SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

                  For the quarterly period ended December 31, 1996

                                       OR

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

                  For the transition period from ____________ to __________


                         Commission File Number 1-6613


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



          Maryland                                          23-1862664
-------------------------------                 --------------------------------
(State or other jurisdiction of                 (I.R.S. Employer Identification)
incorporation or organization)                                  

     120 Albany Street, 8th Floor
      New Brunswick, New Jersey                             08901-2163
----------------------------------------                    ----------
(Address of principal executive offices)                    (Zip Code)


Registrant's telephone number, including area code:    (908) 296-3080
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.    Yes [ X ]    No [   ].


Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12, 13 or 15 (d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                           Yes [ X ]    No [   ]

Number of Common Shares Outstanding at February 3, 1997:  11,226,310
<PAGE>
                      VALUE PROPERTY TRUST AND SUBSIDIARIES

                                      INDEX


                                                                          

Part I:  FINANCIAL INFORMATION

         Item 1.   Consolidated Financial Statements

                   Consolidated Balance Sheets at December 31, 1996 (Unaudited)
                         and September 30, 1996

                   Consolidated Statement of Operations for the Three Months
                         Ended December 31, 1996 and 1995 (Unaudited)

                   Consolidated Statement of Cash Flows for the Three Months
                         Ended December 31, 1996 and 1995 (Unaudited)

                   Consolidated Statement of Shareholders' Equity for the Three
                         Months Ended December 31, 1996 (Unaudited)

                   Notes to the Consolidated Financial Statements

         Item 2.   Management's Discussion and Analysis of Financial Condition
                         and Results of Operations 




Part II: OTHER INFORMATION

         Item 5.   Other Information

         Item 6.   Exhibits and Reports on Form 8-K

                   Signatures

<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q
                                    

PART I:              FINANCIAL INFORMATION

ITEM 1.              CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------- 
CONSOLIDATED BALANCE SHEETS
(In Thousands)
--------------------------------------------------------------------------------------------------- 


                                                                    December 31,      September 30,
                                                                        1996              1996
                                                                      --------          --------
                                                                     (Unaudited)
                             ASSETS
<S>                                                                   <C>               <C>
Assets Held for Sale:
   Investment in partnerships ....................................    $ 10,417          $ 10,219
   Real estate owned .............................................      36,181            38,171
                                                                      --------          --------
         Total Assets Held for Sale ..............................      46,598            48,390
                                                                      --------          --------

Assets Held for Investment:
   Mortgage loans ................................................         651               663
   Investment in partnerships ....................................      13,510            13,486
   Real estate owned .............................................      63,325            63,196
                                                                      --------          --------
         Total Assets Held for Investment ........................      77,486            77,345
                                                                      --------          --------

         Total Invested Assets ...................................     124,084           125,735

Cash and cash equivalents ........................................      34,978            29,501
Restricted cash ..................................................       3,440            12,213
Interest receivable and other assets .............................       5,356             4,962
                                                                      --------          --------
         Total Assets ............................................    $167,858          $172,411
                                                                      ========          ========

                             LIABILITIES

Senior secured notes (due 1999) ..................................    $ 54,832          $ 63,226
Accounts payable and accrued expenses ............................       1,697             1,804
Interest payable .................................................         308               334
                                                                      --------          --------
         Total Liabilities .......................................      56,837            65,364
                                                                      --------          --------


(Continued)

<PAGE>
<CAPTION>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

--------------------------------------------------------------------------------------------------- 
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(continued)
--------------------------------------------------------------------------------------------------- 


                                                                    December 31,      September 30,
                                                                        1996              1996
                                                                      --------          --------
                                                                     (Unaudited)
<S>                                                                   <C>               <C>


                             SHAREHOLDERS' EQUITY

Preferred shares, $1 par value: 3,500,000 shares authorized,
   none issued ...................................................        --                --
Common shares, $1 par value: 20,000,000 shares authorized,
   11,226,310 and 11,226,310 shares issued and outstanding .......      11,226            11,226
Additional paid-in capital .......................................      88,848            88,848
Accumulated earnings .............................................      10,947             6,973
                                                                      --------          --------
         Total Shareholders' Equity ..............................     111,021           107,047
                                                                      --------          --------

