6, 1984,  its name was changed to  Arlington  Realty
Investors  pursuant to an Amendment to the  Declaration of Trust. On December 5,
1995,  Watermark's name was changed to Watermark Investors Realty Trust pursuant
to an Amendment to the Declaration of Trust. Watermark has elected to be treated
as a REIT under Sections 856 through 860 of the Internal Revenue Code. Watermark
has, in the opinion of its management,  qualified for federal taxation as a REIT
for each fiscal year  subsequent  to December 31, 1971.  Although not  currently
active,  Watermark's  primary  business  and  only  industry  segment  has  been
investing in equity interests in real estate and related real estate activities.
Under  Watermark's  Declaration  of Trust and  Bylaws,  our  Trustees,  at their
option,  may  terminate  Watermark's  status as a REIT for  federal  income  tax
purposes.

     During March 1995,  Watermark formed a wholly-owned  subsidiary,  Watermark
Texas 1, Inc., a Maryland corporation, and contributed the Parker Road Property,
its  sole  asset,  to  this  subsidiary.   Watermark  and  Watermark  Texas  are
collectively referred to as the "Trust."

Principles of Consolidation
---------------------------

     The consolidated  financial  statements  include the accounts of Watermark,
and its  wholly-owned  subsidiary,  Watermark  Texas  1,  Inc.  All  significant
intercompany transactions and accounts have been eliminated.

Real Estate
-----------

     Watermark  carries  real  estate  at the  lower  of cost or  estimated  net
realizable value.

Allowance for Possible Losses
-----------------------------

     Watermark provides for possible losses on real estate when such amounts are
considered  necessary  after  making  periodic  reviews  of  the  estimated  net
realizable values of the real estate.

Earnings (Loss) Per Share
-------------------------

     Earnings (loss) per share (EPS) are calculated in accordance with Statement
of Financial  Accounting  Standards No. 128, Earnings per Share (SFAS 128) which
was adopted in 1997 for all years  presented.  Basic EPS is computed by dividing
income available to common shareholders by the weighted average number of common
shares  outstanding  during the period.  Diluted EPS does not apply to Watermark
due to the absence of dilutive potential common shares. The adoption of SFAS 128
had no effect on previously reported EPS.

Consolidated Statements of Cash Flows
-------------------------------------

     Watermark  does not consider any of its assets to meet the  definition of a
cash equivalent.


                                      F-6
<PAGE>


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 2006, 2005 and 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Accounting Estimates
--------------------

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of 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. Actual results could differ from those estimates.

Legal and Other Expenses
------------------------

     Legal and other  expenses  incurred for 2006,  2005 and 2004 include  legal
expenses of approximately $82,000, $9,000 and $14,000 respectively.

Income Taxes
------------

     Watermark  is  qualified  as a REIT.  To  retain  its  REIT  qualification,
Watermark  must restrict its  investments  principally  to rental  properties or
notes  secured by real  estate,  and must not realize more than 30% of its gross
income  from  gain on the sale of real  estate  assets  held for less  than four
years.  In addition,  Watermark must pay out at least 95% of its taxable income,
excluding  capital  gains,  as dividends,  provided that  Watermark  pays tax at
corporate rates on capital gains not distributed. No distributions were required
in 2006, 2005 or 2004, due to net operating losses.

NOTE 2 - PLAN OF LIQUIDATION AND TERMINATION

     Watermark  operated under a Plan of Complete  Liquidation  and  Termination
approved by the shareholders in 1985 until June 30, 1994.

NOTE 3 - REAL ESTATE

     At December  31, 2006 and 2005,  Watermark's  only real estate  asset was a
parcel of  unimproved  land  consisting of  approximately  4.68 acres located on
Parker Road in Houston,  Harris  County,  Texas,  referred to as the Parker Road
Property.  During 1992, a provision  was made to reduce the Parker Road Property
to its  estimated  net  realizable  value,  which was  determined  to be zero at
December  31,  1992.  During  March  1995,   Watermark  formed  a  wholly  owned
subsidiary, Watermark Texas 1, Inc., a Maryland corporation, and contributed the
Parker  Road  Property  to this  subsidiary.  At  December  31,  2006 and  2005,
Watermark's  only  significant   asset  was  its  ownership   interest  in  such
subsidiary.

