<PAGE>   1
                       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, 1995

                         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, Dallas, Texas         75231  
--------------------------------------------------------       ----------
      (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 Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No 
                                               ---      ---


                     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                      2,929,164            
----------------------------          --------------------------------
          (Class)                     (Outstanding at November 3, 1995)


                        Exhibit Index Appears on Page 27

                                  Page 1 of 28
<PAGE>   2
                         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,
                                                                     1995           1994    
                                                                 -------------   ------------
                                                                   (dollars in thousands)
<S>                                                                <C>            <C>
                     Assets
                     ------
Notes and interest receivable
  Performing.................................................      $ 47,713       $ 47,378
  Nonperforming, nonaccruing.................................         1,820          2,315
                                                                   --------       --------
                                                                     49,533         49,693

Real estate held for sale, net of accumulated
  depreciation ($5,098 in 1995 and $5,423 in 1994)...........        28,337         23,748

Less - allowance for estimated losses........................        (8,201)        (8,201)
                                                                   --------       -------- 
                                                                     69,669         65,240

Real estate held for investment, net of accumulated
  depreciation ($2,313 in 1995 and $1,396 in 1994)...........        28,538         27,950
Marketable equity securities, at market......................         3,148          1,309
Cash and cash equivalents....................................         1,155            193
Investments in real estate entities..........................        40,663         38,844
Other assets.................................................         3,996          3,826
                                                                   --------       --------

                                                                   $147,169       $137,362
                                                                    =======       ========

</TABLE>


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


                                       2
<PAGE>   3
                          AMERICAN REALTY TRUST, INC.
                    CONSOLIDATED BALANCE SHEETS - Continued


<TABLE>
<CAPTION>
                                                                  September 30,    December 31,
                                                                       1995            1994    
                                                                  ------------     ------------
                                                                    (dollars in thousands)
<S>                                                                <C>               <C>
      Liabilities and Stockholders' Equity
      ------------------------------------
Liabilities
Notes and interest payable..................................       $ 51,328          $ 45,695
Margin borrowing............................................         33,290            26,391
Accounts payable and other liabilities (including 
  $1,511 in 1995 and $1,505 in 1994 to affiliate)...........          8,703             8,921
                                                                   --------          --------

                                                                     93,321            81,007
 
Minority interest...........................................          1,097               461

Commitments and contingencies

Stockholders' equity
Common stock, $.01 par value; authorized
  16,667,000 shares, issued and outstanding
  2,929,164 shares..........................................             29                29
Paid-in capital.............................................         66,749            66,749
Accumulated (deficit).......................................        (14,027)          (10,884)
                                                                   --------          -------- 

                                                                     52,751            55,894
                                                                   --------          --------

                                                                   $147,169          $137,362
                                                                   ========          ========

</TABLE>


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


                                       3
<PAGE>   4
                         AMERICAN REALTY TRUST, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                              For the Three Months           For the Nine Months
                                              Ended September 30,            Ended September 30,  
                                             ---------------------        -------------------------
                                              1995           1994             1995           1994   
                                             ------         ------           ------         ------
                                                   (dollars in thousands, except per share)
<S>                                       <C>             <C>            <C>             <C>
Income
 Rents...............................     $   5,154       $   6,737       $    14,245     $  13,931
 Interest............................         1,173           1,104             3,753         2,909
 Equity in (losses) of 
 investees...........................        (1,410)         (1,042)           (4,369)       (2,114)
 Other...............................           739             461               700         1,179
                                          ---------        --------       -----------     ---------
                                              5,656           7,260            14,329        15,905

Expenses
 Property operations.................         3,004           4,752            10,216         9,990
 Interest............................         2,393           1,788             6,149         5,472
 Advisory and servicing fees
 to affiliate........................           328             295               871           920
 General and administrative..........           382             520             1,609         1,534
 Depreciation and  
 amortization........................           416             489             1,258         1,245
 Minority interest...................             -               -               671           158
                                          ---------       ---------       -----------     ---------
                                              6,523           7,844            20,774        19,319
                                          ---------       ---------       -----------     ---------

(Loss) before gain on
 sale of real estate and
 extraordinary gain..................          (867)           (584)           (6,445)       (3,414)
Gain on sale of real estate..........         1,596             910             2,544         1,143
Extraordinary gain...................           431             273               758           323
                                          ---------       ---------       -----------     ---------

