<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   FORM 10-Q

[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
   OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1999

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

                         Commission File Number 1-9948

                          AMERICAN REALTY TRUST, INC.
            (Exact Name of Registrant as Specified in Its Charter)

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

               Georgia                                 54-0697989
   (State or Other Jurisdiction of                  (I.R.S. Employer
   Incorporation or Organization)                  Identification No.)

    10670 North Central Expressway, Suite 300,                  75231
                  Dallas, Texas
     (Address of Principal Executive Offices)                (Zip Code)

                                (214) 692-4700
             (Registrant's Telephone Number, Including Area Code)

  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section13 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 [_]

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

  Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.

    Common Stock, $.01 par value                       10,563,720
               (Class)                      (Outstanding at October 29, 1999)

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<PAGE>

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

  The accompanying Consolidated Financial Statements have not been examined by
independent certified public accountants but in the opinion of the management
of American Realty Trust, Inc. (the "Company"), all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of consolidated
results of operations, consolidated financial position and consolidated cash
flows at the dates and for the periods indicated, have been included.

                          AMERICAN REALTY TRUST, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                     September 30, December 31,
                                                         1999          1998
                                                     ------------- ------------
                                                       (dollars in thousands)
<S>                                                  <C>           <C>
                      Assets
Notes and interest receivable
  Performing ($14,331 in 1999 and $594 in 1998 from
   affiliates).....................................    $ 52,171      $ 47,823
  Nonperforming....................................      14,925         6,807
                                                       --------      --------
                                                         67,096        54,630
Less--allowance for estimated losses...............      (2,577)       (2,577)
                                                       --------      --------
                                                         64,519        52,053
Real estate held for sale..........................     314,273       282,301
Real estate held for investment, net of accumulated
 depreciation ($183,757 in 1999 and $208,396 in
 1998).............................................     462,690       452,606
Pizza parlor equipment, net of accumulated depreci-
 ation ($2,294 in 1999 and $1,464 in 1998).........       6,935         6,859
Marketable equity securities, at market value......         740         2,899
Cash and cash equivalents..........................       1,839        11,523
Investments in equity investees....................      40,665        34,433
Intangibles, net of accumulated amortization
 ($1,652 in 1999 and $1,298 in 1998)...............      14,422        14,776
Other assets.......................................      33,249        61,155
                                                       --------      --------
                                                       $939,332      $918,605
                                                       ========      ========
       Liabilities and Stockholders' Equity
Liabilities........................................
Notes and interest payable ($13,477 in 1999 and
 $12,600 in 1998 to affiliates)....................    $754,931      $768,272
Margin borrowings..................................      36,507        35,773
Accounts payable and other liabilities (including
 $12,409 in 1999 and $8,900 in 1998 to affili-
 ates).............................................      36,765        38,321
                                                       --------      --------
                                                        828,203       842,366
Minority interest..................................      72,723        37,967
Commitments and contingencies
Stockholders' equity
Preferred Stock, $2.00 par value, authorized
 20,000,000 shares, issued and outstanding
  Series F, 3,400,000 shares in 1999 and 3,350,000
   in 1998 (liquidation preference $34,000)........       6,200         6,100
  Series G, 1,000 shares in 1999 and 1998
   (liquidation preference $100)...................           2             2
Common stock, $.01 par value; authorized
 100,000,000 shares, issued 13,496,688 shares in
 1999 and 13,479,348 in 1998.......................         135           133
Paid-in capital....................................      84,348        83,945
Accumulated (deficit)..............................     (52,251)      (51,880)
Treasury stock at cost, 2,737,216 shares in 1999
 and 1998..........................................         (28)          (28)
                                                       --------      --------
                                                         38,406        38,272
                                                       --------      --------
                                                       $939,332      $918,605
                                                       ========      ========
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       2
<PAGE>

                          AMERICAN REALTY TRUST, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                            For the Three Months       For the Nine Months
                             Ended September 30,       Ended September 30,
                           ------------------------  ------------------------
                              1999         1998         1999         1998
                           -----------  -----------  -----------  -----------
                              (dollars in thousands, except per share)
<S>                        <C>          <C>          <C>          <C>
Revenues
  Sales................... $     7,800  $     7,259  $    22,753  $    21,344
  Rents...................      40,260       15,531      122,125       45,098
  Interest................       1,331           15        5,029          169
  Other...................         300          486         (740)        (454)
                           -----------  -----------  -----------  -----------
                                49,691       23,291      149,167       66,157
Expenses
  Cost of sales...........       6,711        6,324       19,509       18,329
  Property operations.....      27,377       12,032       80,778       34,192
  Interest................      22,988       12,396       68,528       35,676
  Advisory and servicing
   fees to affiliate......       1,472        1,058        3,958        2,767
  General and
   administrative.........       3,839        1,712       12,689        5,939
  Depreciation and
   amortization...........       4,479        1,496       13,496        4,683
  Provision for loss......          45        3,000        2,072        3,000
  Litigation settlement...         --           --           275          --
  Minority interest.......      23,188          658       38,561        1,591
                           -----------  -----------  -----------  -----------
                                90,099       38,676      239,866      106,177
                           -----------  -----------  -----------  -----------
(Loss) from operations....     (40,408)     (15,385)     (90,699)     (40,020)
Equity in income of
 investees................       1,874        6,099        5,270       27,429
Gain on sale of real
 estate...................      48,590        5,718       87,307       14,692
                           -----------  -----------  -----------  -----------
Net income (loss).........      10,056       (3,568)       1,878        2,101
Preferred dividend
 requirement..............        (570)        (502)      (1,704)        (595)
                           -----------  -----------  -----------  -----------
Net income (loss)
 applicable to Common
 shares................... $     9,486  $    (4,070) $       174  $     1,506
                           ===========  ===========  ===========  ===========
Earnings per share
  Net income (loss)
   applicable to Common
   shares................. $       .88  $      (.38) $       .02  $       .14
                           ===========  ===========  ===========  ===========
Weighted average Common
 shares used in computing
 earnings per share.......  10,759,309   10,755,584   10,753,600   10,741,137
                           ===========  ===========  ===========  ===========
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       3
<PAGE>

                          AMERICAN REALTY TRUST, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  For the Nine Months Ended September 30, 1999

<TABLE>
<CAPTION>
                         Series F  Series G
                         Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
                           Stock     Stock   Stock   Stock   Capital  (Deficit)     Equity
                         --------- --------- ------ -------- ------- ----------- -------------
                                       (dollars in thousands, except per share)
<S>                      <C>       <C>       <C>    <C>      <C>     <C>         <C>
Balance, January 1,
 1999...................  $6,100      $ 2     $133    $(28)  $83,945  $(51,880)     $38,272
Dividends
  Common Stock ($.05 per
   share)...............     --       --       --      --        --       (545)        (545)
  Series F Preferred
   Stock ($.75 per
   share)...............     --       --       --      --        --     (1,696)      (1,696)
  Series G Preferred
   Stock ($7.50 per
   share)...............     --       --       --      --        --         (8)          (8)
Sale of Common Stock
 under dividend
 reinvestment plan......     --       --         2     --          3       --             5
Issuance of Series F
 Preferred Stock........     100      --       --      --        400       --           500
Net income..............     --       --       --      --        --      1,878        1,878
                          ------      ---     ----    ----   -------  --------      -------
Balance, September 30,
 1999...................  $6,200      $ 2     $135    $(28)  $84,348  $(52,251)     $38,406
                          ======      ===     ====    ====   =======  ========      =======
</TABLE>


  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       4
<PAGE>

                          AMERICAN REALTY TRUST, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                        For the Nine Months
                                                        Ended September 30,
                                                       ------------------------
                                                          1999         1998
                                                       -----------  -----------
                                                       (dollars in thousands)
<S>                                                    <C>          <C>
Cash Flows From Operating Activities
  Pizza parlor sales collected........................ $    23,445  $   21,252
  Rents collected.....................................     120,986      44,350
  Interest collected..................................       3,716         381
  Distributions from equity investees' operating cash
   flow...............................................         935       9,246
  Payments for pizza parlor operations................     (20,092)    (20,045)
  Payments for property operations....................     (93,939)    (31,325)
  Interest paid.......................................     (54,754)    (23,928)
  Advisory and servicing fees paid to affiliate.......      (3,958)     (2,767)
  General and administrative expenses paid............     (12,738)     (5,856)
  Other...............................................       5,500      (3,071)
                                                       -----------  ----------
    Net cash (used in) operating activities...........     (30,899)    (11,763)
Cash Flows From Investing Activities
  Collections on notes receivable.....................      19,187       7,901
  Funding of notes receivable.........................     (40,942)       (381)
  Pizza parlor equipment purchase.....................        (740)       (787)
  Proceeds from sale of real estate...................     166,907      44,140
  Proceeds from sale of marketable equity securities..       2,648       4,570
  Purchases of marketable equity securities...........      (2,180)     (7,605)
  Investment in real estate entities..................        (366)     (5,034)
  Distributions from equity investees' investing
   activities.........................................         --       16,427
  Acquisition of real estate..........................     (48,094)    (91,308)
  Deposits............................................      18,944         565
  Real estate improvements............................     (20,005)     (7,267)
                                                       -----------  ----------
    Net cash provided by (used in) investing
     activities.......................................      95,359     (38,779)
                                                       ===========  ==========
Cash Flows From Financing Activities
  Proceeds from notes payable......................... $   112,730  $  135,696
  Payments on notes payable...........................    (175,048)    (77,077)
  Deferred borrowing costs............................      (5,947)     (8,214)
  Net advances from affiliates........................       3,489      15,330
  Margin borrowings, net..............................      (3,814)    (14,998)
  Common dividends paid...............................        (545)     (1,710)
  Preferred dividends paid............................      (1,704)       (418)
  Sale of Preferred Stock.............................         500         --
  Distributions to minority interest holders..........      (3,805)     (1,590)
  Sale of Common Stock sold under dividend
   reinvestment plan..................................         --          197
                                                       -----------  ----------
    Net cash provided by (used in) financing
     activities.......................................     (74,144)     47,216
    Net (decrease) in cash and cash equivalents.......      (9,684)     (3,326)
Cash and cash equivalents, beginning of period........      11,523       5,347
                                                       -----------  ----------
Cash and cash equivalents, end of period.............. $     1,839  $    2,021
                                                       ===========  ==========
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       5
<PAGE>

                          AMERICAN REALTY TRUST, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

<TABLE>
<CAPTION>
                                                              For the Nine
                                                                 Months
                                                             Ended September
                                                                   30,
                                                            ------------------
                                                              1999      1998
                                                            --------  --------
                                                               (dollars in
                                                               thousands)
<S>                                                         <C>       <C>
Reconciliation of net income to net cash (used in)
 operating activities
  Net income............................................... $  1,878  $  2,101
  Adjustments to reconcile net income to net cash (used in)
   operating activities
    Depreciation and amortization..........................   13,496     4,683
    Amortization of deferred borrowing cost................    9,857     5,471
    Provision for loss.....................................    2,072     3,000
    Gain on sale of real estate............................  (87,307)  (14,692)
    Distributions from equity investees' operating cash
     flow..................................................      935     9,246
    Equity in (income) of investees........................   (5,270)  (27,430)
    (Increase) decrease in marketable equity securities....    2,159    (1,529)
    (Increase) decrease in accrued interest receivable.....   (1,605)      333
    Decrease in other assets...............................   13,817     3,336
    Increase (decrease) in accrued interest payable........   (6,640)    1,179
    Increase in accounts payable and other liabilities.....   25,709     1,760
    Other..................................................      --        779
                                                            --------  --------
      Net cash (used in) operating activities.............. $(30,899) $(11,763)
                                                            ========  ========
Schedule of noncash investing and financing activities
Notes payable from acquisition of real estate.............. $ 70,133  $ 17,119
Notes receivable canceled on reacquisition of property.....      --      1,300
Issuance of Series F Preferred Stock.......................      --      2,100
Dividend obligation on conversion of Series F Preferred
 Stock.....................................................      --        134
Issuance of Series G Preferred Stock.......................      --        100
Investment in properties reacquired........................      --      5,270
Real estate obtained through foreclosure of mortgage note
 receivable................................................      --     22,715
Provision for loss.........................................    2,072     3,000
Notes payable assumed by buyer upon sale of properties.....    6,776       --
Conversion of note receivable to partnership interest......   22,678       --
Dividend obligation discharged on conversion of Series B
 Preferred Stock...........................................      --         44
Acquisition of IGI Properties
  Issuance of Class A partnership units....................      --      6,568
  Carrying value of mortgages assumed......................      --     43,421
  Carrying value of other assets...........................      --       (441)
  Carrying value of accounts payable and other
   liabilities.............................................      --        292
  Investment in partnerships...............................      --      1,980
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       6
<PAGE>

                          AMERICAN REALTY TRUST, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

  The accompanying Consolidated Financial Statements of American Realty Trust,
Inc. ("ART") and consolidated entities (the "Company") have been prepared in
conformity 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 of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Operating results for the nine month period ended
September 30, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the Consolidated Financial Statements and Notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the
"1998 Form 10-K").

  Certain balances for 1998 have been reclassified to conform to the 1999
presentation.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

  ART owns a 96% limited partner interest in Syntek Asset Management, L.P.
("SAMLP"). Until December 18, 1998, SAMLP was the general partner of National
Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"), the operating
partnership of NRLP (collectively the "Partnership"). Gene E. Phillips, a
Director and Chairman of the Board of the Company until November 16, 1992, is
also a general partner of SAMLP. As of September 30, 1999, the Company owned
approximately 56% of the outstanding limited partner units of the Partnership.