         Total Liabilities and Shareholders' Equity ..............    $167,858          $172,411
                                                                      ========          ========




                 See accompanying notes to the consolidated financial statements. 
</TABLE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Data)
-------------------------------------------------------------------------------- 


                                                             Three Months Ended
                                                                December 31,
                                                           ---------------------
                                                             1996          1995
                                                           -------       -------
<S>                                                        <C>           <C>
Revenue:
   Rental properties:
       Rental income ..................................    $ 5,924       $ 6,560
       Operating expense reimbursements ...............        845           843
   Interest and fee income on mortgage loans ..........         21         1,679
   Interest on short-term investments .................        519           305
   Other ..............................................         --             8
                                                           -------       -------
       Total Revenue ..................................      7,309         9,395
                                                           -------       -------

Expenses:
   Interest ...........................................      1,381         3,565
   Rental properties:
       Operating ......................................      2,484         3,076
       Depreciation and amortization ..................        529           564
   Other operating expenses ...........................        736           753
                                                           -------       -------
       Total Expenses .................................      5,130         7,958
                                                           -------       -------

Income before gain on sale of real estate .............      2,179         1,437
Gain on sale of real estate ...........................      1,795            --
                                                           -------       -------
Net income ............................................    $ 3,974       $ 1,437
                                                           =======       =======

Per share:
Income before gain on sale of real estate .............    $   .19       $   .13
Gain on sale of real estate ...........................        .16            --
                                                           -------       -------
Net income ............................................    $   .35       $   .13
                                                           =======       =======

Weighted average number of common
   shares outstanding .................................     11,226        11,226
                                                           =======       =======






        See accompanying notes to the consolidated financial statements. 
</TABLE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------- 
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In Thousands)
---------------------------------------------------------------------------------------------------------- 
                                                                                 Three Months Ended
                                                                                     December 31,
                                                                         ---------------------------------
                                                                             1996                  1995
                                                                         -----------           -----------
<S>                                                                      <C>                   <C>
Cash flows from operating activities:
     Net income.......................................................   $     3,974           $     1,437
     Adjustments to reconcile net income to net
         cash provided by operating activities:
              Depreciation and amortization on real estate............           529                   564
              Decrease in payables and accrued expenses...............          (107)                 (785)
              (Decrease) increase in interest payable.................           (26)                3,127
              (Increase) decrease in receivables and other assets.....          (298)                2,006
              Gain on sale of real estate.............................        (1,795)                   --
                                                                         -----------           -----------
     Total adjustments................................................        (1,697)                4,912
                                                                         -----------           -----------
Net cash provided by operating activities.............................         2,277                 6,349
                                                                         -----------           -----------

Cash flows from investing activities: Investment in real estate:
         Real estate..................................................        (1,188)               (1,445)
         Partnerships.................................................          (284)                  (49)
         Advances on mortgage loans...................................            --                   (67)
     Principal repayments on mortgage loans...........................            12                   100
     Proceeds from the sale of real estate............................         4,280                 1,770
     Principal repayments on notes receivable.........................            --                   300
                                                                         -----------           -----------
Net cash provided by investing activities.............................         2,820                   609
                                                                         -----------           -----------

Cash flows from financing activities:
     Payment of mortgage payable......................................            --                (3,582)
     Prepayment of senior secured notes (due 1999)....................        (8,394)                   --
     Decrease in restricted cash......................................         8,774                 4,336
                                                                         -----------           -----------
Net cash provided by financing activities.............................           380                   754
                                                                         -----------           -----------

Net increase in cash and cash equivalents.............................         5,477                 7,712
Cash and cash equivalents at beginning of period......................        29,501                 9,977
                                                                         -----------           -----------

Cash and cash equivalents at end of period............................   $    34,978           $    17,689
                                                                         ===========           ===========
<PAGE>
<CAPTION>
---------------------------------------------------------------------------------------------------------- 
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In Thousands)
(continued)
---------------------------------------------------------------------------------------------------------- 
                                                                                 Three Months Ended
                                                                                     December 31,
                                                                         ---------------------------------
                                                                             1996                  1995
                                                                         -----------           -----------
<S>                                                                      <C>                   <C>
Supplemental schedule of non-cash investment and
     financing activities:

     Transfer of mortgage loans to real estate owned..................   $        --           $     5,120
                                                                         ===========           ===========

     Interest paid....................................................   $     1,009           $        --
                                                                         ===========           ===========








                      See accompanying notes to the consolidated financial statements. 