Net income (loss)....................     $   1,160       $     599       $    (3,143)    $  (1,948)
                                          =========       =========       ===========     =========


Earnings per share
 Income (loss) before
 extraordinary gain..................     $     .25       $     .11        $    (1.33)    $    (.75)
 Extraordinary gain..................           .15             .09               .26           .10
                                          ---------       ---------        ----------     ---------

 Net income (loss)...................     $     .40       $     .20       $     (1.07)    $    (.65)
                                          =========       =========       ===========     =========


Weighted average Common shares
 used in computing earnings
 per share...........................     2,929,164       2,946,120         2,929,164     2,974,493
                                          =========       =========       ===========     =========
 
</TABLE>


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


                                       4
<PAGE>   5
                         AMERICAN REALTY TRUST, INC.
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 For the Nine Months Ended September 30, 1995


<TABLE>
<CAPTION>
                               Common Stock                                                     
                         -------------------------
                                                  Paid-in    Accumulated   Stockholders'              
                           Shares      Amount     Capital     Earnings        Equity   
                         ----------    ------     -------    -----------   -------------
                                             (dollars in thousands)
<S>                      <C>           <C>        <C>         <C>            <C>
Balance,
January 1, 1995......    2,929,164      $29      $66,749     $(10,884)      $55,894


Net (loss)...........          -         -          -          (3,143)       (3,143)
                         ---------      ---      -------     --------       ------- 


Balance, September 30,
1995.................    2,929,164      $29      $66,749     $(14,027)      $52,751
                         =========      ===      =======     ========       =======

</TABLE>


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


                                       5


<PAGE>   6
                         AMERICAN REALTY TRUST, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                               For the Nine Months
                                                                               Ended September 30,   
                                                                            ------------------------
                                                                              1995           1994   
                                                                            -------        -------
                                                                            (dollars in thousands)
<S>                                                                         <C>             <C>
Cash Flows From Operating Activities
  Rents collected.....................................................      $ 15,228       $ 13,019
  Interest and dividends collected....................................         4,579          2,818
  Distributions received from real estate
     investees' operating cash flow...................................         1,219          1,656
  Payments for property operations....................................       (11,220)        (8,918)
  Interest paid.......................................................        (6,154)        (4,655)
  Advisory and servicing fees paid to affiliate.......................          (871)          (920)
  General and administrative expenses paid............................        (1,626)        (1,912)
  Deferred borrowing costs............................................        (1,200)           -
  Other...............................................................           191           (245)
                                                                            --------       -------- 

     Net cash provided by operating activities........................           146            843


Cash Flows From Investing Activities
  Collections on notes receivable.....................................         1,423          2,327
  Notes receivable funded.............................................          (430)           -
  Proceeds from sale of real estate...................................        12,312            859
  Proceeds from sale of marketable equity
     securities.......................................................        11,307          5,969
  Purchase of marketable equity securities............................       (13,832)       (15,144)
  Investment in real estate entities..................................        (6,794)        (3,374)
  Purchase of real estate.............................................       (14,076)           -
  Real estate improvements............................................        (1,827)        (1,973)
                                                                            --------       -------- 

     Net cash (used in) investing activities..........................      (11,917)       (11,336)


Cash Flows From Financing Activities
  Proceeds from notes payable.........................................        23,700            710
  Payments on notes payable...........................................       (17,840)        (3,848)
  Southmark settlement payments.......................................           -             (450)
  Net collections (advances) to/from affiliates.......................           (23)         1,587
  Margin borrowings, net..............................................         6,896         12,629
                                                                            --------       --------

     Net cash provided by financing activities........................        12,733         10,628

     Net increase in cash and cash equivalents........................           962            135

Cash and cash equivalents, beginning of period....                               193            843
                                                                            --------       --------

Cash and cash equivalents, end of period..........                          $  1,155       $    978
                                                                            ========       ========

</TABLE>


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


                                       6
<PAGE>   7
                         AMERICAN REALTY TRUST, INC.
              CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued


<TABLE>
<CAPTION>
                                                                             For the Nine Months
                                                                             Ended September 30,   
                                                                       -------------------------------
                                                                          1995                 1994  
                                                                       ----------           ----------
                                                                            (dollars in thousands)
<S>                                                                    <C>                  <C>
Reconciliation of net (loss) to net cash provided
  by operating activities
  Net (loss)..............................................              $(3,143)             $(1,948)
  Adjustments to reconcile net (loss) to net cash
     provided by operating activities
     Extraordinary gain...................................                 (758)                (323)
     Depreciation and amortization........................                1,258                1,245
     Gain on sale of real estate..........................               (2,544)              (1,143)
     Distribution from real estate investees'
     operating cash flow..................................                1,219                1,656
     Equity in losses of investees........................                4,369                2,114
     Loss on decline in marketable equity securities                        408                  187
     Decrease in interest receivable......................                   64                   14
     Increase (decrease) in interest payable..............                 (173)                  34
     Decrease in other assets.............................                 (245)              (1,197)
     (Decrease) in accounts payable and
     other liabilities....................................                 (475)                (301)
     Other................................................                  166                  505
                                                                       --------              -------

       Net cash provided by operating activities..........             $    146              $   843
                                                                       ========              =======

Schedule of noncash investing activities

Carrying value of real estate acquired through
  assumption of debt with a carrying value of
  $6,080..................................................             $      -              $ 9,810

Carrying value of real estate obtained in
  satisfaction of a receivable with a carrying
  value of $125...........................................                    -                  125

</TABLE>


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


                                       7
<PAGE>   8
                         AMERICAN REALTY TRUST, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all 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,
1995 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995.  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, 1994 (the "1994 Form
10-K").

NOTE 2.  NOTES AND INTEREST RECEIVABLE

The borrower on a $1.7 million first mortgage note receivable secured by land
in Osceola, Florida failed to make required payments subsequent to August 10,
1993, including the payment of principal and interest due at the note's
maturity on November 1, 1993.  The Company instituted judicial foreclosure
proceedings and was awarded a summary judgment in January 1994.  During 1994,
the borrower paid the Company a total of $235,000 in nonrefundable fees to
delay foreclosure of the property.  In February and March 1995, the borrower
paid the Company a total of $35,000 to delay the foreclosure until April 24,
1995.  On April 21, 1995, the borrower filed for bankruptcy protection.  In
July 1995, the Company filed a motion with the bankruptcy court to lift the
court's stay and allow the Company to proceed with foreclosure.  In September,
the court denied the Company's motion to lift stay and the borrower was allowed
to file a plan of reorganization.  The bankruptcy court is expected to set a
hearing date on the borrower's plan of reorganization in late December 1995.
The note had a principal balance of $1.6 million at September 30, 1995.  The
Company does not expect to incur any loss upon foreclosure as the estimated
fair value of the collateral property, less estimated costs of sale, exceeds
the carrying value of the note.

As discussed in the Company's 1994 Form 10-K, the Company sold the Continental
Hotel and Casino in Las Vegas, Nevada for a $22.0 million wraparound mortgage
note receivable, a $500,000 unsecured note receivable, and $100,000 in cash in
June 1992.  The $500,000 note was paid off on July 30, 1993.  In April 1994,
the Company, the borrower and the underlying lienholder agreed to modify and
extend both the Company's wraparound mortgage note receivable and the
underlying liens.  The wraparound mortgage note receivable and the underlying
liens matured July 1, 1995.  The Company, the borrower and the underlying
lienholder agreed to extend the wraparound mortgage note receivable and the
underlying liens to December 31, 1995.  A one percent extension fee was added
to the principal balance of the wraparound note.  The monthly payments on both
the wraparound note and first lien remained at $175,000 per month as did the
other terms of the notes.  At September 30, 1995, the principal balance on the
wraparound note was $22.7 million and the principal balance of the underlying
liens was $4.0 million.





                                       8
<PAGE>   9
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 3.  REAL ESTATE

In February 1995, the Company sold the Boulevard Villas Apartments in Las
Vegas, Nevada, for $9.6 million.  The Company initially treated the  sale as a
financing transaction, the Company having provided the purchaser with the $1.6
million down payment, by loaning a like amount,  secured by a second lien on an
office building in Houston, Texas.  In March 1995, the office building was sold
and the Company's loan was paid in full.  The Company received net cash of $3.4
million from the sale of the apartment after the payoff of $5.9 million in
existing mortgage debt recognizing a gain of $924,000 on the sale.  The Company
paid a real estate brokerage commission of $288,000 to Carmel Realty, Inc.
("Carmel, Inc."), an affiliate of Basic Capital Management, Inc. ("BCM"), the
Company's advisor, based on the $9.6 million sales price.