NOTE 4 - NOTE PAYABLE
<TABLE>
<CAPTION>
<S>                                                                                   <C>                <C>
                                                                                         2006              2005
                                                                                         ----              ----
     Note  payable to  Abbestate  Holding,  Inc.  with an interest  rate of 12%,       $395,000          $295,000
uncollateralized,   with  interest  and  principal  due  December  31,  2020.  A       ========          ========
shareholder owning all of the outstanding  shares of Abbestate Holding,  Inc. is
also a twenty-five  percent  shareholder  of Antapolis  N.V., a  shareholder  of
Watermark owning thirty-four percent of our common shares of beneficial interest
outstanding as of March 26, 2007.
</TABLE>


                                      F-7
<PAGE>
                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 2006, 2005 and 2004



NOTE 5 - FEDERAL INCOME TAXES

     No federal income taxes have been provided for financial statement purposes
because, as a REIT with no operating income,  Watermark has no tax liability. At
December 31, 2006 net operating loss  carryforwards  of  approximately  $982,000
were available for tax purposes which,  if not utilized,  will expire at various
dates through 2025. Any deferred tax asset that would be associated with the net
operating  loss  carryforward  has been  reduced  to $-0- due to  recurring  net
losses, no factors  indicating that the trend of net losses will reverse and the
fact that if the trend did reverse, the net income from a REIT is not taxable as
long as specific REIT requirements have been met.

NOTE 6 - RELATED PARTY TRANSACTIONS

     HPI  Management,  LP,  a  North  Carolina  limited  partnership,   provides
administrative  and  accounting  services  to  Watermark  under  supervision  of
Watermark's officers (two of whom are also officers of HPI Management,  LP). HPI
Management,  LP was not  compensated  by Watermark for any services  rendered to
Watermark until January 2001, when HPI Management,  LP began charging  Watermark
$1,000 per year for administrative and accounting services. This amount has been
accrued and is shown on the face of the balance sheet as A/P- related party.

NOTE 7 - FINANCIAL INSTRUMENTS

     The estimated fair values of Watermark's  financial instruments at December
31, 2006 and 2005 follow:


<TABLE>
<CAPTION>

                                                2006                             2005
                                                ----                             ----
                                     Carrying            Fair        Carrying                Fair
                                       Amount           value          Amount               value
                                       ------           -----          ------               -----
<S>                                   <C>             <C>             <C>                 <C>
Cash                                  $12,850         $12,850         $13,907             $13,907
Note payable-related party            395,000         395,000         295,000             295,000
</TABLE>

     The fair value amounts for each of the financial  instruments  listed above
approximate carrying amounts due to the short maturities of these instruments.

NOTE 8 - LIQUIDATING DISTRIBUTION

The recorded par value of the outstanding  common shares of beneficial  interest
has been reduced by $346,178,  which represents the amount of a 1993 liquidating
distribution in excess of additional paid-in capital.


                                      F-8

<PAGE>


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 2006, 2005 and 2004

NOTE 9 - QUARTERLY DATA (UNAUDITED)

The table below reflects the Watermark's selected quarterly  information for the
years ended December 31, 2006 and 2005.