  The Partnership, SAMLP and Gene E. Phillips were among the defendants in a
class action lawsuit arising from the formation of the Partnership (the
"Moorman Litigation"). An agreement settling such lawsuit (the "Settlement
Agreement") for the above named defendants became effective on July 5, 1990.
The Settlement Agreement provided for, among other things, the appointment of
the Partnership oversight committee for the Partnership and the establishment
of specified annually increasing targets for five years relating to the price
of the Partnership's units of limited partner interest.

  The Settlement Agreement provided for the resignation and replacement of
SAMLP as general partner if the unit price targets were not met for two
consecutive anniversary dates. The Partnership did not meet the unit price
targets for the first and second anniversary dates.

  On July 15, 1998, the Partnership, SAMLP and the Partnership oversight
committee executed an Agreement for Cash Distribution and Election of
Successor General Partner (the "Cash Distribution Agreement") which provided
for the nomination of an entity affiliated with SAMLP to be the successor
general partner of the Partnership, for the distribution of $11.4 million to
the plaintiff class members and for the resolution of all related matters
under the Settlement Agreement. On October 23, 1998, the Court entered an
order granting final approval of the Cash Distribution Agreement. The Court
also entered orders requiring the Partnership to pay $404,000 in attorney's
fees to Joseph B. Moorman's legal counsel, $30,000 to Joseph B. Moorman and
$404,000 in attorney's fees to Robert A. McNeil's legal counsel.

  Pursuant to the order, $11.4 million was deposited by the Partnership into
an escrow account and then transferred to the control of an independent
administrator. The distribution of cash was placed under the control of the
independent settlement administrator. On March 24, 1999, the initial
distribution of cash was made to the plaintiff class members.

  The proposal to elect NRLP Management Corp. ("NMC"), a wholly-owned
subsidiary of ART, as the successor general partner was submitted to the
unitholders of the Partnership for a vote at a special meeting of unitholders
held on December 18, 1998. NMC was elected by a majority of the Partnership
unitholders. The

                                       7
<PAGE>

                          AMERICAN REALTY TRUST, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

Settlement Agreement remained in effect until December 18, 1998, when SAMLP
resigned as general partner and NMC was elected successor general partner and
took office.

  Under the Cash Distribution Agreement, NMC assumed liability for SAMLP's
note for its original capital contribution to the Partnership. In addition,
NMC assumed liability for the note which requires the repayment of the $11.4
million paid by the Partnership under the Cash Distribution Agreement, plus
the $808,000 in court ordered attorneys' fees and $30,000 paid to Joseph B.
Moorman. This note requires repayment over a 10--year period, bears interest
at a variable rate, currently 7.3% per annum, and is guaranteed by ART. The
liability assumed under the Cash Distribution Agreement was expensed as a
litigation settlement. An additional $184,000 was expensed as a litigation
settlement in the first quarter of 1999.

  As of December 31, 1998, ART discontinued accounting for its investment in
the Partnership under the equity method upon the election of NMC as general
partner of the Partnership and the settlement of the Moorman Litigation. The
Company began consolidation of the Partnership's accounts at that date and its
operations subsequent to that date.

NOTE 3. NOTES AND INTEREST RECEIVABLE

  In January 1999, the Partnership collected in full a mortgage note
receivable with a principal balance of $350,000. In May 1999, the Partnership
collected in full a mortgage note receivable with a principal balance of $1.5
million. In both cases, the monies received were applied to paydown a note
payable partially secured by the mortgage notes receivable.

  In July 1999, the Partnership received $1.3 million in full payment of a
mortgage note receivable, including a $400,000 participation fee.

  In June 1999, a mortgage note receivable from an affiliate of JNC
Enterprises, Ltd. ("JNC") in the amount of $4.2 million matured. The note is
secured by (1) a first lien on approximately 1,000 acres of land in Huerfano
County, Colorado, known as Cuchara Valley Mountain Ski Resort; (2) an
assignment of a $2.0 million promissory note which is secured by approximately
2,623 acres of land in Taos County, New Mexico, known as Ski Rio Resort; and
(3) a pledge of all related partnership interests. In August 1999, the
Partnership received a paydown of $2.3 million on the note receivable, a
portion of the proceeds from the loan funding described in the following
paragraph. In September 1999, the Partnership received a paydown of $1.0
million in exchange for extending the note's maturity to October 1999.

  In August 1999, the Partnership funded a $2.6 million loan to JNC. The loan
is secured by second liens on a 3.55 acre parcel and a 1.2561 acre parcel of
land in Dallas, Texas, and the personal guaranty of JNC's principal partner.
The loan bears interest at 16.0% per annum and matures in February 2000. All
principal and interest are due at maturity.

  Also in August 1999, a mortgage note receivable in the amount of $942,000
matured. The loan was secured by 4.5 acres of land in Abilene, Texas,
collateral assignment of a $220,000 note receivable and the personal
guarantees of the principal owners of the borrower. The loan bore interest at
14.0% per annum, and all principal and interest were due at maturity. The
borrower did not make the required payments of principal and interest and the
loan is classified as nonperforming in the September 30, 1999 Consolidated
Balance Sheet. The Partnership is negotiating a modification/extension with
the borrower. If such negotiation is not successful, and the Partnership
forecloses, it expects to incur no loss as the fair value of the collateral
property, less estimated costs of sale, exceeds the carrying value of the
note.

  During 1998, the Partnership funded a $1.8 million loan to Warwick of
Summit, Inc. The loan is secured by a second lien on a shopping center in
Rhode Island, by 100% of the stock of the borrower and by the personal

                                       8
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

guarantee of the principal shareholder of the borrower. The loan bears
interest at 14.0% per annum and matures in December 1999. All principal and
interest are due at maturity. During 1999, the Partnership funded an
additional $314,000, increasing the loan balance to $2.1 million.

  During 1998 and through August 1999, the Partnership funded a total of $2.1
million of a $2.2 million loan commitment to Varner Road Partners, L.L.C. The
loan is secured by 129.77 acres of land in Riverside County, California and a
pledge of the stock of the borrower. The loan bears interest at 15.0% per
annum and matures in November 1999. All principal and interest are due at
maturity.

  During 1998 and 1999, the Partnership funded a total of $31.0 million of a
$52.5 million loan commitment to Centura Tower, Ltd. ("Centura"). The loan was
secured by 2.2 acres of land and an office building under construction in
Farmers Branch, Texas. The loan bore interest at 12.0% per annum, required
monthly payments based on net revenues after development of the land and
building and matured in January 2003. In August 1999, the Partnership
exercised a participation option included in the loan agreement. The
Partnership obtained a combined 80% general and limited partnership interest
in Centura in exchange for a $24.1 million capital contribution through
conversion of a portion of the Partnership's note receivable. The $8.3 million
balance of the note receivable continues as a loan to Centura from the
Partnership, bears interest at a rate of 18.0% per annum and is payable from
cash flows of the project. Centura's other partners will earn a 12% preferred
return on their respective capital accounts. In conjunction with the exercise
of the participation, Centura obtained a construction loan commitment in the
total amount of $30.0 million, which was finalized in October 1999. The loan
bears interest at a variable rate, currently 9.4725% per annum, and matures in
June 2001. Interest is payable monthly, with the first $2.0 million of
interest being drawn from the loan proceeds. The loan is guaranteed by NOLP,
NRLP, Garden Capital, L.P. ("GCLP") and Basic Capital Management, Inc.
("BCM"), the Company's advisor. In October 1999, Centura received its first
draw of $5.0 million under the loan agreements. GCLP is a partnership in which
NOLP is the sole limited partner with a 99.3% limited partner interest and a
wholly--owned subsidiary of ART is the general partner with .7% general
partner interest. The Partnership consolidates Centura for financial statement
purposes.

  In June 1998, the Partnership funded a $365,000 loan to RB Land & Cattle,
L.L.C. The loan is secured by a pledge of a note secured by 7,200 acres of
undeveloped land near Crowell, Texas, and the personal guarantee of the
borrower. The loan bore interest at 10.0% per annum and matured in December
1998. All principal and interest were due at maturity. The borrower did not
make the required payments and the loan was classified as nonperforming. The
Partnership has begun foreclosure proceedings and expects to incur no loss on
foreclosure as the fair value of the collateral property, less estimated costs
of sale, exceeds the carrying value of the note.

  In August 1998, the Partnership funded a $6.0 million loan to Centura
Holdings, L.L.C., a subsidiary of Centura Tower, Ltd. The loan is secured by
6.4 acres of land in Farmers Branch, Texas, bears interest at 15.0% per annum
and matures in August 2000. All principal and interest are due at maturity. In
February 1999, the Partnership funded an additional $37,500.

  Also in August 1998, the Partnership funded a $3.7 million loan to JNC. The
loan was secured by a contract to purchase 387 acres of land in Collin County,
Texas, and the personal guaranty of JNC's principal partner. The loan bore
interest at 12.0% per annum and matured the earlier of termination of the
purchase contract or February 1999. All principal and interest were due at
maturity. This loan was cross--collateralized with other JNC loans. In January
1999, ART purchased the contract from JNC and acquired the land. In connection
with the purchase, GCLP funded $6.0 million on a then $95.0 million loan
commitment to ART. A portion of the funds were used to payoff the $3.7 million
JNC note to the Partnership, including accrued but unpaid interest, paydown
$1.3 million on the JNC line of credit and paydown $820,000 on the JNC Frisco
Panther Partners, Ltd. loan, discussed below. See NOTE 7. "NOTES PAYABLE."

                                       9
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Further in August 1998, the Partnership funded a $635,000 loan to La Quinta
Partners, L.L.C. The loan is secured by interest bearing accounts prior to
being used as escrow deposits toward the purchase of a total of 956 acres of
land in La Quinta, California. The loan bore interest at 10.0% per annum and
matured in November 1998. All principal and interest were due at maturity. In
November and December 1998, the Partnership received a total of $250,000 in
principal paydowns. In the first quarter of 1999, the Partnership received an
additional $25,000 paydown. In the second quarter of 1999, the loan was
modified, increasing the interest rate to 15.0% per annum and extending the
maturity date to November 1999. Accrued but unpaid interest was added to the
principal balances increasing it by $42,000 to $402,000.

  In 1997 and 1998, the Partnership funded a $3.8 million loan to Stratford &
Graham Developers, L.L.C. The loan is secured by 1,485 acres of unimproved
land in Riverside County, California. In the first nine months of 1999, the
Partnership funded an additional $316,000, increasing the loan balance to $4.1
million. The loan bore interest at 15.0% per annum and matured in June 1999.
All principal and interest were due at maturity. The borrower did not make the
required payments of principal and interest at the loan's maturity and the
loan was classified as nonperforming. The Partnership has begun foreclosure
proceedings. No loss is expected on foreclosure as the fair value of the
collateral property, less estimated costs of sale, exceeds the carrying value
of the note.

  In October 1998, the Partnership funded three loans to JNC or affiliated
entities. The first JNC loan of $1.0 million was secured by a second lien on
3.5 acres of land in Dallas, Texas, and the personal guaranty of JNC's
principal partner. The loan bore interest at 14.0% per annum and matured in
October 1999. All principal and interest were due at maturity. This loan was
paid in full in July 1999. The second loan, also $1.0 million, was secured by
a second lien on 2.9 acres of land in Dallas, Texas, and the personal guaranty
of JNC's principal partner. The loan bore interest at 14.0% per annum and
matured in October 1999. All principal and interest were due at maturity. This
loan was paid in full in March 1999. The third loan, in the amount of $2.1
million was to Frisco Panther Partners, Ltd. The loan is secured by a second
lien on 408.2 acres of land in Frisco, Texas, and the personal guaranty of
JNC's principal partner. The loan bears interest at 14.0% per annum and
matures in October 1999. All principal and interest are due at maturity. This
loan is cross--collateralized with other JNC loans funded by the Partnership.
In January 1999, the Partnership received a paydown of $820,000 on the Frisco
Panther Partners, Ltd. loan.

  In March 1998, the Partnership ceased receiving the required payments on a
$3.0 million note receivable secured by an office building in Dallas, Texas.
In October 1998, the Partnership began foreclosure proceedings. In March 1999,
the Partnership received payment in full, including accrued but unpaid
interest.

  In December 1998, the Partnership funded $3.3 million of a $5.0 million loan
commitment to JNC. The loan is secured by a second lien on 1,791 acres of land
in Denton County, Texas, and a second lien on 220 acres of land in Tarrant
County, Texas. The loan bears interest at 12.0% per annum and matures in
December 1999. All principal and interest are due at maturity. The loan is
cross--collateralized with other JNC loans funded by the Partnership. In
January 1999, the Partnership received a $1.3 million paydown. In the first
half of 1999, the Partnership funded an additional $3.0 million, increasing
the loan balance to $5.0 million.

  At December 1998, the Partnership's one wraparound mortgage note receivable
was in default. The Partnership has been vigorously pursuing its rights under
the loan agreement. If the Partnership should be unsuccessful, and the
underlying lien holder forecloses the collateral property, the Partnership
will incur no loss in excess of previously established reserves.

  Related Party. In February 1999, GCLP funded a $5.0 million unsecured loan
to Davister Corp., which at September 30, 1999, owned approximately 15.8% of
the outstanding shares of the Company's Common Stock.