In May 1995, the Company purchased four tracts of partially developed land in
Irving, Texas totaling 74.9 acres for $13.5 million. The Company paid a real
estate acquisition fee of $405,000 to Carmel, Inc., based on the $13.5 million
purchase price.  In connection with the acquisition, the Company borrowed $15.0
million under a term loan, which bears interest at the prime rate plus 4%,
(12.75% per annum at September 30, 1995), requires monthly interest only
payments, a 1% annual maintenance fee, principal reduction payments of $1.5
million on the first day of November 1995 and May 1996 and $3.0 million every
six months thereafter commencing November 1996, with the balance of principal
and accrued but unpaid interest due at maturity on May 1, 1998.  The loan is
secured by the land in Irving, Texas, a participation interest in two of the
Company's notes receivable, land in Atlanta, Georgia and 65,200 National
Realty, L.P. ("NRLP") limited partner units owned by the Company.  The Company
received net cash proceeds of $210,000 after the purchase of land and payment
of associated closing costs.  In June 1995, the Company borrowed an additional
$3.0 million from this lender increasing the term loan principal balance to
$18.0 million.  This $3.0 million borrowing is due on December 31, 1995.

In September 1995, the Company sold 6.9 acres of the acquired 74.9 acres in
Irving, Texas for $2.9 million in cash.  In accordance with the provisions of
the term loan, the Company applied the net proceeds of the sale, $2.6 million,
to pay down the term loan.  Such paydown was credited against the principal
payments the Company was otherwise required to make in the remainder of 1995.
The principal balance of the term loan was $15.5 million at September 30, 1995
and a $2.0 million  principal payment remains due by December 31, 1995.  The
Company recognized a $1.5 million gain on the sale.

In October 1995, the Company purchased an additional tract of partially
developed land in Irving, Texas totaling 92.6 acres for $7.1 million.  The
Company paid a real estate acquisition fee of $212,000 to Carmel, Inc. based on
the $7.1 million purchase price.  The Company paid $959,000 cash and borrowed
the remaining $6.1 million.  The purchase money note bears interest at the
prime rate plus 5%, (13.75% at inception), requires monthly interest only
payments through September





                                       9
<PAGE>   10
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 3.  REAL ESTATE (Continued)

30, 1996, four quarterly deferred commitment fee payments of $50,000 and
$50,000 monthly principal payments beginning October 1, 1996.  The principal
balance, accrued but unpaid interest and a $500,000 "maturity fee" is due at
the loan's December 1, 1996 maturity.  The Company has also agreed to pledge to
the lender, as additional collateral for the loan, $2.0 million of newly issued
shares of the Company's Common or Preferred Stock.

In 1991, the Company purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas.  Through December
31, 1994, a total of 172 of the residential lots had been sold.  In the first
nine months of 1995 three additional lots were sold and at September 30, 1995
23 lots were remaining.

Also in 1991, the Company purchased all of the capital stock of a company which
owned a 60% interest in a joint venture, which in turn owned 113 partially
developed residential lots in Denton, Texas.  Through December 31, 1994, 109 of
the residential lots had been sold.  In the first six months of 1995 the final
four lots were sold for an aggregate gain of $24,000.

NOTE 4.      SYNTEK ASSET MANAGEMENT, L.P.

In July 1989, the Company acquired Southmark Corporation's ("Southmark") 96%
limited partner interest in SAMLP, the general partner of  NRLP and National
Operating, L.P. ("NOLP"), the operating partnership of NRLP.

Gene E. Phillips, a Director and Chairman of the Board of the Company until
November 16, 1992, is a general partner, and until March 4, 1994, William S.
Friedman, a Director and President of the Company until December 31, 1992, was
also general partner of SAMLP.  In February 1992, in accordance with the
provisions of the settlement of certain adversary proceedings in the Southmark
bankruptcy, the Company assigned to Southmark a 19.2% limited partner interest
in SAMLP.