<TABLE>
<CAPTION>
                                                                     Year ended December 31, 2006
                                                    ---------------------------------------------------------------
                                                        First           Second           Third          Fourth
                                                       Quarter          Quarter         Quarter        Quarter
                                                       -------          -------         -------        -------
<S>                                                     <C>             <C>             <C>             <C>
Revenue                                             $    ---           $   ---         $   ---        $    ---
Operating expenses                                      14,455          25,154          15,438          92,205

Net (loss) attributable to Common shares               (14,455)        (25,154)        (15,438)        (92,205)

Earnings (loss) per share:
  Net (loss) applicable to Common shares                (.03)            (.05)           (.03)          (.16)

</TABLE>

<TABLE>
<CAPTION>
                                                                     Year ended December 31, 2005
                                                    ---------------------------------------------------------------
                                                        First           Second           Third          Fourth
                                                       Quarter          Quarter         Quarter        Quarter
                                                       -------          -------         -------        Restated
                                                                                                       --------
<S>                                                     <C>             <C>           <C>             <C>
Revenue                                                $   ---         $   ---         $   ---        $   ---
Operating expenses                                      12,392          16,275          20,519          20,410

Net (loss) attributable to Common shares               (12,392)        (16,275)        (20,519)        (20,410)

Earnings (loss) per share:
  Net (loss) applicable to Common shares                (.02)            (.03)           (.04)          (.04)
</TABLE>


NOTE 10 - GOING CONCERN

     Watermark has no operating assets or revenues.  Its continuation as a going
concern is dependent upon Watermark's  ability to raise additional  capital from
its  shareholders  or from third parties.  The  shareholders  are anticipated to
continue to provide such financial support to Watermark.  However,  there can be
no  assurances  that the  shareholders  will continue to provide such support or
that  Watermark  will be  successful  in raising  additional  capital from other
sources.  Further,  there can be no assurance,  assuming Watermark  successfully
obtains such support, that Watermark will achieve profitability or positive cash
flow.

NOTE 11 - SUBSEQUENT EVENT

     On January 5, 2007, the Trust entered into an agreement of sale to sell the
Parker Road Property for a sales price of $339,500.  The property has a net book
value  of $0.  The  sale is  contingent  on  obtaining  the  consent  of all the
shareholders. If the consent of the shareholders is not obtained within 120 days
of the date of the  agreement,  the sale of the property shall not occur and the
agreement will terminate.


                                      F-9
<PAGE>


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 2006, 2005 and 2004

NOTE 12 - PRIOR PERIOD ADJUSTMENT FOR CORRECTION OF ERROR

     On or about February 13, 2007, Watermark received notification of a lawsuit
filed  against  the Trust by the city of  Houston,  Texas to collect  delinquent
property  taxes,  penalties,   interest,  and  other  costs  and  fees  totaling
approximately  $ 61,630  relating to 1.59 acres of the Parker Road  Property for
tax years 1990 to 2005. The claim by the city arose from the Trust being unaware
that the  Parker  Road  Property  was taxed in two  parcels - one for 1.59 acres
relating to the claim and one for 3.0905 acres on which Watermark had paid taxes
up to 2004. On or about February 21, 2007,  Watermark became aware that the 2005
property taxes on the 3.0905 acres of the Parker Road Property had not been paid
or accrued  totaling  approximately  $4,250  including  penalties  and interest.
Watermark  settled the suit with the city on February 28, 2007 with a payment of
approximately  $61,630  and the  2005  taxes  with  penalties  and  interest  of
approximately $4,250 were paid on February 21, 2007.

As  result of the above  errors  due to  accounting  oversights,  Watermark  has
restated  its  2005   consolidated   audited   balance  sheet  and  its  related
consolidated  statements of operations  shareholders'  equity (deficit) and cash
flows for the years ended December 31, 2005 and 2004.