                                      10
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The loan bears interest at 12.0% per annum and matures in February 2000. All
principal and interest are due at maturity. The loan is guaranteed by BCM, the
Company's advisor.

  Beginning in 1997 and through January 1999, the Partnership funded a $1.6
million loan commitment to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The
loan is secured by (1) a 100% interest in Bordeaux, which owns a shopping
center in Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux
Investments One, Inc., which owns 6.5 acres of undeveloped land in Oklahoma
City, Oklahoma; and (3) the personal guarantees of the Bordeaux partners. The
loan bears interest at 14.0% per annum. Until November 1998, the loan required
monthly payments of interest only at the rate of 12.0% per annum, with the
deferred interest payable at maturity in January 1999. In November 1998, the
loan was modified to allow payments based on monthly cash flow of the
collateral property and the maturity date was extended to December 1999. In
the second quarter of 1999, the loan was again modified, increasing the loan
commitment to $2.1 million and the Partnership funded an additional $33,000.
In the third quarter of 1999, the Partnership funded an additional $213,000.
The property has had no cash flow, therefore, the Partnership ceased accruing
interest in the second quarter of 1999. In October 1999, the Partnership
received a $724,000 paydown on the loan, which was applied first to accrued
but unpaid interest of $261,000 then to principal, reducing the loan balance
to $1.4 million. In October 1999, Richard D. Morgan, a Bordeaux shareholder,
was elected a director of NMC, the General Partner of the Partnership.

  Beginning in April and through September 30, 1999, ART funded $1.7 million
of a $2.0 million loan commitment to Lordstown, L.P. The loan is secured by a
second lien on land in Ohio and Florida, by 100% of the general and limited
partner interest in Partners Capital, Ltd. and a 50% profits interest in
subsequent land sales. A corporation controlled by Richard D. Morgan, is the
general partner of Lordstown, L.P.

  Also, beginning in April through September 30, 1999, ART funded $1.5 million
of a $2.4 million loan commitment to 261, L.P. The loan is secured by 100% of
the general and limited partner interest in Partners Capital, Ltd. and a
profits interest in subsequent land sales. A corporation controlled by Richard
D. Morgan, is the general partner of 261, L.P.

NOTE 4. REAL ESTATE

  In January 1999, GCLP sold the 199 unit Olde Town Apartments in Middleton,
Ohio, for $4.6 million, receiving net cash of $4.4 million after the payment
of various closing costs, including a real estate brokerage commission of
$136,000 to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of BCM, the
Company's advisor. A gain of $2.2 million was recognized on the sale.

  In February 1999, ART purchased Frisco Bridges land, a 336.8 acre parcel of
unimproved land in Collin County, Texas, for $46.8 million, paying $7.8
million in cash and obtaining mortgage financing totaling $39.0 million.
Seller financing in the amount of $22.0 million, secured by 191.5 acres of the
parcel, bears interest at prime plus 2.0%, currently 10.25% per annum,
requires monthly interest only payments and matures in January 2000. A
mortgage in the amount of $15.0 million, secured by 125.0 acres of the parcel,
bears interest at the prime rate plus 4.5%, currently 12.75% per annum,
required principal reduction payments of $1.0 million on each of May 1, June
1, and July 1, in addition to monthly payments of interest and matures in
February 2000. Another mortgage in the amount of $2.0 million, secured by 13.5
acres of the parcel, bore interest at 14% per annum, required monthly interest
only payments and matured in January 2000. The loan was paid in full in June
1999. ART's Double O land in Las Colinas, Texas, and its Desert Wells land in
Palm Desert, California, are pledged as additional collateral for these loans.
ART drew down $6.0 million under its line of credit with the GCLP for a
portion of the cash requirement. See NOTE 7. "NOTES PAYABLE." A real estate
brokerage commission of $1.4 million was paid to Carmel Realty.

                                      11
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Also in February 1999, ART sold a 4.6 acre tract of its Plano Parkway land
parcel for $1.2 million. ART received net cash of $1.1 million after the
payment of various closing costs, including a real estate brokerage commission
of $36,000 to Carmel Realty. Simultaneously with the sale, the mortgage debt
secured by such land parcel was refinanced in the amount of $7.1 million. The
new mortgage bears interest at the prime rate plus 4.5%, currently 12.75% per
annum, requires monthly interest only payments and matures in January 2000.
The net cash from the sale and refinancing along with an additional $921,000
was used to payoff the $8.9 million seller financing secured by the land
parcel. A mortgage brokerage and equity refinancing fee of $71,000 was paid to
BCM. A gain of $473,000 was recognized on the sale.

  Further in February 1999, GCLP sold the 225 unit Santa Fe Apartments in
Kansas City, Missouri, for $4.6 million, receiving net cash of $4.3 million
after the payment of various closing costs, including a real estate brokerage
commission of $137,000 to Carmel Realty. A gain of $706,000 was recognized on
the sale.

  In February 1999, GCLP sold the 480 unit Mesa Ridge Apartments in Mesa,
Arizona, for $19.5 million, receiving net cash of $793,000 after the payment
of various closing costs, including a real estate brokerage commission of
$585,000 to Carmel Realty and remitting $17.8 million to the lender to hold in
escrow pending a substitution of collateral. In May 1999, the 259 unit
Bavarian Woods Apartments and the 149,855 sq. ft. Westwood Shopping Center
were approved as substitute collateral. GCLP received net cash of $7.8 million
after paying off $7.2 million in mortgage debt secured by the Bavarian Woods
Apartments and Westwood Shopping Center, funding required escrows and closing
costs on the two properties and paying off $2.2 million on the Mesa Ridge
debt, including a $133,000 prepayment penalty. A gain of $10.2 million was
recognized on the sale.

  In March 1999, ART sold a 13.0 acre tract of its Rasor land parcel for $1.6
million, receiving no net cash after paying down by $1.5 million the mortgage
debt secured by such land parcel and the payment of various closing costs,
including a real estate brokerage commission of $48,000 to Carmel Realty. A
gain of $979,000 was recognized on the sale.

  Also in March 1999, ART sold two tracts totaling 9.9 acres of its
Mason/Goodrich land parcel for $956,000, receiving net cash of $33,000 after
paying down by $860,000 the mortgage debt secured by such land parcel and the
payment of various closing costs, including a real estate brokerage commission
of $29,000 to Carmel Realty. A gain of $432,000 was recognized on the sale.

  Further in March 1999, ART sold, in a single transaction, a 13.7 acre tract
of its McKinney II land parcel and a 20.0 acre tract of its McKinney IV land
parcel for a total of $7.7 million, receiving no net cash after paying down by
$5.5 million the mortgage debt secured by such land parcel, the funding of
required escrows and the payment of various closing costs, including a real
estate brokerage commission of $231,000 to Carmel Realty. A gain of $2.9
million was recognized on the sale.

  In April 1999, GCLP sold the 166 unit Horizon East Apartments in Dallas,
Texas, for $4.0 million, receiving net cash of $1.2 million after paying off
$2.6 million in mortgage debt and the payment of various closing costs,
including a real estate brokerage commission of $79,000 to Carmel Realty. A
gain of $1.8 million was recognized on the sale.

  Also in April 1999, GCLP sold the 120 unit Lantern Ridge Apartments in
Richmond, Virginia, for $3.4 million, receiving net cash of $880,000 after the
payment of various closing costs, including a real estate brokerage commission
of $103,000 to Carmel Realty. The purchaser assumed the $2.4 million mortgage
secured by the property. A gain of $2.3 million was recognized on the sale.

  In May 1999, ART sold a 15.0 acre tract of its Vista Ridge land parcel for
$2.6 million, receiving net cash of $552,000 after paying down by $1.8 million
the mortgage debt secured by such land parcel and the payment

                                      12
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of various closing costs, including a real estate brokerage commission of
$79,000 to Carmel Realty. A gain of $913,000 was recognized on the sale.

  Also in May 1999, ART purchased Rowlett Creek land, a 80.4 acre parcel of
unimproved land in Collin County, Texas, for $1.6 million. ART paid $400,000
in cash and obtained seller financing of the remaining $1.2 million of the
purchase price. The seller financing bears interest at 8.75% per annum,
requires quarterly interest only payments and matures in May 2004. A real
estate brokerage commission of $94,000 was paid to Carmel Realty.

  Further in May 1999, ART purchased Leone land, a 8.2 acre parcel of
unimproved land in Irving, Texas, for $1.5 million. ART paid $300,000 in cash
and obtained seller financing of the remaining $1.2 million of the purchase
price. The seller financing bears interest at 8.0% per annum, requires
quarterly interest only payments and matures in May 2003. A real estate
brokerage commission of $91,000 was paid to Carmel Realty.

  In May 1999, a newly-formed controlled partnership in which a wholly--owned
subsidiary of ART is the 1.0% managing general partner and ART is the 99%
Class B limited partner, purchased the 177,211 sq. ft. Encino Executive Plaza
in Los Angeles, California, for $40.1 million. The partnership paid $2.8
million in cash, assumed $34.6 million in mortgage debt, obtained $1.1 million
in seller financing and issued 1.6 million Class A limited partner units. The
mortgage bears interest at 7.74% per annum, requires monthly payments of
principal and interest of $247,500 and matures in May 2008. The seller
financing bears interest at 7.0% per annum, requires interest only payments in
July and January, requires semiannual principal payments of $369,000 in May
2000 and May 2001 and matures in May 2002. The Class A units accrue a
preferred return of $.05 per Class A unit per annum for the first year, $.06
per annum per Class A unit for the second year, $.07 per Class A unit per
annum for the third year and $.09 per Class A unit per annum thereafter, paid
quarterly.

  Also in May 1999, ART sold two tracts of its Plano Parkway land parcel
totaling 24.5 acres for $4.9 million. ART received no net cash after paying
down by $4.7 million the mortgage debt secured by such land parcel and the
payment of various closing costs, including a real estate brokerage commission
of $147,000 to Carmel Realty. A gain of $1.1 million was recognized on the
sale.

  Further in May 1999, ART acquired the remaining joint venture interest in
its 3.6 acre Atlanta land parcel for $1.3 million in cash. Subsequently, ART
exchanged the Atlanta land parcel for 147.4 acres of land in Nashville,
Tennessee and $1.3 million in cash. No gain or loss was recognized on the
exchange.

  In May 1999, the Partnership purchased the 27,000 sq. ft. Cooley Office
Building in Farmers Branch, Texas, for $3.5 million, paying $1.5 million in
cash and obtaining mortgage financing of $2.0 million. The mortgage bears
interest at a variable rate, currently 9.0% per annum, requires monthly
payments of principal and interest of $17,875 and matures in May 2019. A real
estate brokerage commission of $35,000 was paid to Carmel Realty.

  In June 1999, ART sold two tracts of its Frisco Bridges land parcel totaling
77.6 acres for $16.9 million. ART received net cash of $2.7 million after
paying off $2.0 million in mortgage debt secured by such land parcel, paying
down by $11.0 million another mortgage secured by such land parcel and the
payment of various closing costs, including a real estate brokerage commission
of $507,000 to Carmel Realty. A gain of $4.2 million was recognized on the
sale.

  Also in June 1999, ART sold a 6.0 acre tract of its Plano Parkway land
parcel for $1.6 million. ART received no net cash after paying down by $1.6
million the mortgage debt secured by such land parcel and the payment of
various closing costs, including a real estate brokerage commission of $47,000
to Carmel Realty. A gain of $615,000 was recognized on the sale.

                                      13
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Further in June 1999, ART sold its Continental Hotel for $25.0 million,
receiving a nonrefundable deposit of $5.0 million and providing short term
financing of $20.0 million, which matures in November 1999. A gain of $7.9
million was recognized on the sale. In the third quarter of 1999, ART received
$1.5 million in principal payments.

  In June 1999, ART purchased Vineyards II land, a 18.6 acre parcel of
unimproved land in Tarrant County, Texas, for $6.3 million. ART paid $2.3
million in cash and obtained seller financing of the remaining $4.0 million of
the purchase price. The seller financing bears interest at 14.5% per annum,
requires monthly interest only payments and matures in June 2002. A real
estate brokerage commission of $190,000 was paid to Carmel Realty.

  Also in June 1999, the Partnership purchased the Lake Houston land, a 33.58
acre parcel of unimproved land in Harris County, Texas, for $2.5 million in
cash. A real estate brokerage commission of $75,000 was paid to Carmel Realty.
The Partnership obtained a $13.7 million construction loan and began
development of a 312 unit apartment complex on the site in July 1999.
Construction costs are expected to approximate $16.7 million and completion is
anticipated in the third quarter of 2000. Through October 1999, the
Partnership has invested $1.9 million on construction of the apartments and
received $1.8 million in loan and escrow proceeds.

  Further in June 1999, GCLP sold the 368 unit Barcelona Apartments in Tampa,
Florida, for $9.8 million, receiving net cash of $2.2 million after paying off
$7.0 million in mortgage debt and the payment of various closing costs,
including a real estate brokerage commission of $294,000 to Carmel Realty. A
gain of $2.2 million was recognized on the sale.

  In July 1999, the Partnership purchased the Stone Meadows land, a 13.5 acre
parcel of unimproved land in Harris County, Texas, from ART at the land's
carrying value of $2.2 million, paying $1.3 million in cash and assuming
$974,000 in mortgage debt. The mortgage bore interest at 10.0% per annum,
required quarterly payments of principal and interest of $100,000 and matured
in October 1999. The mortgage was paid in full at maturity. The land was
acquired as a future apartment development site.