</TABLE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(Amounts In Thousands)
----------------------------------------------------------------------------------------------------------------------

For the Three Months Ended December 31, 1996


                                                                                Additional                  Total
                                                    Common Shares                Paid-In     Retained    Shareholders'
                                                        Shares      Amount       Capital     Earnings       Equity
                                                      --------     --------     --------     --------     --------
<S>                                                     <C>        <C>          <C>          <C>          <C>
Balance at September 30, 1996 ...................       11,226     $ 11,226     $ 88,848     $  6,973     $107,047

Net income ......................................         --           --           --          3,974        3,974
                                                        ------     --------     --------     --------     --------

Balance at December 31, 1996 ....................       11,226     $ 11,226     $ 88,848     $ 10,947     $111,021
                                                        ======     ========     ========     ========     ========


                          See accompanying notes to the consolidated financial statements. 

</TABLE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q


                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 1.           BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION

         In connection  with its emergence  from the Chapter 11 proceeding  (the
"1995  Restructuring"),  the  Trust  implemented  Fresh  Start  Reporting  as of
September  30,  1995,  as set forth in Statement  of Position  90-7,  "Financial
Reporting by Entities in Reorganization  Under the Bankruptcy Code." Fresh Start
Reporting  was  required  because  (1) the  reorganization  value of the Trust's
assets  immediately  before the date of confirmation  was less than the total of
all  post-petition  liabilities,  (2) there  was more  than a 50%  change in the
ownership of the Trust,  and (3) there was a permanent and  substantive  loss of
control by existing  shareholders.  As a result, all assets and liabilities were
restated to reflect their respective reorganization value or fair value.

         The accompanying  unaudited financial  statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting  principles for complete financial  statements.
In the  opinion  of  management,  all  adjustments,  consisting  of only  normal
recurring  accruals,  considered  necessary  for a fair  presentation  have been
included.  Operating results for the three-month  period ended December 31, 1996
are not  necessarily  indicative  of the results  that may be  expected  for the
fiscal year ending September 30, 1997. These financial statements should be read
in conjunction with the Trust's September 30, 1996 audited financial  statements
and notes thereto included in the Trust's Annual Report on Form 10-K.

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

                           PRINCIPLES OF CONSOLIDATION

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

                                  INCOME TAXES

         The Trust is a real estate  investment  trust ("REIT") that has elected
to be taxed under  Sections  856-860 of the Internal  Revenue  Code of 1986,  as
amended (the "Code").  Accordingly, the Trust does not pay Federal income tax on
income as long as income  distributed to  shareholders is at least equal to real
estate  investment  trust  taxable  income,  and pays no  Federal  income tax on
capital gains distributed to shareholders.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q


         For the fiscal years ended  September  30, 1996,  1995 and 1994,  there
were significant  differences  between taxable net loss and net income (loss) as
reported  in the  financial  statements.  The  differences  were  related to the
recognition of bad debt deductions and accounting for  reorganization  costs and
Fresh  Start  Reporting.  For  financial  accounting  purposes,  these items are
expensed  currently,  while for tax  purposes  some  portion of these  items are
deferred to future  periods or may not be  deductible.  In  addition,  the Fresh
Start Reporting discussed in Note 1 is not recognized for tax purposes, and will
result in future years financial reporting and tax basis differences.

         The Trust has  approximately  $102 million in net operating losses (the
"NOLs") for tax purposes  attributable to losses  generated in fiscal years 1992
through 1996. The NOLs  attributable  to each year can be carried  forward up to
fifteen  years  from the year  the  loss was  generated.  The use of NOLs in any
taxable  year  (together  with  any  recognized  losses  that  are  economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation  under Section 382 of the Code. The Trust  estimates that this annual
limitation is approximately $6 million.