The effect on specific amounts  presented on the  consolidated  balance sheet at
December 31, 2005 is as follows:
<TABLE>
<CAPTION>

                                                      Restated       Before Restatement
                                                      --------       ------------------
<S>                                                    <C>                      <C>
Accounts payable and accrued liabilities               $78,462                  $14,923

Accumulated deficit                                   $795,748                 $732,209
</TABLE>

     The effect of the restatement on the consolidated  statements of operations
for the years ended December 31, 2005 and 2004 is as follows:

<TABLE>
<CAPTION>

                                      2005            2005          2005          2004           2004          2004

                                      Before                                      Before

                                    Restatement      Adjustment     Restated     Restatement    Adjustment     Restated
                                    -----------      ----------     --------     -----------    ----------     --------
<S>                                      <C>             <C>         <C>             <C>            <C>          <C>
Revenues                                  $---            $---         $---           $---           $---         $---
Expenses
Interest - related party                33,641             ---       33,641         28,757            ---       28,757



Property expenses                        8,392           4,400       12,792          4,402          1,554        5,956
Property tax penalties,                    ---           2,766        2,766            ---          1,001        1,001
interest and fees
Legal and professional                  20,397             ---       20,397         26,976            ---       26,976
                                     ---------         -------     --------       --------        -------     --------
Total expenses                          62,430           7,166       69,596         60,135          2,555       62,690
                                     ---------         -------     --------       --------        -------     --------
Net loss                             $ (62,430)        $(7,166)    $(69,596)      $(60,135)       $(2,555)    $(62,690)
                                     =========         =======     ========       ========        =======     ========
Loss per share                            (.12)           (.01)        (.13)          (.11)          (.01)        (.12)
                                          ====            ====         ====           ====           ====         ====
</TABLE>



                                      F-10
<PAGE>


                                                                    SCHEDULE III


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                        December 31, 2006, 2005 and 2004
<TABLE>
<CAPTION>

       Description          Initial        Cost        Gross Amount    Valuation     Accumulated      Date     Depreciable
       -----------          Cost to     Capitalized      at which      Allowance    Depreciation    Acquired   Life (years)
                           Watermark    Subsequent      Carried at     ---------    ------------    -------    -----------
                           ---------        to         December 31,
                                        Acquisition        2006
                                        ----------     -----------

<S>                         <C>             <C>          <C>           <C>          <C>             <C>         <C>
 Undeveloped                $168,588        $0           $168,588      $(168,588)         ---       Various        ---
 land Houston, TX           ========        ==           ========      =========    ============    =======     ==========
</TABLE>


     A summary of activity in real estate and accumulated  depreciation  for the
three years in the period ended December 31, 2006 is as follows:
<TABLE>
<CAPTION>

REAL ESTATE                                                   2006               2005              2004
-----------                                                   ----               ----              ----
<S>                                                       <C>                <C>               <C>
Balance at beginning of year                              $168,588           $168,588          $168,588
Sales                                                          ---                ---               ---
Foreclosure additions                                          ---                ---               ---
Improvements                                                   ---                ---               ---
                                                          --------           --------          --------
Balance at end of year                                    $168,588           $168,588          $168,588
                                                          ========           ========          ========
ACCUMULATED DEPRECIATION
------------------------
Balance at beginning of year                              $    ---           $    ---          $    ---
Sales                                                          ---                ---               ---
Depreciation                                                   ---                ---               ---
                                                          --------           --------          --------
Balance at end of year                                    $    ---           $    ---          $    ---
                                                          ========           ========          ========
</TABLE>


                                      F-11
<PAGE>

                                  EXHIBIT INDEX

Exhibit No                        Description

21.1           List of Subsidiaries of the Registrant.

31.1           Certification  of the  Principal  Executive  Officer of Watermark
               Investors Realty Trust,  pursuant to Rule 13a-14(a) or 15d-14(a),
               as adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act of
               2002).

31.2           Certification  of the  Principal  Financial  Officer of Watermark
               Investors  Realty Trust  pursuant to Rule 13a-14(a) or 15d-14(a),
               as adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act of
               2002.

32.1           Certification  of the  Principal  Executive  Officer of Watermark
               Investors  Realty Trust furnished  pursuant to 18 U.S.C.  Section
               1350,  as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
               Act of 2002.

32.2           Certification  of the  Principal  Financial  Officer of Watermark
               Investors  Realty Trust furnished  pursuant to 18 U.S.C.  Section
               1350,  as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
               Act of 2002.