  Also in July 1999, ART sold a .13 acre tract of its JHL Connell land parcel
for $53,000. ART received no net cash after paying down by $49,000 the
mortgage debt secured by such land parcel and the payment of various closing
costs, including a real estate brokerage commission of $2,000 to Carmel
Realty. A gain of $23,000 was recognized on the sale.

  Further in July 1999, ART sold two tracts totaling 11.8 acres of its Plano
Parkway land parcel for $3.8 million. ART received net cash of $1.7 million
after paying down by $2.0 million the mortgage debt secured by such land
parcel and the payment of various closing costs, including a real estate
brokerage commission of $112,000 to Carmel Realty. A gain of $1.9 million was
recognized on the sales.

  In July 1999, ART sold two tracts totaling 6.7 acres of its Vista Ridge land
parcel for $1.4 million. ART received net cash of $329,000 after paying down
by $975,000 the mortgage debt secured by such land parcel and the payment of
various closing costs, including a real estate brokerage commission of $43,000
to Carmel Realty. A gain of $584,000 was recognized on the sale.

  Also in July 1999, ART purchased Monterey land, a 85.0 acre parcel of
unimproved land in Riverside County, California, for $5.6 million. ART paid
$1.1 million in cash and obtained seller financing of the remaining $4.5
million of the purchase price. The seller financing bears interest at 9.0% per
annum, requires quarterly interest only payments and matures in June 2002. A
real estate brokerage commission of $338,000 was paid to Carmel Realty.

                                      14
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Further in July 1999, ART purchased Wakefield land, a 70.0 acre parcel of
unimproved land in Allen, Texas, for $1.3 million. ART paid $688,000 in cash
and obtained seller financing for the remaining $612,000 of the purchase
price. The seller financing bears interest at 8.5% per annum, requires
quarterly interest only payments and matures in July 2004. A real estate
brokerage commission of $78,000 was paid to Carmel Realty.

  In July 1999, ART sold a 1.4 acre tract of its Valley Ranch land parcel for
$163,000. ART received net cash of $159,000 after the payment of various
closing costs, including a real estate brokerage commission of $5,000 to
Carmel Realty. A gain of $128,000 was recognized on the sale.

  In August 1999, the Partnership sold the 152 unit Country Place Apartments
in Round Rock, Texas, for $6.0 million, receiving net cash of $1.3 million
after the payment of various closing costs, including a real estate brokerage
commission of $179,000 paid to Carmel Realty. The purchaser assumed the $4.3
million mortgage secured by the property. A gain of $3.3 million was
recognized on the sale.

  Also in August 1999, the Partnership sold the 588 unit Lake Nora Apartments
and the 336 unit Fox Club Apartments in Indianapolis, Indiana, to a single
buyer for a total of $29.1 million. The Partnership received net cash of $2.7
million, after paying off $24.5 million in mortgage debt, including an
$889,000 prepayment penalty, and the payment of various closing costs,
including a real estate brokerage commission of $873,000 to Carmel Realty. A
gain totaling $12.7 million was recognized on the sale.

  Further in August 1999, ART sold a 2.1 acre tract of its Keller land parcel
for $185,000, receiving net cash of $91,000 after paying down by $90,000 the
mortgage debt secured by such land parcel and the payment of various closing
costs, including a real estate brokerage commission of $6,000 to Carmel
Realty. A gain of $158,000 was recognized on the sale.

  In August 1999, ART sold its Sun City lots for $260,000, receiving net cash
of $240,000 after the payment of various closing costs, including a real
estate brokerage commission of $8,000 to Carmel Realty. A gain of $180,000 was
recognized on the sale.

  Also in August 1999, ART sold a 121.2 acre tract of its Katrina land parcel
for $6.6 million, receiving net cash of $5.5 million after the payment of
various closing costs, including a real estate brokerage commission of
$198,000 to Carmel Realty. A gain of $186,000 was recognized on the sale.

  In September 1999, the Partnership sold the 409 unit Oakhollow Apartments
and the 408 unit Windridge Apartments in Austin, Texas, to a single buyer for
a total of $35.5 million. The Partnership received net cash of $7.8 million
after paying off $22.2 million in mortgage debt, including a $912,000
prepayment penalty and the payment of various closing costs, including a real
estate brokerage commission of $1.1 million paid to Carmel Realty. In
conjunction with the sale, the partnership provided $2.1 million in purchase
money financing secured by limited partnership units in two limited
partnerships owned by the buyer. The financing bears interest at 16.0% per
annum, requires monthly payments of interest only at 6.0%, beginning in
February 2000 and a $200,000 principal paydown in December 1999, and matures
in August 2000. The Partnership has an option to obtain the buyer's general
and limited partnership interests in full satisfaction of the financing. A
gain of $24.2 million was recognized on the sale.

  Further in September 1999, ART sold a 13.6 acre tract of its Frisco Bridges
land parcel for $2.6 million, receiving no net cash after paying down by $2.1
million the mortgage debt secured by such land parcel and the payment of
various closing costs, including a real estate brokerage commission of $61,000
to Carmel Realty. A gain of $403,000 was recognized on the sale.

                                      15
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  In September 1999, ART sold a 6.2 acre tract of its Plano Parkway land
parcel for $900,000 receiving net cash of $208,000 after paying down by
$650,000 the mortgage debt secured by such land parcel and the payment of
various closing costs, including a real estate brokerage commission of $27,000
to Carmel Realty. A loss of $40,000 was recognized on the sale.

  Also in September 1999, ART sold four tracts totaling 185.6 acres of its
Keller, Scout and Scoggins land parcels for $3.5 million, receiving net cash
of $758,000 after paying down by $2.5 million the mortgage debt secured by
such land parcels and the payment of various closing costs, including a real
estate brokerage commission of $105,000 to Carmel Realty. A gain of $1.8
million was recognized on the sale.

  Further in September 1999, ART sold a 1.3 acre tract of its Vista Ridge land
parcel for $715,000, receiving net cash of $665,000 after the payment of
various closing costs, including a real estate brokerage commission of $21,000
to Carmel Realty. A gain of $538,000 was recognized on the sale.

  In November 1998, a newly-formed controlled partnership with ART as the
Class B limited partner and a wholly-owned subsidiary of ART as the 1%
Managing General Partner, purchased two apartments with a total of 423 units
in Indianapolis, Indiana, for $7.2 million, paying $14,000 in cash, assuming
$5.9 million in mortgage debt and issuing $1.3 million in Class A limited
partner units. In June 1999, ART relinquished it's general and Class B limited
partner interests. A provision for loss of $2.0 million was recognized.

NOTE 5. INVESTMENT IN EQUITY INVESTEES

  Real estate entities. The Company's investment in equity investees at
September 30, 1999, included equity securities of three publicly traded Real
Estate Investment Trusts (collectively the "REITs"), Continental Mortgage and
Equity Trust ("CMET"), Income Opportunity Realty Investors, Inc. ("IORI") and
Transcontinental Realty Investors, Inc. ("TCI"), and interests in real estate
joint ventures and partnerships. BCM, the Company's advisor, also serves as
advisor to the REITs.

  The Company accounts for its investment in the REITs and the joint venture
partnerships using the equity method. Substantially all of the equity
securities of the REITs are pledged as collateral for borrowings. See NOTE 8.
"MARGIN BORROWINGS."

  The Company's investment in real estate entities, accounted for using the
equity method, at September 30, 1999, was as follows:

<TABLE>
<CAPTION>
                          Percentage     Carrying     Equivalent
                              of         Value of      Investee    Market Value
                           Ownership    Investment    Book Value   of Investment
                              at            at            at            at
                         September 30, September 30, September 30, September 30,
Investee                     1999          1999          1999          1999
--------                 ------------- ------------- ------------- -------------
<S>                      <C>           <C>           <C>           <C>
CMET....................     41.3%        $16,108       $36,074       $24,488
IORI....................     30.4           3,269         7,203         2,439
TCI.....................     31.4          13,680        32,145        14,851
                                          -------                     -------
                                           33,057                     $41,778
                                                                      =======
Other...................                    7,608
                                          -------
                                          $40,665
                                          =======
</TABLE>

  The difference between the carrying value of the Company's investment and
the equivalent investee book value is being amortized over the life of the
properties held by each investee.


                                      16
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Management continues to believe that the market value of each of the REITs
undervalues their assets and the Company may, therefore, continue to increase
its ownership in these entities in 1999.

  Set forth below is summarized results of operations of equity investees for
the nine months ended September 30, 1999:

<TABLE>
   <S>                                                                 <C>
   Revenues........................................................... $120,044
   Equity in income of partnerships...................................    3,454
   Property operating expenses........................................   74,412
   Depreciation.......................................................   16,818
   Interest expense...................................................   38,928
                                                                       --------
   (Loss) before gains on sale of real estate.........................   (6,660)
   Gains on sale of real estate.......................................   22,601
                                                                       --------
   Net income......................................................... $ 15,941
                                                                       ========
</TABLE>

  The Company's share of equity investees' loss before gains on the sale of
real estate was $2.2 million for the nine months ended September 30, 1999, and
its share of equity investees' gains on sale of real estate was $7.5 million
for the nine months ended September 30, 1999.

  The Company's cash flow from the REITs is dependent on the ability of each
of them to make distributions. In the first nine months of 1999, distributions
totaling $935,000 were received from the REITs.

  In the first nine months of 1999, ART purchased a total of $366,000 of
equity securities of the REITs.

NOTE 6. MARKETABLE EQUITY SECURITIES--TRADING PORTFOLIO

 Since 1994, the Company has been purchasing equity securities of entities
other than those of the REITs and NRLP to diversify and increase the liquidity
of its margin accounts. In the first nine months of 1999, the Company
purchased $2.2 million and sold $2.5 million of such securities. These equity
securities are considered a trading portfolio and are carried at market value.
At September 30, 1999, the Company recognized an unrealized decrease in the
market value of its trading portfolio securities of $1.8 million. Also in the
first nine months of 1999, the Company realized a net gain of $130,000 from
the sale of trading portfolio securities and received $4,000 in dividends.
Unrealized and realized gains and losses on trading portfolio securities are
included in other income in the accompanying Consolidated Statements of
Operations.

NOTE 7. NOTES PAYABLE

  In February 1999, the Partnership obtained mortgage financing secured by the
unencumbered 124,200 sq. ft. Melrose Business Park in Oklahoma City, Oklahoma,
in the amount of $900,000, receiving net cash of $870,000 after the payment of
various closing costs, including a mortgage brokerage and equity refinancing
fee of $9,000 to BCM. The mortgage bears interest at a variable rate,
currently 8.75% per annum, requires monthly payments of principal and interest
of $8,000 and matures in February 2019.

  Also in February 1999, the Partnership obtained mortgage financing secured
by the unencumbered 54,649 sq. ft. 56 Expressway Office Building in Oklahoma
City, Oklahoma, in the amount of $1.7 million, receiving net cash of $1.7
million after the payment of various closing costs, including a mortgage
brokerage and equity refinancing fee of $17,000 to BCM. The mortgage bears
interest at a variable rate, currently 8.75% per annum, requires monthly
payments of principal and interest of $15,000 and matures in February 2019.

                                      17
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  In March 1999, ART obtained second mortgage financing on its Frisco Bridges
land parcel in the amount of $2.0 million. The mortgage bears interest at
12.5% per annum with interest and principal due at maturity in November 1999.

  Also in March 1999, the Las Colinas I term loan lender provided additional
financing on ART's Stagliano, Dalho, Bonneau and Valley Ranch III land parcels
in the amount of $2.2 million. The proceeds from this financing along with an
additional $1.4 million in cash were used to pay off the $3.1 million in
mortgage debt secured by such land parcels. A mortgage brokerage and equity
refinancing fee of $22,000 was paid to BCM.

  At March 31, 1999, the mortgage debt secured by ART's McKinney I, II, III,
IV, V and Dowdy land parcels in the amount of $15.2 million matured. ART and
the lender reached an agreement to extend the mortgage's maturity to September
1999 in exchange for, among other things, ART's payment of an extension fee.
In October 1999, ART refinanced its McKinney Corners land for a total of $8.6
million. The Las Colinas I term loan lender provided $4.1 million of mortgage
financing secured by 283.3 acres of McKinney Corners land and a second lender
provided $4.5 million of mortgage financing secured by 82.0 acres of the
McKinney Corners land. The net financing proceeds and $6.6 million in cash
were used to payoff the $15.2 million mortgage debt secured by such land
parcels and the payment of various closing costs. The new $4.5 million
mortgage bears interest at 14.0% per annum, requires monthly payments of
interest only and matures in October 2000.

  In April 1999, ART refinanced the matured mortgage debt secured by its
Yorktown land in the amount of $4.8 million, receiving net cash of $580,000
after paying off $4.0 million in mortgage debt and the payment of various
closing costs, including a mortgage brokerage and equity refinancing fee of
$48,000 to BCM. The mortgage bears interest at prime plus 4.5%, currently
12.75% per annum, requires monthly interest only payments, a principal payment
of $368,000 in July 1999 and matures in April 2000.