NRLP, SAMLP and Messrs. Phillips and Friedman were, among others, the
defendants in a class action lawsuit arising from the formation of NRLP.  An
agreement settling such lawsuit for the above mentioned defendants became
effective on July 5, 1990.  The settlement agreement provides for, among other
things; (i) the appointment of an NRLP oversight committee, (ii) the
establishment of specified annually increasing targets for five years relating
to the price of NRLP's units of limited partner interest, (iii) a limitation
and deferral or waiver of NRLP's reimbursement to SAMLP of certain future
salary costs, (iv) a deferral or waiver of certain future compensation to
SAMLP, (v) the required distribution to unitholders of all of NRLP's cash from
operations in excess of certain renovation costs unless the NRLP oversight
committee approves  alternative uses for such cash from operations, (vi) the
issuance of unit purchase warrants to members of the plaintiff class, and (vii)
the contribution by the then individual general partners of





                                       10
<PAGE>   11
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 4.      SYNTEK ASSET MANAGEMENT, L.P. (Continued)

$2.5 million to NRLP over a four-year period.  In accordance with the
indemnification provisions of SAMLP's agreement of limited partnership, SAMLP
indemnified Messrs. Phillips and Friedman, the individual general partners, at
the time, of SAMLP, for the $2.5 million payment to NRLP.  The final annual
installment of principal and interest was paid by SAMLP in May 1994.

The settlement agreement provides for the withdrawal and replacement of SAMLP
as general partner if the unit price targets are not met for two consecutive
anniversary dates.  The unit price targets for the first and second anniversary
dates were not met.  On July 8, 1992, SAMLP notified the NRLP oversight
committee of the failure of NRLP to meet the unit price targets for two
successive years and that it expects to resign as general partner of NRLP and
NOLP.

The withdrawal of SAMLP as general partner would require NRLP to purchase
SAMLP's general partner interest (the "Redeemable General Partner Interest") at
its then fair value, and to pay certain fees and other compensation as provided
in the partnership agreement.  Syntek Asset Management, Inc. ("SAMI"), the
managing general partner of SAMLP, has calculated the fair value of such
Redeemable General Partner Interest to be $33.0 million at December 31, 1994,
before reduction for the principal balance ($4.2 million at September 30, 1995)
and accrued interest ($5.0 million at September 30, 1995) on the note
receivable from SAMLP for its original capital contribution to NRLP.  There can
be no assurance that such amount at the time of any such withdrawal will not be
substantially higher or lower.  The NRLP oversight committee previously has
informed NRLP that it calculated the amount of such Redeemable General Partner
Interest, to be less than the amount calculated by SAMI.  Any dispute
pertaining to the amount of the Redeemable General Partner Interest upon the
withdrawal of SAMLP as general partner of NRLP and NOLP, will be resolved by
the Judge appointed pursuant to the class action settlement to supervise its
implementation (the "Supervising Judge").  NRLP's purchase of the Redeemable
General Partner Interest could have an adverse effect on the Company's
investment in limited partner units of NRLP ($14.0 million at September 30,
1995).

In January 1995, NRLP, SAMLP, the NRLP oversight committee and William H.
Elliott executed an Implementation Agreement which provides for the nomination
of an entity controlled by Mr. Elliott as successor general partner and for the
resolution of all related matters under the class action settlement.  The
Implementation Agreement was subject to receipt of a notice from Mr. Elliott
that he consented to stand for election as the successor general partner.  On
April 20, 1995, Mr. Elliott formally notified the parties that he would stand
for such election.

On June 29, 1995, the Implementation Agreement was submitted to the Supervising
Judge for tentative approval and approval of the notice to be sent to the
original class members.  As of November 3, 1995, the





                                       11
<PAGE>   12
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4.      SYNTEK ASSET MANAGEMENT, L.P. (Continued)

tentative approval of the Supervising Judge had not been obtained and therefore
the class members had not been notified.  Upon final approval by the
Supervising Judge, the proposal to elect the successor general partner will be
submitted to the NRLP unitholders for a vote.  In addition, the unitholders
will vote upon amendments to NRLP's partnership agreement which relate to the
proposed compensation of the successor general partner and other related
matters.

Upon approval by the unitholders, SAMLP shall withdraw as general partner and
the successor general partner shall take office.  If the required approvals are
obtained, it is anticipated that the successor general partner may be elected
and take office during the first or second quarter of 1996.