                                 INTEREST INCOME

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

                              ALLOWANCE FOR LOSSES 

         Impairment  on  mortgage  loans is  accounted  for in  accordance  with
Financial Accounting Standards Board Statement No. 114 - Accounting by Creditors
for Impairment of a Loan.

                              NET INCOME PER SHARE 

         Net income per share is  computed  using the  weighted  average  common
shares outstanding during the period.

                          DEPRECIATION AND AMORTIZATION

         At September 30, 1995, as a result of Fresh Start Reporting, all assets
and  liabilities  of  the  Trust  were  restated  to  reflect  their  respective
reorganization value or fair value. The accumulated  depreciation on real estate
owned was reset to zero as a result of the adoption of Fresh Start Reporting. At
September 30, 1995,  the Trust  segregated  the real estate  portfolio  into two
categories:  Held for Sale and Held for  Investment.  The Trust  depreciates the
Held for Investment  category over the estimated useful lives of the assets;  40
years for buildings, three to five years for other property and over the term of
the related lease for lease  commissions and tenant  improvements.  The Held for
Sale category is not  depreciated.  During fiscal 1996,  the Trust  reclassified
seven properties totaling $18.7 million to Assets Held for Sale from Assets Held
for Investment and no longer depreciates these assets.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

                            CASH AND CASH EQUIVALENTS

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

                           INVESTMENT IN PARTNERSHIPS 

         Investment in  partnerships  represents the Trust's  investment in real
estate  partnerships.  The Trust owns a majority  percentage interest in most of
these  partnerships and receives  substantially  all of the cash flow. The Trust
accounts for all of these partnerships,  except one, in a similar manner as real
estate  investments;  the one  partnership  is  accounted  for using the  equity
method.

                                REAL ESTATE OWNED

         As of September 30, 1995, the Trust's  invested assets were adjusted to
reorganization  value which became the new historical cost basis.  Subsequently,
Assets Held for  Investment  are carried at historical  cost less  depreciation.
Assets Held for Sale are carried at lower of cost or net  realizable  value.  In
conjunction  with the adoption of Fresh Start  Reporting on September  30, 1995,
all gains or losses for a period of one year after such  adoption  were  applied
against the  carrying  value of long lived assets Held for  Investment.  Through
September  30, 1996,  the Trust  reduced the carrying  values of Assets Held for
Investment by $12.6 million as a result of the net gains on both the disposition
of  substantially  all of its mortgage loan portfolio in March 1996 and the sale
of nine  properties  classified  as Assets  Held for Sale.  For the first  three
months of fiscal  1997,  a gain of $1.8  million is  recorded in net income as a
result of property sales. At December 31, 1996, the Trust owned 30 properties of
which nine are  classified as Assets Held for Sale.  The fiscal 1996 revenue and
net  operating  income  from these nine  properties  were $9.9  million and $5.7
million, respectively.

                                 DEFERRED COSTS

         Included in other assets are costs incurred in obtaining debt financing
which are deferred and  amortized  over the term of the related debt  agreement.
Amortization  expense  is  included  in  interest  expense  in the  accompanying
statement of operations.  Net deferred  financing costs included in other assets
in the accompanying balance sheet amounted to $1.8 million at December 31, 1996.

                               REVENUE RECOGNITION

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

                          INTEREST RATE SWAP AGREEMENT 
  
         The Trust is a party to an  interest  rate  protection  agreement  (the
"Cap") used to hedge its interest  rate exposure on floating rate debt (See Note
4  "Borrowings").  The  differential to be paid or received is recognized in the
period incurred and included in interest expense.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

NOTE 3.           MORTGAGE LOANS AND INVESTMENTS IN REAL ESTATE

         During  the second  quarter of fiscal  1996,  the Trust  completed  the
disposition  of  substantially  all of its mortgage  loan  portfolio.  The Trust
received  $55.5  million in net cash proceeds  through a series of  transactions
which included loan repayments and a bulk sale of mortgage  loans.  The carrying
value of the  mortgage  loans  involved  in  these  transactions  totaled  $50.5
million.  The Trust's  remaining  mortgage loan holdings are currently less than
$0.7 million.