  In May 1999, the Partnership obtained mortgage financing secured by the
unencumbered 257 unit Pines Apartments in Little Rock, Arkansas, and by a $5.0
million note receivable secured by second liens on two parcels of land in
Denton County and Tarrant County, Texas, in the amount of $4.0 million. The
Partnership received net cash of $3.9 million after the payment of various
closing costs, including a mortgage brokerage and equity refinancing fee of
$40,000 to BCM. The mortgage bears interest at 14.0% per annum, requires
monthly payments of interest only and matures in May 2000. In September 1999,
the Partnership refinanced the mortgage debt in the amount of $3.1 million.
The Partnership used the net refinancing proceeds and cash of $1.1 million to
pay off the $4.0 million of mortgage debt and the payment of various closing
costs, including a mortgage brokerage and equity refinancing fee of $31,000
paid to BCM. The new mortgage bears interest at a variable rate, currently
8.3% per annum, requires monthly payments of principal and interest of $24,552
and matures in April 2001.

  Also in May 1999, the Las Colinas I term loan lender provided additional
financing secured by ART's Plano Parkway land parcel in the amount of $2.0
million. The proceeds from this financing along with an additional $831,000 in
cash were used to payoff the remaining $2.7 million in mortgage debt secured
by such land parcel and the payment of various closing costs.

  In June 1999, the Partnership obtained mortgage financing secured by the
unencumbered 100 unit Stonebridge Apartments in Florissant, Missouri, in the
amount of $3.0 million. The Partnership received net cash of $2.9 million
after the payment of various closing costs, including a mortgage brokerage and
equity refinancing fee of $30,000 to BCM. The mortgage bears interest at 8.33%
per annum, requires monthly payments of principal and interest of $23,814 and
matures in July 2002.

  In July 1999, the Partnership obtained mortgage financing secured by the
unencumbered 76 unit Bridgestone Apartments in Friendswood, Texas, in the
amount of $2.1 million. The Partnership received net cash of $2.0

                                      18
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

million after the payment of various closing costs, including a mortgage
brokerage and equity refinancing fee of $21,000 to BCM. The mortgage bears
interest at 7.72% per annum, requires monthly payments of principal and
interest of $15,144 and matures in August 2009.

  In August 1999, the Partnership refinanced the mortgage debt secured by the
102 unit Whispering Pines Apartments in Canoga Park, California, in the amount
of $3.5 million, receiving net cash of $1.1 million after paying off $2.2
million in mortgage debt, the funding of required escrows and the payment of
various closing costs, including a mortgage brokerage and equity refinancing
fee of $35,000 to BCM. The new mortgage bears interest at 7.84% per annum,
requires monthly payments of principal and interest of $24,931 and matures in
September 2009.

  Also in August 1999, ART received an additional $2.7 million from its Las
Colinas I lender on a 56.0 acre tract of its Katrina land parcel. ART received
net cash of $2.6 million after the payment of various closing costs.

  Further in August 1999, ART refinanced the mortgage debt secured by its
Mason/Goodrich land in the amount of $4.1 million. ART received net cash of
$710,000 after paying off $1.8 million in mortgage debt secured by such land
parcel, paying down by $1.0 million its mortgage debt secured by its Frisco
Bridges land parcel and the payment of various closing costs, including a
mortgage brokerage and equity refinancing fee of $41,000 to BCM. The new
mortgage bears interest at prime plus 4.5%, currently 12.75% per annum,
requires monthly interest only payments and matures in August 2000.

  In September 1999, the Partnership obtained mortgage financing secured by
the unencumbered 209 unit Blackhawk Apartments in Indianapolis, Indiana, in
the amount of $4.1 million. The Partnership received net cash of $4.0 million,
after the payment of various closing costs, including a mortgage brokerage and
equity refinancing fee of $41,000 to BCM. The mortgage bears interest at a
variable rate, currently 8.38% per annum, requires monthly payments of
principal and interest of $32,923 and matures in April 2001.

  Related Party. In 1998 and the first nine months of 1999, GCLP funded $94.7
million of a then $95.0 million loan commitment to ART. The loan is secured
by: (1) second liens on an office building in Minnesota, three apartments in
Mississippi and 130.54 acres of land in Texas, (2) by the stock of ART
Holdings, Inc., a wholly-owned subsidiary of ART that owns 3,268,535 units of
NRLP as of October 29, 1999 and (3) the stock of NMC. The loan bears interest
at 12.0% per annum, requires monthly payments of interest only and matures in
November 2003. In September 1999, the board of GCLP approved an increase in
the loan commitment to $125.0 million. In February 1999, ART made a $999,000
paydown on the loan. In October 1999, GCLP funded an additional $5.5 million
and received a paydown of $150,000. The loan balance is eliminated in
consolidation.

  In December 1998, as required by the Cash Distribution Agreement, NMC, the
general partner of the Partnership, assumed responsibility for repayment to
the Partnership of the $12.2 million paid by the Partnership to the Moorman
Litigation plaintiff class members and legal counsel. The loan bears interest
at the 90 day LIBOR (London InterBank Offered Rate) plus 2.0% per annum,
currently 7.3% per annum, adjusted every 90 days and requires annual payments
of accrued interest plus principal payments of $500,000 in each of the first
three years, $750,000 in each of the next three years, $1.0 million in each of
the next three years, with payment in full of the remaining balance in the
tenth year. The note is guaranteed by ART. The note matures upon the earlier
of the liquidation or dissolution of the Partnership, NMC ceasing to be
general partner or ten years from March 24, 1999, the date of the first cash
distribution to the Moorman Litigation plaintiff class members. The loan
balance is eliminated in consolidation.

NOTE 8. MARGIN BORROWINGS

  The Company has margin arrangements with various brokerage firms which
provide for borrowing of up to 50% of the market value of the Company's
marketable equity securities. The borrowings under such margin

                                      19
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

arrangements are secured by equity securities of the REITs, NRLP and the
Company's trading portfolio and bear interest rates ranging from 7.0% to
11.0%. Margin borrowing totaled $36.5 million at September 30, 1999.

  In August 1996, the Company consolidated its then existing NRLP margin debt
held by various brokerage firms into a single loan. At December 1998, the loan
had a principal balance of $5.0 million. In February 1999, the loan was paid
off.

NOTE 9. INCOME TAXES

  Financial statement income varies from taxable income principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated
losses. The Company had no taxable income or provision for income taxes in the
nine months ended September 30, 1999, due to operating loss carryforwards.

NOTE 10. OPERATING SEGMENTS

  Significant differences among the accounting policies of the Company's
operating segments as compared to the Company's consolidated financial
statements principally involve the calculation and allocation of general and
administrative expenses. Management evaluates the performance of the operating
segments and allocates resources to each of them based on their operating
income and cash flow. A reconciliation of expenses that are not reflected in
the segments is $12.6 million and $5.9 million of general and administrative
expenses for the nine months ended September 30, 1999 and 1998, respectively.
There are no intersegment revenues and expenses and the Partnership conducts
all of its business within the United States.

  Presented below is the operating income of the reportable operating segments
for the nine months ended September 30, and segment assets at September 30.

<TABLE>
<CAPTION>
                             Commercial                               Pizza
           1999              Properties Apartments Hotels    Land    Parlors Receivables  Total
           ----              ---------- ---------- ------- --------  ------- ----------- --------
<S>                          <C>        <C>        <C>     <C>       <C>     <C>         <C>
Operating revenue..........   $ 22,136   $ 74,727  $24,965 $    297  $22,753   $   --    $144,878
Operating expenses.........     11,887     44,711   17,716    6,464   19,509       --     100,287
Interest income............        --         --       --       --       --      5,029      5,029
Interest expense--notes
 receivable................        --         --       --       --       --        784        784
                              --------   --------  ------- --------  -------   -------   --------
Operating income (loss)....   $ 10,249   $ 30,016  $ 7,249 $ (6,167) $ 3,244   $ 4,245   $ 48,836
                              ========   ========  ======= ========  =======   =======   ========
Depreciation/amortization..   $  3,086   $  7,558  $ 1,884 $    --   $   968   $   --    $ 13,496
Interest on debt...........      7,404     24,427    3,582   17,640      695       --      53,748
Capital expenditures.......      6,726        408    1,279    1,149      740       --      10,302
Assets.....................    176,388    214,310   71,939  314,210   21,357    64,519    862,723

Property Sales:

<CAPTION>
                                        Apartments Hotels    Land                         Total
                                        ---------- ------- --------                      --------
<S>                          <C>        <C>        <C>     <C>       <C>     <C>         <C>
Sales price................              $116,350  $25,000  $19,461                      $160,811
Cost of sales..............                54,338   17,122    2,044                        73,504
                                         --------  ------- --------                      --------
Gain on sales..............              $ 62,012  $ 7,878  $17,417                      $ 87,307
                                         ========  ======= ========                      ========
</TABLE>

                                      20
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
                             Commercial                                Pizza
           1998              Properties Apartments  Hotels    Land    Parlors Receivables  Total
           ----              ---------- ---------- -------- --------  ------- ----------- --------
<S>                          <C>        <C>        <C>      <C>       <C>     <C>         <C>
Operating revenue..........   $12,042    $ 7,930   $ 24,541 $    585  $21,344    $ --     $ 66,442
Operating expenses.........     7,097      4,847     18,114    4,134   18,329      --       52,521
Interest income............       --         --         --       --       --       169         169
Interest expense--notes
 receivable................       --         --         --       --       --       --          --
                              -------    -------   -------- --------  -------    -----    --------
Operating income (loss)....   $ 4,945    $ 3,083   $  6,427 $ (3,549) $ 3,015    $ 169    $ 14,090
                              =======    =======   ======== ========  =======    =====    ========
Depreciation/amortization..   $ 1,148    $ 1,198   $  1,597 $    --   $   740    $ --     $  4,683
Interest on debt...........     2,568      3,099      3,571   14,016      341      --       23,595
Capital expenditures.......     5,985        --       1,142      141      787      --        8,055
Assets.....................    35,085     69,908    111,148  255,836   22,421      298     494,696
<CAPTION>
                                                              Land                         Total
                                                            --------                      --------
<S>                          <C>        <C>        <C>      <C>       <C>     <C>         <C>
Sales price................                                 $ 47,343                      $ 47,343
Cost of sales..............                                   32,651                        32,651
                                                            --------                      --------
Gain on sale...............                                 $ 14,692                      $ 14,692
                                                            ========                      ========
</TABLE>

NOTE 11. COMMITMENTS AND CONTINGENCIES

  In 1996, ART was admitted to the Valley Ranch, L.P. partnership as general
partner and Class B limited partner. The existing general and limited partners
converted their general and limited partner interests into 8,000,000 Class A
limited partner units. The units are exchangeable into shares of the Company's
Series E Cumulative Convertible Preferred Stock at the rate of 100 Class A
units for each share of Series E Preferred Stock. In February 1999, the Class
A limited partner notified the Company that it intended to convert 100,000
Class A units into 1,000 shares of Series E Preferred Stock. In March 1999,
ART purchased the 100,000 Class A units for $100,000. ART subsequently reached
an agreement with the other Class A limited partners to acquire the remaining
7,900,000 Class A units for $1.00 per unit. In April 1999, 900,000 units were
purchased and an additional 1.0 million units were purchased in July 1999, and
1.0 million units were purchased in October 1999, with 1.0 million units to be
purchased in January 2000 and 2.0 million units in May 2001 and May 2002.

  Litigation. The Company is involved in various lawsuits arising in the
ordinary course of business. In the opinion management, the outcome of these
lawsuits will not have a material impact on the Company's financial condition,
results of operations or liquidity.

NOTE 12. SUBSEQUENT EVENTS

  In October 1999, the Partnership sold the 838 unit Tanglewood Apartments in
Arlington Heights, Illinois, for $41.0 million. The Partnership received net
cash of $8.4 million, after paying off $28.9 million in mortgage debt,
including a $1.2 million prepayment penalty, and the payment of various
closing costs, including a real estate brokerage commission of $1.1 million to
Triad Realty, Inc. ("Triad"), an affiliate of BCM, the Company's advisor. A
gain will be recognized on the sale.

  Also in October 1999, the Partnership collected in full a mortgage note
receivable with a principal balance of $740,000.

  Further in October 1999, GCLP funded a $4.7 million loan to Realty Advisors,
Inc., the corporate parent of BCM. The loan is secured by a pledge of 100% of
Realty Advisors, Inc.'s interest in American Reserve Life

                                      21
<PAGE>

                          AMERICAN REALTY TRUST, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Insurance Company. The loan bears interest at a variable rate, currently
10.25% per annum and matures in November 2001. All principal and interest are
due at maturity.

  In October 1999, ART sold the 140 unit Edgewater Gardens Apartments in
Biloxi, Mississippi, for $5.7 million. ART received net cash of $2.7 million,
after paying off $2.9 million in mortgage debt and the payment of various
closing costs, including a real estate brokerage commission of $171,000 to
Triad. A gain will be recognized on the sale.

  Also in October 1999, ART sold a 12.4 acre tract of its Frisco Bridges land
parcel for $2.0 million. The proceeds from the sale of $1.1 million plus an
additional $800,000 in cash were used to paydown by $1.9 million the mortgage
debt secured by such land parcel and the payment of various closing costs,
including a real estate brokerage commission of $61,000 to Triad. ART also
provided purchase money financing of $813,000. The purchase money financing
bears interest at 7.0% per annum, and matures in January 2000. All principal
and interest are due at maturity. A gain will be recognized on the sale.

  Further in October 1999, ART obtained a construction loan of $7.2 million on
Two Hickory Centre, a 96,126 sq. ft. office building under construction in
Farmers Branch, Texas. ART received net cash of $1.9 million after the payment
of various closing costs, including a mortgage brokerage and equity
refinancing fee of $72,000 to BCM.

  In October 1999, ART received an additional funding of $2.0 million under
the terms of the mortgage loan secured by the Williamsburg Hospitality House.