The Implementation Agreement provides that SAMLP, and its affiliates owning
units in NRLP, shall not vote to remove the successor general partner, except
for removal with cause, for a period of thirty months from the date the
successor general partner takes office.  In addition, the Supervising Judge
shall make a determination of any amounts which NRLP may owe to SAMLP upon
SAMLP's withdrawal as general partner and any amounts which SAMLP or its
affiliates may owe to NRLP.  Any amounts which NRLP may be determined to owe to
SAMLP may be paid over a period of time to be determined by the parties on
terms which shall not hinder NRLP's ability to meet its other financial
obligations.

Upon the election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated.  If the
successor general partner nominee is not elected, the existing settlement shall
remain in full force and effect and all of the provisions of the Implementation
Agreement shall be voided.

On April 24, 1995, the Company's Board of Directors approved the Company's
entering into a comfort and indemnification letter whereby the Company would
agree to indemnify Mr. Elliott and any entity controlled by Mr. Elliott which
is elected to serve as the successor general partner of NRLP and NOLP.  Such
indemnification will stand behind any indemnification to which Mr. Elliott or
any entity controlled by Mr. Elliott may be entitled to under the NRLP
partnership agreement.

NOTE 5.  INVESTMENT IN REAL ESTATE ENTITIES

The Company's investment in real estate entities includes (i) equity securities
of three publicly traded real estate investment trusts (collectively the
"Trusts"), Continental Mortgage and Equity Trust ("CMET"), Income Opportunity
Realty Trust ("IORT") and Transcontinental Realty Investors, Inc. ("TCI"), (ii)
units of limited partner interest of NRLP, (iii) a general partnership interest
in NRLP and NOLP, through the Company's 76.8% limited partner interest in SAMLP
and (iv) interests in real estate joint venture partnerships.  BCM, the
Company's advisor, serves as advisor to the Trusts, and performs certain
administrative and management functions for NRLP and NOLP on behalf of SAMLP.





                                       12
<PAGE>   13
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 5.  INVESTMENT IN REAL ESTATE ENTITIES (Continued)

The Company accounts for its investment in the Trusts and joint venture
partnerships under the equity method of accounting.  In the case of NRLP, the
Company continues to account for its investment under the equity method due to
the pending change in NRLP's general partner from SAMLP to an unaffiliated
third party.  (See NOTE 4. "SYNTEK ASSET MANAGEMENT, L.P.")  Substantially all
of the Company's equity securities of the Trusts and NRLP (as well as other
securities owned by the Company) are pledged as collateral for borrowings.  See
NOTE 7. "NOTES AND INTEREST PAYABLE."

The Company's investment in real estate entities, accounted for using the
equity method, at September 30, 1995 was as follows:

<TABLE>
<CAPTION>
               Percentage                Carrying                                
            of the Company's             Value of           Equivalent Investee                 Market Value
             Ownership at             Investment at           Book Value at                    of Investment at
Investee  September 30, 1995       September 30, 1995       September 30, 1995                September 30, 1995
--------  ------------------       ------------------       ------------------                ------------------
<S>                <C>                  <C>                      <C>                              <C>
NRLP               52.0%                 $13,996                 $      *                           $33,776
CMET               36.9                   12,224                  28,364                             15,612
IORT               25.9                    2,759                  23,814                              4,026
TCI                27.1                    7,643                   6,269                             10,983
                                         -------                                                   --------
                                          36,622                                                    $64,397
                                                                                                    =======
General partner                  
interest in NRLP                 
and NOLP                                   7,436
Other                                     (3,395)
                                         ------- 
                                         $40,663
                                         =======
                    
--------------------
</TABLE>

*  At September 30, 1995, NRLP re ported a deficit partners' capital. The
   Company's share of NRLP's revaluation equity at December 31, 1994, was $144.9
   million.  Revaluation equity is defined as the difference between the
   appraised value of the partnership's real estate, adjusted to reflect the
   partnership's estimate of disposition costs, and the amount of the mortgage
   notes payable and accrued interest encumbering such property as reported in
   NRLP's Annual Report on Form 10-K for the year ended December 31, 1994.

The Company's management continues to believe that the market value of each of
the Trusts and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1995.


                     [THIS SPACE INTENTIONALLY LEFT BLANK.]