         The following table  summarizes the Trust's  investments in real estate
owned at December 31, 1996.
<TABLE>
<CAPTION>

                            Type of                         Number           Carrying         Accumulated         Book
                           Property                      of Properties        Amount         Depreciation         Value
                           --------                      -------------        ------         ------------         -----
                                                                                        (dollars in thousands)
         <S>                                                 <C>          <C>                <C>             <C>
         Real Estate Held for Sale:

                  Real Estate Owned                             7         $     36,252       $       (71)    $    36,181
                  Investment in Partnerships                    2               10,487               (70)         10,417
                                                             ----              -------            ------         -------
                  Total                                         9         $     46,739       $      (141)    $    46,598
                                                             ====              =======             =====         =======



         Real Estate Held for Investment:

                  Real Estate Owned                            18         $     65,605       $    (2,280)    $    63,325
                  Investment in Partnerships                    3               13,813              (303)         13,510
                                                              ---              -------           -------         -------
                  Total                                        21         $     79,418       $    (2,583)    $    76,835
                                                              ===              =======           =======         =======
</TABLE>
NOTE 4.           BORROWINGS

                              SENIOR SECURED NOTES 

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

         On March 28, 1996, the Trust entered into a financing  agreement  which
provided  for the  issuance  of $67.4  million of new  Floating  Rate Notes (the
"Floating Rate Notes"),  which issuance occurred on April 30, 1996. The Floating
Rate Notes bear interest at 30 day LIBOR + 1.375%,  payable monthly,  and have a
stated maturity date of May 1, 1999.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

         The indenture relative to the Floating Rate Notes (the "New Indenture")
generally  requires that, on a monthly  basis,  the Trust deposit into a Trapped
Funds  Account,  as defined in the New  Indenture,  maintained  by the indenture
trustee (the "New Indenture  Trustee") for the Floating Rate Notes all Cash Flow
and Asset Sale Proceeds (each as defined in the New  Indenture).  Cash Flow from
the Trapped Funds Account will be distributed to pay the New Indenture Trustee's
expenses,  pay all accrued but unpaid interest on the Floating Rate Notes and to
maintain a Debt  Service  Reserve  Account  before any funds are released to the
Trust. In the event of a sale of, or certain casualty, or indemnification events
with  respect  to  any of  the  remaining  twenty  properties  of  the  original
twenty-four  properties  mortgaged  under the terms of the  Floating  Rate Notes
(underlying  collateralized  value of $84.6 million at December 31,  1996),  the
proceeds  therefrom  will be  used to  retire  up to  125% of a  portion  of the
allocated debt of such property before any funds are released to the Trust.  The
New Indenture includes affirmative covenants and negative covenants. At December
31, 1996, the Trust was in compliance with the New Indenture.

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

         Effective  April 30,  1996,  the Trust  entered  into an interest  rate
protection  agreement  (the  "Cap")  that  serves to cap the  floating  interest
component  of the  Floating  Rate Notes at 8%. The Trust paid a one-time  fee of
$377,000 to the counterparty to the Cap.

         During fiscal 1996, the Trust sold nine real estate  properties,  three
of which were encumbered under the terms of the New Indenture.  The Trust used a
portion of the net proceeds from the sale of  encumbered  properties to prepay a
portion of the  Floating  Rate  Notes,  as  required  under the terms of the New
Indenture.  In July of fiscal  1996,  the Trust  used  $4.2  million  of the net
proceeds  and in October and  November of fiscal 1997 used $2.6 million and $4.4
million,  respectively, of the net  proceeds  of fiscal  1996  sales to prepay a
portion of the Floating Rate Notes.

         During the first quarter of fiscal 1997, the Trust sold one real estate
property and one of nine  buildings  owned by the Trust in an  industrial  park,
which were  encumbered  under the terms of the New  Indenture.  In November  and
February  of  fiscal  1997,  the  Trust  used  $1.3  million  and $0.2  million,
respectfully  of the net  proceeds  of these  sales to prepay a  portion  of the
Floating Rate Notes.