                                      22
<PAGE>

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

Introduction

  ART was organized in 1961 to provide investors with a professionally
managed, diversified portfolio of equity real estate and mortgage loan
investments selected to provided opportunities for capital appreciation as
well as current income.

Liquidity and Capital Resources

  General. Cash and cash equivalents at September 30, 1999 totaled $1.8
million, compared with $11.5 million at December 31, 1998. Although ART
anticipates that during the remainder of 1999 it will generate excess cash
flow from property operations, as discussed below, such excess cash is not
sufficient to discharge all of ART's debt obligations as they mature. ART will
therefore continue to rely on externally generated funds, including borrowings
against its investments in various real estate entities, the sale or
refinancing of properties and, to the extent available or necessary,
borrowings from its advisor and affiliates, which totaled $12.4 million at
September 30, 1999, to meet its debt service obligations, pay taxes, interest
and other non-property related expenses.

  At December 31, 1998, notes payable totaling $164.2 million had either
scheduled maturities or required principal reduction payments during 1999.
During the first nine months of 1999, ART either extended, refinanced, paid
down, paid off or received commitments from lenders to extend or refinance
$155.6 million of the debt scheduled to mature in 1999.

  Net cash used in operating activities increased to $30.9 million in the nine
months ended September 30, 1999, from $11.8 million in the nine months ended
September 30, 1998. Fluctuations in the components of cash flow used in
operating activities are discussed in the following paragraphs.

  Net cash from pizza operations (sales less cost of sales) in the nine months
ended September 30, 1999, increased to $3.4 million from $1.2 million in 1998.
The increase was due to the benefits of a more aggressive marketing and
advertising strategy.

  Net cash from property operations (rents collected less payments for
expenses applicable to rental income) increased to $27.1 million in the nine
months ended September 30, 1999, from $13.0 million in 1998. The increase was
primarily attributable to the 36 apartments purchased by ART in 1998 and the
consolidation of the Partnership effective January 1, 1999. See NOTE 2.
"SYNTEK ASSET MANAGEMENT, L.P."

  The Company expects an increase in cash flow from property operations during
the remainder of 1999. Such increase is expected to be derived from a full
year of operations of the 36 apartments acquired by ART during 1998 and the
consolidation of the Partnership effective January 1, 1999. ART is also
expecting substantial land sales and selected property sales to generate
additional cash.

  Interest collected increased to $3.7 million in the nine months ended
September 30, 1999, from $381,000 in 1998. The increase was attributable to
loans funded by the Partnership in 1998 and 1999.

  Interest paid increased to $54.8 million in the nine months ended September
30, 1999, from $23.9 million in 1998. The increase was primarily due to debt
incurred or assumed relating to 16 land parcels and 36 apartments purchased by
ART in 1998, six land parcels and an office building in 1999 and the
consolidation of the Partnership's operations effective January 1, 1999.

  Advisory fee paid increased to $4.0 million in the nine months ended
September 30, 1999, from $2.8 million in 1998. The increase was due to an
increase in ART's gross assets, the basis for such fee.

                                      23
<PAGE>

  General and administrative expenses paid increased to $12.7 million in the
nine months ended September 30, 1999, from $5.9 million in 1998. The increase
was primarily attributable to the consolidation of the Partnership's
operations effective January 1, 1999.

  Distributions from equity investees decreased to $935,000 in the nine months
ended September 30, 1999, from $9.2 million in 1998. Included in 1998
distributions were special distributions totaling $6.1 million from TCI and
the Partnership that had been accrued at December 31, 1997.

  Other cash from operating activities increased to $5.5 million in the nine
months ended September 30, 1999, from a use of $3.1 million in 1998. The
increase was due to a decrease in property prepaids, other miscellaneous
property receivables and property escrows.

  Real Estate. In January 1999, GCLP sold the 199 unit Olde Town Apartments in
Middleton, Ohio, for $4.6 million, receiving net cash of $4.4 million after
the payment of various closing costs.

  In February 1999, ART purchased Frisco Bridges land, a 336.8 acre parcel of
unimproved land in Collin County, Texas, for $46.8 million, paying $7.8
million in cash and obtained mortgage and seller financing totaling $39.0
million.

  Also in February 1999, ART sold a 4.6 acre tract of its Plano Parkway land
parcel for $1.2 million, receiving net cash of $1.1 million after the payment
of various closing costs. Simultaneously with the sale, the mortgage debt
secured by such land parcel was refinanced in the amount of $7.1 million. The
net cash from the sale and refinancing along with an additional $921,000 in
cash was used to payoff the $8.9 million seller financing secured by the land
parcel.

  Further in February 1999, GCLP sold the 225 unit Santa Fe Apartments in
Kansas City, Missouri, for $4.6 million, receiving net cash of $4.3 million
after the payment of various closing costs.

  In February 1999, GCLP sold the 480 unit Mesa Ridge Apartments in Mesa,
Arizona, for $19.5 million, receiving net cash of $793,000 after the payment
of various closing costs and remitting $17.8 million to the lender to hold in
escrow pending collateral substitution. In May 1999, the 259 unit Bavarian
Woods Apartments and the 149,855 sq. ft. Westwood Shopping Center were
approved as substitute collateral. GCLP received net cash of $7.8 million
after paying off $7.2 million in mortgage debt secured by the Bavarian Woods
Apartments and Westwood Shopping Center, funding required escrows and closing
costs on the two properties, and paying off $2.2 million on the Mesa Ridge
debt, including a $133,000 prepayment penalty.

  In March 1999, ART sold a 13.0 acre tract of its Rasor land parcel for $1.6
million, receiving no net cash after paying down by $1.5 million the mortgage
debt secured by such land parcel and the payment of various closing costs.

  Also in March 1999, ART sold two tracts totaling 9.9 acres of its Mason/
Goodrich land parcel for $956,000, receiving net cash of $33,000 after paying
down by $860,000 the mortgage debt secured by such land parcel and the payment
of various closing costs.

  Further in March 1999, ART sold in a single transaction, a 13.7 acre tract
of its McKinney II land parcel and a 20.0 acre tract of its McKinney IV land
parcel for a total of $7.7 million, receiving no net cash after paying down by
$5.5 million the mortgage debt secured by such land parcels, the funding of
required escrows and the payment of various closing costs.

  In April 1999, GCLP sold the 166 unit Horizon East Apartments in Dallas,
Texas, for $4.0 million, receiving net cash of $1.2 million after paying off
$2.6 million in mortgage debt and the payment of various closing costs.

  Also in April 1999, GCLP sold the 120 unit Lantern Ridge Apartments in
Richmond, Virginia, for $3.4 million, receiving net cash of $880,000 after the
payment of various closing costs.

                                      24
<PAGE>

  In May 1999, ART sold a 15.0 acre tract of its Vista Ridge land parcel for
$2.6 million, receiving net cash of $552,000 after paying down by $1.8 million
the mortgage debt secured by such land parcel and the payment of various
closing costs.

  Also in May 1999, ART purchased Rowlett Creek land, a 80.4 acre parcel of
unimproved land in Collin County, Texas, for $1.6 million. ART paid $400,000
in cash and obtained seller financing of the remaining $1.2 million of the
purchase price.

  Further in May 1999, ART purchased Leone land, a 8.2 acre parcel of
unimproved land in Irving, Texas, for $1.5 million. ART paid $300,000 in cash
and obtained seller financing of the remaining $1.2 million of the purchase
price.

  In May 1999, a newly-formed controlled partnership in which a wholly-owned
subsidiary of ART is the 1.0% managing general partner and ART is the 99%
Class B limited partner purchased the 177,211 sq. ft. Encino Executive Plaza
in Los Angeles, California, for $40.1 million. The partnership paid $2.8
million in cash, assumed $34.6 million in mortgage debt, obtained $1.1 million
in seller financing and issued 1.6 million Class A limited partner units.

  Also in May 1999, ART sold two tracts of its Plano Parkway land parcel
totaling 24.5 acres for $4.9 million. ART received no net cash after paying
down by $4.7 million the mortgage debt secured by such land parcel and the
payment of various closing costs.

  Further in May 1999, ART acquired the remaining joint venture interest in
its 3.6 acre Atlanta land parcel for $1.3 million in cash. Subsequently, ART
exchanged the Atlanta land parcel for 147.4 acres of land in Nashville,
Tennessee and $1.3 million in cash.

  In May 1999, the Partnership purchased the 27,000 sq. ft. Cooley Office
Building in Farmers Branch, Texas, for $3.5 million, paying $1.5 million in
cash and obtaining mortgage financing of $2.0 million.

  In June 1999, ART sold two tracts of its Frisco Bridges land parcel totaling
77.6 acres for $16.9 million. ART received net cash of $2.7 million after
paying off $2.0 million in mortgage debt secured by such land parcel, paying
down by $11.0 million another mortgage secured by such land parcel and the
payment of various closing costs.

  Also in June 1999, ART sold a 6.0 acre tract of its Plano Parkway land
parcel for $1.6 million. ART received no net cash after paying down by $1.6
million the mortgage debt secured by such land parcel and the payment of
various closing costs.

  Further in June 1999, ART sold its Continental Hotel for $25.0 million,
receiving a nonrefundable deposit of $5.0 million and providing short term
financing of $20.0 million. In the third quarter of 1999, ART received $1.5
million in principal payments.

  In June 1999, ART purchased Vineyards II land, a 18.6 acre parcel of
unimproved land in Tarrant County, Texas, for $6.3 million. ART paid $2.3
million in cash and obtained seller financing of the remaining $4.0 million of
the purchase price.

  Also in June 1999, the Partnership purchased the Lake Houston land, a 33.58
acre parcel of unimproved land in Harris County, Texas, for $2.5 million in
cash. A construction loan in the amount of $13.7 million was obtained enabling
development of a 312 unit apartment complex on the site. Construction costs
are expected to approximate $16.7 million. Construction was begun in July 1999
and completion is expected in the third quarter of 2000.

  Further in June 1999, GCLP sold the 368 unit Barcelona Apartments in Tampa,
Florida, for $9.8 million, receiving net cash of $2.2 million after paying off
$7.0 million in mortgage debt and the payment of various closing costs.

                                      25
<PAGE>

  In July 1999, the Stone Meadows land, a 13.5 acre parcel of unimproved land
in Harris County, Texas, was purchased by the Partnership from ART at the
land's carrying value of $2.2 million. The Partnership paid $1.3 million in
cash and assumed $974,000 in mortgage debt. The mortgage debt was paid in full
at maturity in October 1999.

  Also in July 1999, ART sold a .13 acre tract of its JHL Connell land parcel
for $53,000. ART received no net cash after paying down by $49,000 the
mortgage debt secured by such land parcel and the payment of various closing
costs.

  Further in July 1999, ART sold two tracts totaling 11.8 acres of its Plano
Parkway land parcel for $3.8 million. ART received net cash of $1.7 million
after paying down by $2.0 million the mortgage debt secured by such land
parcel and the payment of various closing costs.

  In July 1999, ART sold two tracts totaling 6.7 acres of its Vista Ridge land
parcel for $1.4 million. ART received net cash of $329,000 after paying down
by $975,000 the mortgage debt secured by such land parcel and the payment of
various closing costs.

  Also in July 1999, ART purchased Monterey land, a 85.0 acre parcel of
unimproved land in Riverside County, California, for $5.6 million. ART paid
$1.1 million in cash and obtained seller financing for the remaining $4.5
million of the purchase price.

  Further in July 1999, ART purchased Wakefield land, a 70.0 acre parcel of
unimproved land in Allen, Texas, for $1.3 million. ART paid $688,000 in cash
and obtained seller financing of the remaining $612,000 of the purchase price.

  In July 1999, ART sold a 1.4 acre tract of its Valley Ranch land parcel for
$163,000. ART received net cash of $159,000 after the payment of various
closing costs.

  In August 1999, the Partnership sold the 152 unit Country Place Apartments
in Round Rock, Texas, for $6.0 million, receiving net cash of $1.3 million
after the payment of various closing costs. The purchaser assumed the $4.3
million mortgage secured by the property.

  Also in August 1999, the Partnership sold the 588 unit Lake Nora Apartments
and the 336 unit Fox Club Apartments in Indianapolis, Indiana, to a single
buyer for $29.1 million. The Partnership received net cash of $2.7 million
after paying off $24.5 million in mortgage debt, including an $889,000
prepayment penalty and the payment of various closing costs.

  Further in August 1999, ART sold a 2.1 acre tract of its Keller land parcel
for $185,000, receiving net cash of $91,000 after paying down by $90,000 the
mortgage debt secured by such land parcel and the payment of various closing
costs.

  In August 1999, ART sold its Sun City lots for $260,000, receiving net cash
of $240,000 after the payment of various closing costs.

  Also in August 1999, ART sold a 121.2 acre tract of its Katrina land parcel
for $6.6 million, receiving net cash of $5.5 million after the payment of
various closing costs.

  In September 1999, the Partnership sold the 409 unit Oakhollow Apartments
and the 408 unit Windridge Apartments in Austin, Texas, to a single buyer for
a total of $35.5 million. The Partnership received net cash of $7.8 million
after paying off $22.2 million in mortgage debt, including a $912,000
prepayment penalty and the payment of various closing costs. In conjunction
with the sale, the partnership provided $2.1 million in purchase money
financing secured by limited partnership units in two limited partnerships
owned by the buyer.

  Further in September 1999, ART sold a 13.6 acre tract of its Frisco Bridges
land parcel for $2.6 million, receiving no net cash after paying down by $2.1
million the mortgage debt secured by such land parcel and the payment of
various closing costs.

                                      26
<PAGE>

  In September 1999, ART sold a 6.2 acre tract of its Plano Parkway land
parcel for $900,000 receiving net cash of $208,000 after paying down by
$650,000 the mortgage debt secured by such land parcel and the payment of
various closing costs.

  Also in September 1999, ART sold four tracts totaling 185.6 acres of its
Keller, Scout and Scoggins land parcels for $3.5 million, receiving net cash
of $758,000 after paying down by $2.5 million the mortgage debt secured by
such land parcels and the payment of various closing costs.

  Further in September 1999, ART sold a 1.3 acre tract of its Vista Ridge land
parcel for $715,000, receiving net cash of $665,000 after the payment of
various closing costs.

  In October 1999, the Partnership sold the 838 unit Tanglewood Apartments in
Arlington Heights, Illinois, for $41.0 million. The Partnership received net
cash of $8.4 million, after paying off $28.9 million in mortgage debt,
including a $1.2 million prepayment penalty, and the payment of various
closing costs.

  In October 1999, ART sold the 140 unit Edgewater Gardens Apartments in
Biloxi, Mississippi, for $5.7 million. ART received net cash of $2.7 million,
after paying off $2.9 million in mortgage debt and the payment of various
closing costs.

  Also in October 1999, ART sold a 12.4 acre tract of its Frisco Bridges land
parcel for $2.0 million. The proceeds from the sale of $1.1 million plus an
additional $800,000 in cash were used to paydown by $1.9 million the mortgage
debt secured by such land parcel and the payment of various closing costs. ART
also provided purchase money financing of $813,000.

  Notes Receivable. Principal payments were received totaling $40.0 million in
the nine months ended September 30, 1999.

  In February 1999, GCLP funded a $5.0 million unsecured loan to Davister
Corp., which at September 30, 1999, owned approximately 15.8% of the
outstanding shares of the Company's Common Stock. The loan is guaranteed by
BCM, the Company's advisor.

  In August 1998, the Partnership funded a $6.0 million loan to Centura
Holdings, L.L.C., a subsidiary of Centura Tower, Ltd. The loan is secured by
6.4 acres of land in Farmers Branch, Texas. In February 1999, the Partnership
funded an additional $37,500.

  Also in August 1998, the Partnership funded a $3.7 million loan to JNC. The
loan was secured by a contract to purchase 387 acres of land in Collin County,
Texas, and the personal guaranty of JNC's principal partner. In January 1999,
ART purchased the contract from JNC and acquired the land. In connection with
purchase, GCLP funded $6.0 million on a then $95.0 million loan commitment to
ART. A portion of the funds were used to payoff the $3.7 million JNC note to
the Partnership, including accrued but unpaid interest, paydown $1.3 million
on the JNC line of credit and paydown $820,000 on the JNC Frisco Panther
Partners, Ltd. loan.

  In 1997 and 1998, the Partnership funded a $3.8 million loan to Stratford &
Graham Developers, L.L.C. The loan is secured by 1,485 acres of unimproved
land in Riverside County, California. In the first nine months of 1999, the
Partnership funded an additional $316,000, increasing the loan balance to $4.1
million.

  Also in 1998 and 1999, the Partnership funded a $5.0 million loan commitment
to JNC. The loan is secured by a second lien on 1,791 acres of land in Denton
County, Texas, and a second lien on 220 acres of land in Tarrant County,
Texas. In January 1999, the Partnership received a $1.3 million paydown on the
loan.

  During 1998 and 1999, the Partnership funded a total of $31.0 million of a
$52.5 million loan commitment to Centura. The loan was secured by 2.2 acres of
land and an office building under construction in Farmers Branch, Texas. In
August 1999, $24.1 million of the note and accrued but unpaid interest was
converted to a partnership interest.

                                      27
<PAGE>

  In 1999, ART funded $1.7 million of a $2.0 million loan commitment to
Lordstown, L.P. The loan is secured by a second lien on land in Ohio and
Florida, by 100% of the general and limited partner interest in Partners
Capital, Ltd. and a profits interest in subsequent land sales.

  Also in 1999, ART funded $1.5 million of a $2.4 million loan commitment to
261, L.P. The loan is secured by 100% of the general and limited partner
interest in Partners Capital, Ltd. and a profits interest in subsequent land
sales.

  During 1998 and through August 1999, the Partnership funded a total of $2.1
million of a $2.2 million loan commitment to Varner Road Partners, L.L.C. The
loan is secured by 129.77 acres of land in Riverside County, California, and a
pledge of the stock of the borrower.

  In 1997, 1998 and 1999, the Partnership funded $1.8 million of a $2.1
million loan commitment to Bordeaux. The loan is secured by (1) a 100%
interest in Bordeaux, which owns a shopping center in Oklahoma City, Oklahoma;
(2) 100% of the stock of Bordeaux Investments One, Inc., which owns
approximately 6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and
(3) the personal guarantees of the Bordeaux partners. In October 1999, the
Partnership received a paydown of $724,000.

  In July 1999, the Partnership received a total of $2.5 million on the
collection of two mortgage notes receivable, including accrued but unpaid
interest.

  In August and September 1999, the Partnership received a total of $3.3
million in paydowns on a mortgage note receivable and funded a $2.6 million
mortgage loan.

  Also in October 1999, the Partnership collected in full a mortgage note
receivable with a principal balance of $740,000.

  Further in October 1999, GCLP funded a $4.7 million loan to Realty Advisors,
Inc., the corporate parent of BCM. The loan is secured by a pledge of the
stock of an insurance subsidiary.

  Notes Payable. In February 1999, the Partnership obtained mortgage financing
secured by the unencumbered 54,649 sq. ft. 56 Expressway Office Building in
Oklahoma City, Oklahoma, in the amount of $1.7 million. The Partnership
received net cash of $1.7 million after the payment of various closing costs.

  Also in February 1999, the Partnership obtained mortgage financing secured
by the unencumbered 124,200 sq. ft. Melrose Business Park in Oklahoma City,
Oklahoma, in the amount of $900,000. The Partnership received net cash of
$870,000 after the payment of various closing costs.

  In March 1999, ART obtained a second mortgage financing on its Frisco
Bridges land in the amount of $2.0 million.

  Also in March 1999, the Las Colinas I term loan lender provided additional
financing on ART's Stagliano, Dalho, Bonneau and Valley Ranch III land parcels
in the amount of $2.2 million. The proceeds from this financing along with an
additional $1.4 million in cash were used to pay off the $3.1 million in
mortgage debt secured by such land parcels.

  In April 1999, ART refinanced the matured mortgage debt secured by its
Yorktown land in the amount of $4.8 million, receiving net cash of $580,000
after paying off $4.0 million in mortgage debt and the payment of various
closing costs.

  In May 1999, the Partnership obtained mortgage financing secured by the
unencumbered 257 unit Pines Apartments in Little Rock, Arkansas, and by a $5.0
million note receivable secured by second liens on two parcels of land in
Denton County and Tarrant County, Texas in the amount of $4.0 million. The
Partnership received net cash of $3.9 million after the payment of various
closing costs. In September 1999, the mortgage debt was refinanced in the
amount of $3.1 million. The refinancing proceeds and cash of $1.1 million was
used to payoff the $4.0 million of mortgage debt and the payment of various
closing costs.

                                      28
<PAGE>

  Also in May 1999, the Las Colinas I term loan lender provided additional
financing secured by ART's Plano Parkway land parcel in the amount of $2.0
million. The proceeds from this financing along with an additional $831,000 in
cash were used to payoff the remaining $2.7 million in mortgage debt secured
by such land parcel and the payment of various closing costs.

  In June 1999, the Partnership obtained mortgage financing secured by the
unencumbered 100 unit Stonebridge Apartments in Florissant, Missouri, in the
amount of $3.0 million. The Partnership received net cash of $2.9 million
after the payment of various closing costs.

  In July 1999, the Partnership obtained mortgage financing secured by the
unencumbered 76 unit Bridgestone Apartments in Friendswood, Texas, in the
amount of $2.1 million. The Partnership received net cash of $2.0 million
after the payment of various closing costs.

  In August 1999, the Partnership refinanced the mortgage debt secured by the
102 unit Whispering Pines Apartments in Canoga Park, California, in the amount
of $3.5 million. The Partnership received net cash of $1.1 million after
paying off $2.2 million in mortgage debt, the funding of required escrows and
the payments of various closing costs.

  Also in August 1999, ART received an additional $2.7 million from its Las
Colinas I lender on a 56.0 acre tract of its Katrina land parcel. ART received
net cash of $2.6 million after the payment of various closing costs.

  Further in August 1999, ART refinanced the mortgage debt secured by its
Mason/Goodrich land in the amount of $4.1 million. ART received net cash of
$710,000 after paying off $1.8 million in mortgage debt secured by such land
parcel, paying down by $1.0 million its mortgage debt secured by its Frisco
Bridges land parcel and the payment of various closing costs.

  In September 1999, the Partnership obtained mortgage financing secured by
the unencumbered 209 unit Blackhawk Apartments in Indianapolis, Indiana, in
the amount of $4.1 million. The Partnership received net cash of $4.0 million
after the payment of various closing costs.

  In October 1999, ART obtained a construction loan of $7.2 million on Two
Hickory Centre, a 96,126 sq. ft. office building under construction in Farmers
Branch, Texas. ART received net cash of $1.9 million after the payment of
various closing costs.

  At March 31, 1999, the mortgage debt secured by ART's McKinney I, II, III,
IV, V and Dowdy land in the amount of $15.2 million matured. ART and the
lender reached an agreement to extend the mortgage's maturity to September
1999, in exchange for, among other things, ART's payment of an extension fee.
In October 1999, ART refinanced its McKinney Corners land for a total of $8.6
million. The Las Colinas I term loan lender provided $4.1 million and a second
lender provided $4.5 million. The net financing proceeds and $6.6 million in
cash were used to payoff the existing $15.2 million mortgage debt secured by
such land parcels and the payment of various closing costs.

  Equity Investments. During the fourth quarter of 1988, ART began purchasing
shares of REITs that have the same advisor as the Company. It is anticipated
that additional equity securities of the REITs will be acquired in the future
through open--market and negotiated transactions to the extent that ART's
liquidity permits.

  Equity securities of the REITs and NRLP held by the Company may be deemed to
be "restricted securities" under Rule 144 of the Securities Act of 1933
("Securities Act"). Accordingly, the Company may be unable to sell such equity
securities other than in a registered public offering or pursuant to an
exemption under the Securities Act for a one--year period after they are
acquired. Such restrictions may reduce the Company's ability to realize the
full fair market value of such investments if it attempted to dispose of such
securities in a short period of time.


                                      29
<PAGE>

  The Company's cash flow from its REIT investments is dependent on the
ability of each of the entities to make distributions. The Company received
distributions totaling $935,000 in the nine months ended September 30, 1999,
from the REITs.

  The Company has margin arrangements with various brokerage firms which
provide for borrowing up to 50% of the market value of the Company's
marketable equity securities. The borrowings under such margin arrangements
are secured by equity securities of the REITs, NRLP and the Company's trading
portfolio and bear interest rates ranging from 7.0% to 11.0%. Margin borrowing
totaled $36.5 million at September 30, 1999.

  ART expects that it will be necessary for it to sell $50.1 million, $16.8
million of its land holdings during each of the next two years to satisfy the
debt on such land as it matures. If ART is unable to sell at least the minimum
amount of land to satisfy the debt obligations on such land as it matures, or,
if it was not able to extend such debt, would either sell other of its assets
to pay such debt or return the property to the lender.

  Management reviews the carrying values of the Company's properties and
mortgage note receivables at least annually and whenever events or a change in
circumstances indicate that impairment may exist. Impairment is considered to
exist if, in the case of a property, the future cash flow from the property
(undiscounted and without interest) is less than the carrying amount of the
property. For notes receivable impairment is considered to exist if it is
probable that all amounts due under the terms of the note will not be
collected. In those instances where impairment is found to exist, a provision
for loss is recorded by a charge against earnings. The Company's mortgage note
receivable review includes an evaluation of the collateral property securing
such note. The property review generally includes selective property
inspections, a review of the property's current rents compared to market
rents, a review of the property's expenses, a review of maintenance
requirements, a review of the property's cash flow, discussions with the
manager of the property and a review of properties in the surrounding area.

Commitments and Contingencies

  In 1996, ART was admitted to the Valley Ranch, L.P. partnership as general
partner and Class B Limited Partner. The existing general and limited partners
converted their general and limited partner interest into 8,000,000 Class A
units. In March 1999, ART purchased the 100,000 Class A units for $100,000.
ART subsequently reached agreement with the Class A unitholders to acquire the
remaining 7,900,000 Class A units for $1.00 per unit. In April 1999, 900,000
units were purchased and 1.0 million units were purchased in July 1999 and 1.0
million units were purchased in October 1999 , with 1.0 million units to be
purchased in January 2000 and 2.0 million units in May 2001 and May 2002.

Results of Operations

  For the three and nine months ended September 30, 1999, the Company reported
net income of $10.1 million and $1.9 million, compared to net loss of $3.6
million and net income of $2.1 million for the three and nine months ended
September 30, 1998. The primary factors contributing to the Company's results
are discussed in the following paragraphs.