NOTE 5.           SHARE OPTION PLAN

                             1995 SHARE OPTION PLAN

         On October 2, 1995,  the Board of Trustees  adopted a 1995 Share Option
Plan (the "1995 Plan") for Trustees,  officers,  employees and other key persons
of the Trust.  On February  15,  1996,  the Trust's  shareholders  approved  the
adoption of the 1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

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

         The 1995  Plan  provides  for the  grant  of  incentive  stock  options
("Incentive   Options")  which  qualify  under  Section  422  of  the  Code  and
non-qualified stock options ("Non-Qualified  Options").  Holders of options also
receive dividend equivalent rights.  During fiscal 1996, 894,000 shares from the
1995 Plan were  granted  with a price  range from $10.00 to $12.25 per share and
55,000  shares were  canceled  at a price of $10.00 per share.  During the first
quarter of fiscal  1997,  no shares from the 1995 Plan were granted or canceled.
The options expire four years from the date of grant.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following section includes a discussion and analysis of the results
of operations  for the three months ended  December 31, 1996 and 1995. The Trust
has, for the past several years, reported significant net losses. As a result of
the  1995  Restructuring,  past  results  should  not be  indicative  of  future
operating  performance.  Future  results of  operations of the Trust will not be
comparable to the historical operating performance.


RESULTS OF OPERATIONS-THREE MONTHS ENDED DECEMBER 31, 1996 VS. THREE
MONTHS ENDED DECEMBER 31, 1995

         Net  income  for the three  months  ended  December  31,  1996 was $4.0
million,  or $0.35 per share,  compared to $1.4 million, or $0.13 per share, for
the three months ended  December  31, 1995.  Income  before gain on sale of real
estate was $2.2 million, or $0.19 per share, for the three months ended December
31, 1996  compared to $1.4  million,  or $0.13 per share,  for the three  months
ended December 31, 1995.

         Rental income was $5.9 million for the three months ended  December 31,
1996  compared to $6.6 million for the three months ended  December 31, 1995. In
addition to rental income, the Trust received reimbursement of certain operating
expenses totaling $0.8 million for both the three months ended December 31, 1996
and 1995.  The decrease in rental  income is the result of nine  property  sales
that  occurred  during  fiscal 1996 offset by  increased  occupancy  levels.  At
December  31, 1996 the Trust owned 30 real estate  properties  compared to 39 at
December  31,  1995 and 38 at  September  30,  1995.  During  fiscal  1996,  two
properties  were  added  early  in the year as a result  of  foreclosures.  Nine
properties  were sold during  fiscal  1996,  one of which  occurred in the first
quarter and the remaining  eight occurred  during the last two quarters.  Two of
the eight property sales occurred  during the last month of fiscal 1996.  During
the first  quarter of fiscal 1997,  the Trust sold one real estate  property and
one of nine buildings owned by the Trust in an industrial park. Occupancy levels
increased to 87.6% at December 31, 1996  compared to 87.5% at September 30, 1996
and 81.1% at September 30, 1995.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

         Interest  and fee income on  mortgage  loans was  $21,000 for the three
months  ended  December  31, 1996  compared to $1.7 million for the three months
ended December 31, 1995. In March 1996, the Trust  completed the  disposition of
substantially  all of the its mortgage loan portfolio.  The Trust received $55.5
million in net cash proceeds  through a series of  transactions  which  included
loan repayments and a bulk sale of mortgage loans. As a result,  interest income
earned on the mortgage loan  portfolio was  substantially  reduced.  The Trust's
remaining mortgage loan portfolio is currently less than $0.7 million.

         Interest  on  short-term  investments  was $0.5  million  for the three
months  ended  December  31, 1996  compared to $0.3 million for the three months
ended  December 31, 1995.  The increase was due to the increase in cash balances
as a result of nine property sales and the disposition of  substantially  all of
the mortgage loan portfolio.