  Pizza parlor sales and cost of sales were $7.8 million and $6.7 million,
respectively for the three months ended September 30, 1999, compared to $7.3
million and $6.3 million in 1998. Sales and cost of sales were $22.8 million
and $19.5 million for the nine months ended September 30, 1999, compared to
$21.3 million and $18.3 million in 1998. The increased sales were primarily
attributable to the effects of a more aggressive marketing and advertising
strategy, offset by an increase in cost of sales attributable to record high
cheese prices in January 1999. Cheese prices returned to more historic levels
in February 1999, but began escalating again late in the second quarter of
1999 and reached record highs again in September 1999. In October 1999, cheese
prices began to decline and have continued to do so.

                                      30
<PAGE>

  Rents increased to $40.2 million and $122.1 million in the three and nine
months ended September 30, 1999, from $15.5 million and $45.1 million in 1998.
Rents from commercial properties increased to $22.1 million for nine months
ended September 30, 1999, from $12.0 million in 1998. Rents from hotels of
$25.0 million in the nine months ended September 30, 1999, approximated the
$24.5 million in 1998. Rents from apartments increased to $74.7 million in the
nine months ended September 30, 1999, from $7.9 million in 1998. The increase
in commercial property rents was primarily attributable to the consolidation
of the Partnership's operations effective January 1, 1999, and the increase in
apartment rent was due to the 36 apartments acquired by ART in 1998 and the
consolidation of the Partnership's operations effective January 1, 1999.
Rental income is expected to increase significantly in 1999 as a result of the
consolidation of the Partnership's operations. See NOTE 2. "SYNTEK ASSET
MANAGEMENT, L.P."

  Property operations expense increased to $27.4 million and $80.8 million in
the three and nine months ended September 30, 1999, from $12.0 million and
$34.2 million in 1998. Property operations expense for commercial properties
increased to $11.9 million in the nine months ended September 30, 1999, from
$7.1 million in 1998. Hotel property operations expense of $17.7 million in
the nine months ended September 30, 1999 approximated the $18.1 million in
1998. Land property operations expense increased to $6.5 million in the nine
months ended September 30, 1999 from $4.1 million in 1998. Apartments property
operations expense increased to $44.7 million in the nine months ended
September 30, 1999, from $4.8 million in 1998. The increase in commercial
property operations expense was primarily due to the consolidation of the
Partnerships operations effective January 1, 1999. The increase for land was
primarily due to the 16 land parcels acquired by ART in 1998 and six land
parcels in 1999. The increase for apartments property operations expense was
due to the 36 apartments acquired by ART in 1998 and the consolidation of the
Partnership's operations effective January 1, 1999. Property operations
expense is expected to increase significantly in the remainder of 1999 as a
result of the consolidation of the Partnership's operations.

  Interest income from mortgage notes receivable increased to $1.3 million and
$5.0 million in the three and nine months ended September 30, 1999 from
$15,000 and $169,000 in 1998. The increase is attributable to loans funded by
the Partnership in 1998. Interest income is expected to increase significantly
in the remainder of 1999 as a result of the consolidation of the Partnership's
operations.

  Other income was income of $300,000 in the three months ended September 30,
1999 and a loss of $740,000 in the nine months ended September 30, 1999
compared to income of $486,000 and a loss of $454,000 in 1998. An unrealized
increase in market value of trading portfolio securities of $33,000 and a
decrease of $1.8 million was recognized in the three and nine months ended
September 30, 1999, compared to income of $1.1 million and a loss of $2.6
million in 1998. See NOTE 6. "MARKETABLE EQUITY SECURITIES--TRADING
PORTFOLIO."

  Interest expense increased to $23.0 million and $68.5 million in the three
and nine months ended September 30, 1999, from $12.4 million and $35.7 million
in 1998. Of the increases, $7.3 million and $21.4 million was attributable to
the consolidation of the Partnership's operations effective January 1, 1999,
$3.3 million and $4.8 million was due to 16 parcels of land acquired by ART in
1998 and, $3.4 million was due to the six land parcels acquired by ART in
1999, and for the nine months ended September 30, 1999, $3.9 million was due
to the 36 apartments acquired by ART in 1998. In the remainder of 1999
interest expense is expected to continue to rise due to the 36 apartments
acquired in 1998 and the consolidation of the Partnership's operations.

  Depreciation expense increased to $4.5 million and $13.5 million in the
three and nine months ended September 30, 1999, from $1.5 million and $4.7
million in 1998. The increases were attributable to the consolidation of the
Partnership's operations effective January 1, 1999, and the acquisition by ART
of 36 apartments in 1998. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

  Advisory fees increased to $1.5 million and $4.0 million in the three and
nine months ended September 30, 1999, from $1.1 million and $2.8 million in
1998. The increases were attributable to an increase in ART's gross assets,
the basis for such fee. Such fee is expected to increase as ART's gross assets
increase.

                                      31
<PAGE>

  General and administrative expenses increased to $3.8 million and $12.7
million in the three and nine months ended September 30, 1999, from $1.7
million and $5.9 million in 1998. The increases were primarily attributable to
the consolidation of the Partnership's operations effective January 1, 1999.

  In the three and nine months ended September 30, 1999, a provision for loss
of $2.1 million was recognized. Such loss relates to the June 1999
relinquishment by ART of its general and Class B limited partner interests in
a controlled partnership that owned two apartments in Indianapolis, Indiana.
There was no provision for loss in 1998. See NOTE 4. "REAL ESTATE." In the
third quarter of 1998 a provision for loss of $3.0 million was recognized to
writedown ART's Valley Ranch land to its estimated realizable value less
estimated costs of sale. Such writedown was necessitated by an increase in the
acreage designated as flood plain.

  Minority interest increased to $23.1 million and $38.6 million in the three
and nine months ended September 30, 1999, from $658,000 and $1.6 million in
1998. The increase was attributable to the consolidation of the Partnership.
See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

  Equity in income of investees decreased to $1.9 million and $5.3 million in
the three and nine months ended September 30, 1999 from $6.1 million and $27.4
million in 1998. The decreases in equity income were attributable to the
consolidation of the Partnership. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

  In the nine months ended September 30, 1999, gains on sale of real estate of
$86.1 million were recognized. In January 1999, a gain of $2.2 million was
recognized on the sale of the Olde Towne Apartments. In February 1999, gains
were recognized on the sales of: (1) a 4.6 acre tract of its Plano Parkway
land; (2) the Santa Fe Apartments; and, (3) the Mesa Ridge Apartments,
totaling $11.4 million. In March 1999, gains were recognized on the sales of:
(1) a 9.9 acre tract of Mason/Goodrich land; (2) two tracts of McKinney II and
McKinney IV land totaling 33.7 acres; and (3) a 13.0 acre tract of Rasor land,
totaling $4.3 million. In April 1999, a gain was recognized of $1.8 million on
the sale of the Horizon East Apartments and $2.3 million on the sale of the
Lantern Ridge Apartments. In May 1999, gains were recognized of: (1) $913,000
on the sale of a 15.0 acre tract of Vista Ridge land and (2) $1.1 million on
the sale of two tracts totaling 24.5 acres of Plano Parkway land. In June
1999, gains were recognized on the sale of: (1) two tracts totaling 77.6 acres
of Frisco Bridges land; (2) 6.6 acres of Plano Parkway land; (3) the
Continental Hotel; and, (4) the Barcelona Apartments, totaling $14.9 million.
In July 1999, gains were recognized on the sale of: (1) .13 acres of JH
Connell land; (2) two tracts totaling 11.8 acres of Plano Parkway land; (3)
two tracts totaling 6.7 acres of Vista Ridge land; (4) 1.4 acres of Valley
Ranch land, totaling $2.6 million. In August 1999, gains were recognized on
the sale of: (1) Country Place Apartments; (2) Lake Nora Apartments; (3) Fox
Club Apartments; (4) 2.1 acres of Keller land; (5) Sun City lots; and (6)
121.2 acres of Katrina land, totaling $16.5 million. In September 1999, gains
were recognized on the sale of: (1) Oakhollow Apartments; (2) Windridge
Apartments; (3) 13.6 acres of Frisco Bridges land; (4) four tracts totaling
185.6 acres of Keller, Scout and Scoggins land; and (5) 1.3 acres of Vista
Ridge land, totaling $27.0 million and a loss of $40,000 on the sale of 6.2
acres of Plano Parkway land.

  For the three months ended September 30, 1998, the Company recognized gains
from the sale of: (1) a 2.5 acre tract of the Las Colinas I land of $869,000;
(2) 60.0 acres of Parkfield land; (3) 10.5 acres of BP Las Colinas land; (4)
its Kamperman land; (5) 1.1 acres of Santa Clarita land totaling $5.7 million.
In the first six months of 1998 gains on the sale of real estate, totaling
$14.7 million were recognized from: (1) 81.3 acres of Parkfield land; (2)
Lewisville land; (3) 21.2 acres of Chase Oaks land; (4) 150.0 acres of Rasor
land; (5) Palm Desert land; (6) 39.4 acres of Valley Ranch land; (7) 2.5 acres
of Las Colinas I land; (8) 10.5 acres of BP Las Colinas land; (9) 1.1 acres of
Santa Clarita land; and (10) Kamperman land.

Environmental Matters

  Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition,

                                      32
<PAGE>

certain environmental laws impose liability for release of asbestos-containing
materials into the air and third parties may seek recovery from the Company
for personal injury associated with such materials.

  Management is not aware of any environmental liability relating to the above
matters that would have a material adverse effect on the Company's business,
assets or results of operations.

Inflation

  The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of properties and, correspondingly, the
ultimate gains to be realized by the Company from property sales.

Year 2000

  BCM has informed management that its computer hardware operating system and
computer software have been certified as year 2000 compliant.

  Carmel Realty Services, Ltd. ("Carmel, Ltd."), an affiliate of BCM that
performs property management services for the Company's properties, has
informed management that effective January 1, 1999, it began using year 2000
compliant computer hardware and property management software for ART's
commercial properties. With regard to the Company's apartments, Carmel, Ltd.
has informed management that its subcontractors are also using year 2000
compliant computer hardware and property management software.

  The Company has not incurred nor does it expect to incur any costs related
to its computer hardware and accounting and property management computer
software being modified, upgraded or replaced to make it year 2000 compliant.
Such costs have been or will be borne by either BCM, Carmel, Ltd. or the
property management subcontractors of Carmel, Ltd.

  Management has completed its evaluation of the Company's computer controlled
building systems, such as security, elevators, heating and cooling, etc. to
determine what systems are not year 2000 compliant. Management believes that
necessary modifications are insignificant and do not require significant
expenditures to make the affected systems year 2000 compliant, as enhanced
operating systems are readily available.

  The Company has or will have in place the year 2000 compliant systems that
will allow it to operate. The risks the Company faces are that certain of its
vendors will not be able to supply goods or services and that financial
institutions and taxing authorities will not be able to accurately apply
payments made to them. Management believes that other vendors are readily
available and that financial institutions and taxing authorities will, if
necessary, apply monies received manually. The likelihood of the above having
a significant impact on the Company's operations is negligible.

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<PAGE>

                          PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Proposed Transaction with American Realty Investors, Inc.

  On November 3, 1999, ART and the Partnership jointly announced the agreement
of their respective Boards to combine, in a tax free exchange, the two
entities into a new holding company to be named American Realty Investors,
Inc. ("ARI"). Under the proposal, ARI will distribute shares of its common
stock to ART stockholders and NRLP unitholders. NRLP unitholders, except for
ART, would receive one share of ARI common stock for each unit of NRLP held.
ART stockholders would receive .91 shares of ARI common stock for each share
of ART held. ART preferred stock would convert into one share of preferred
stock of ARI, having substantially the same rights as ART's preferred stock.
The share exchange and merger are subject to a vote of
stockholders/unitholders of both entities. Approval requires the vote of a
majority of the unitholders holding a majority of the Partnership's
outstanding units, and the vote of a majority of the stockholders holding a
majority of ART's outstanding shares of common and preferred stock. As of
November 3, 1999, ART owned approximately 56.2% of the outstanding units of
the Partnership and BCM owned approximately 30.0% of the outstanding units of
the Partnership and 56.9% of the outstanding shares of ART's common stock. A
date for the special meeting of the stockholders/unitholders to vote on the
merger proposal has not been set.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

  (a) Exhibits: The following exhibits are filed herewith or incorporated by
reference as indicated below.

<TABLE>
<CAPTION>
   Exhibit
   Number                  Description
   -------   ----------------------------------------
   <S>       <C>
    27.0     Financial Data Schedule, filed herewith.
</TABLE>

  (b) Reports on Form 8-K as follows:

  None.

                                      34
<PAGE>

                                SIGNATURE PAGE

  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.

                                          American Realty Trust, Inc.

                                                     /s/ Karl L. Blaha
                                          By: _________________________________
Date: November 12, 1999                                Karl L. Blaha
                                                         President

                                                   /s/ Thomas A. Holland
                                          By: _________________________________
Date: November 12, 1999                              Thomas A. Holland
                                               Executive Vice President and
                                                  Chief Financial Officer
                                                 (Principal Financial and
                                                    Accounting Officer)

                                      35
<PAGE>

                          AMERICAN REALTY TRUST, INC.

                                  EXHIBITS TO
                         QUARTERLY REPORT ON FORM 10-Q
                  For the Nine Months Ended September 30, 1999

<TABLE>
<CAPTION>
 Exhibit                                                                   Page
 Number                            Description                            Number
 -------                           -----------                            ------
 <C>     <S>                                                              <C>
  27.0   Financial Data Schedule........................................
</TABLE>


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