         Interest  expense was $1.4 million for the three months ended  December
31, 1996 compared to $3.6 million for the three months ended  December 31, 1995.
During the first quarter of fiscal 1996,  the Trust used $3.5 million to repay a
portion of the Mortgage  Payable.  On April 30, 1996,  the Trust  refinanced its
outstanding Senior Secured Notes at a substantially  lower rate of interest with
the  issuance of new  Floating  Rate Notes in the amount of $67.4  million.  The
proceeds  received  from the Floating Rate Notes,  together  with  approximately
$56.5 million of cash on hand,  were used to prepay the Trust's  Senior  Secured
Notes and Mortgage  Payable.  The face amount  outstanding of the Senior Secured
Notes and the Mortgage  Payable at the time of repayment was $110.0  million and
$13.9 million,  respectively. The Senior Secured Notes and Mortgage Payable were
repaid in full on April 30, 1996.  Included in interest  expense for fiscal 1997
is the amortization of deferred costs incurred in obtaining debt financing which
are amortized over the term of the debt agreement.

         Operating  expenses on rental properties was $2.5 million for the three
months  ended  December  31, 1996  compared to $3.1 million for the three months
ended December 31, 1995. The decrease in operating expenses on rental properties
is the result of nine property  sales that occurred  during fiscal 1996 and cost
containment  measures offset by increased occupancy levels. At December 31, 1996
the Trust owned 30 real estate  properties  compared to 39 at December  31, 1995
and 38 at September 30, 1995.  During  fiscal 1996,  two  properties  were added
early in the year as a result of foreclosures.  Nine properties were sold during
fiscal 1996, one of which occurred in the first quarter and the remaining  eight
occurred during the last two quarters.  Two of the eight property sales occurred
during the last month of fiscal 1996.  During the first  quarter of fiscal 1997,
the Trust sold one real estate  property and one of nine buildings  owned by the
Trust in an industrial park. Occupancy levels increased to 87.6% at December 31,
1996 compared to 87.5% at September 30, 1996 and 81.1% at September 30, 1995.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

         Depreciation and amortization on rental properties was $0.5 million for
the three months ended  December 31, 1996 compared to $0.6 million for the three
months ended December 31, 1995. At September 30, 1995, the Trust  segregated the
real  estate  portfolio  into  two  categories:  Held  for  Sale  and  Held  for
Investment.  Additionally, all assets and liabilities of the Trust were restated
to  reflect  their  respective  reorganization  value or fair  value.  The Trust
depreciates the Held for Investment  category over the estimated useful lives of
the assets.  The Held for Sale category is not depreciated.  During fiscal 1996,
the Trust  reclassified  seven properties  totaling $18.7 million to Assets Held
for Sale from Assets Held for Investment.

         Other  operating  expenses  were  unchanged  for the three months ended
December 31, 1996 compared to the three months ended December 31, 1995.

                         LIQUIDITY AND CAPITAL RESOURCES

         Prior to the 1995 Restructuring,  the Trust faced significant liquidity
problems. The Trust did not generate sufficient cash flow from normal operations
and was not able to  liquidate  mortgage  loans and real estate  investments  in
order to meet scheduled  amortization  on its  indebtedness.  As a result of the
1995 Restructuring,  management believes the cash flow from operating activities
will be sufficient to meet minimum debt service requirements.  In the near term,
the Trust  expects  to fund  capital  expenditures  from  available  funds  from
operations  and cash on hand;  however,  no  assurance  can be given  that  this
expectation  will be achieved.  The Trust's  present  liquidity,  cash flow from
operating  activities  and  ability  to  liquidate  existing  assets to meet its
obligations  can be  adversely  impacted  by a negative  change in the  national
economy,  particularly  as those  changes may relate to real  estate  markets in
which the Trust  operates.  Certain  factors  that might cause such a difference
include the  following:  risks and  uncertainties  inherent to general and local
real estate conditions; the supply and demand for the types of rental properties
which the Trust operates;  interest rate levels;  non-payment of rent by tenants
or that operating costs may be greater than anticipated.

         Taxable  income  required to be  distributed  in order for the Trust to
maintain  its REIT  status  will be less  than  income  reported  for  financial
reporting  purposes  under  generally  accepted  accounting  principles  due  to
differences  related to  depreciation,  use of NOLs (subject to the Code Section
382 limitations) and timing differences related to bad debt deductions.

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

         The New Indenture  generally  requires  that, on a monthly  basis,  the
Trust  deposit into a Trapped  Funds  Account  maintained  by the New  Indenture
Trustee all Cash Flow and Asset Sale Proceeds.  Cash Flow from the Trapped Funds
Account  will  be  distributed  by the  New  Indenture  Trustee  to pay  the New
Indenture  Trustee's  expenses,  pay all  accrued  but  unpaid  interest  on the
Floating Rate Notes and maintain a Debt Service Reserve Account before any funds
are  released  to the Trust.  In the event of a sale of, or certain  casualty or
indemnification  events with respect to, any of the properties  mortgaged  under
the terms of the debt instruments, the proceeds therefrom will be used to retire
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

up to 125% of a portion of the  Floating  Rate Notes that has been  allocated to
such  property  before any funds are  released to the Trust.  The New  Indenture
includes affirmative covenants and negative covenants. At December 31, 1996, the
Trust was in compliance with the New Indenture.

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

         Effective  April 30,  1996,  the Trust  entered  into an interest  rate
protection  agreement  (the  "Cap")  that  serves to cap the  floating  interest
component  of the  Floating  Rate Notes at 8%. The Trust paid a one-time  fee of
$377,000 to the counterparty to the Cap.

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

         During  the first  quarter  of fiscal  1997,  the Trust  received  $4.3
million in net  proceeds  from the sale of real estate  property  classified  as
Assets Held for Sale with a carrying  value of $2.6 million.  The sales included
one real  estate  property  and one of nine  buildings  owned by the Trust in an
industrial park.

         The  Trust's  cash  flow  is  derived  from  operating,  investing  and
financing  activities.  For the three  months  ended  December  31,  1996,  cash
provided by operating  activities  decreased  to $2.3  million  compared to $6.3
million for the three  months  ended  December  31,  1995.  The decrease in cash
provided by operating activities was primarily  attributable to a reduced number
of  properties  and  lower  interest  payments  in  connection  with the  senior
indebtedness.  The outstanding  balance on the Senior Secured Notes decreased to
$54.8 million at December 31, 1996 from $110.0 million at December 31, 1995.

         Cash provided by investing activities increased to $2.8 million for the
three  months  ended  December  31, 1996  compared to $0.6 million for the three
months ended  December 31, 1995.  Real estate sales  activity  accounted for the
largest increase, increasing to $4.3 million for the three months ended December
31, 1996 compared to $1.8 million for the three months ended December 31, 1995.

         Cash  provided  by  financing  activities  remained  flat for the three
months ended December 31, 1996 compared to the same period last year. Restricted
cash  decreased by $8.8  million for the three  months  ended  December 31, 1996
compared to a decrease of $4.3 million for the three  months ended  December 31,
1995.  The decrease in  restricted  cash is related to the funds held by the New
Indenture  Trustee in the Debt Service  Reserve and Trapped Funds  Account.  The
decrease in the restricted  cash was offset by prepayments on the Senior Secured
Notes.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES                                   FORM 10Q

PART II:          OTHER INFORMATION

ITEM 5.           OTHER INFORMATION

         THIS FORM 10-Q CONTAINS  FORWARD-LOOKING  STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE  SECURITIES  ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE TRUST'S ACTUAL  RESULTS COULD DIFFER  MATERIALLY  FROM
THOSE SET FORTH IN THE  FORWARD-LOOKING  STATEMENTS.  THOSE  FACTORS  THAT MIGHT
CAUSE SUCH A DIFFERENCE INCLUDE THOSE SET FORTH UNDER THE "LIQUIDITY AND CAPITAL
RESOURCES" SECTION OF ITEM 2.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         27       Financial Data Schedule

(b)      Reports on Form 8-K

                  None.

<PAGE>
                                   SIGNATURES



         Pursuant to the  requirements  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.








                                Value Property Trust




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



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







DATE:   February 14, 1997