                                       13
<PAGE>   14
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 5.  INVESTMENT IN REAL ESTATE ENTITIES (Continued)

Set forth below is summarized combined results of operations for the real
estate entities the Company accounts for using the equity method for the nine
months ended September 30, 1995:

<TABLE>
      <S>                                                          <C>
      Revenues....................................................  $ 150,778
      Property operating expenses.................................   (100,114)
      Depreciation................................................    (17,985)
      Interest expense............................................    (46,265)
      Provision for losses........................................       (541)
      Gain on sale of real estate.................................      1,636
      Extraordinary gain..........................................      1,341
                                                                    ---------
      Net (loss)..................................................  $ (11,150)
                                                                    =========
</TABLE>

The Company's cash flow from the Trusts and NRLP is dependent on the ability of
each of the entities to make distributions.  TCI's distribution policy provides
for an annual determination of distributions after year end, and then only to
the extent necessary to retain its status as a Real Estate Investment Trust
("REIT") for federal tax purposes.  The Company expects to receive no
distributions from TCI in 1995.  CMET, IORT and NRLP all make regular quarterly
distributions.  In the nine months ended September 30, 1995, the Company
received aggregate distributions of $926,000 from CMET, IORT and NRLP.

In the nine months ended September 30, 1995, the Company purchased a total of
$5.9 million of equity securities of the Trusts and NRLP.

In June 1995, the Company purchased the general partner of a limited
partnership which owns an apartment complex in Illinois, Florida and Minnesota,
with a total of 900 units.  The purchase price of the general partner interest
was $628,000 in cash.  The general partner has a 1% interest in the partnership
which is subordinated to a priority return of the limited partner.

In January 1992, the Company entered into a partnership agreement with an
entity affiliated with the owner of, at the time, in excess of 14% of the
Company's outstanding shares of Common Stock, to acquire 287 developed
residential lots adjacent to the Company's other residential lots in Fort
Worth, Texas.  The partnership agreement designates the Company as managing
general partner.  The partnership agreement also provides each of the partners
with a guaranteed 10% return on their respective investments.  Through December
31, 1994, 60 residential lots had been sold.  In the nine months ended
September 30, 1995 an additional 72 lots were sold and 155 lots remained to be
sold.  In the nine months ended September 30, 1995, each partner received
$198,000 in return of capital distributions and $90,500 in profit distributions
from the partnership.

NOTE 6. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

In the first quarter of 1994, the Company began purchasing equity securities of
entities other than those of the Trusts and NRLP to


                                       14
<PAGE>   15
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 6. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO (Continued)

diversify and increase the liquidity of its margin accounts.  In the nine
months ended September 30, 1995, the Company purchased $13.8 million, sold
$11.3 million, and received $238,000 in return of capital distributions, from
such securities.  These equity securities are considered a trading portfolio
and are carried at market value.  At September 30, 1995, the Company recognized
a decline in the market value of its trading portfolio securities of $408,000.
Also in the nine months ended September 30, 1995, the Company realized a net
loss of $35,000 from the sale of trading portfolio securities and received
$827,000 in dividends on such securities.  Realized gains and losses,
recognized declines and dividends received on trading portfolio securities are
included in other income in the accompanying Consolidated Statements of
Operations.

NOTE 7.  NOTES AND INTEREST PAYABLE

In April 1995, the Company refinanced the mortgage debt secured by the Kansas
City Holiday Inn in the amount of $3.5 million.  The Company received net cash
of $485,000 after the payoff of $2.9 million of existing mortgage debt and
closing costs associated with the refinancing.  The Company paid a mortgage
brokerage and equity refinancing fee of $35,000 to BCM, the Company's advisor,
based on the $3.5 million refinancing.

In October 1995, the Company again refinanced the mortgage debt secured by the
Kansas City Holiday Inn in the amount of $6.0 million.  The Company received
net cash of $2.3 million after the payoff of $3.5 million of existing debt and
payment of associated closing costs.  The new mortgage bears interest at 9.45%
per annum, requires a monthly principal and interest payment of $55,732, and
matures on November 1, 2005.  The Company paid a mortgage brokerage and equity
refinancing fee of $60,000 to BCM based on the $6.0 million refinancing.

In May 1995, the Company obtained a $15.0 million term loan, the proceeds of
which were used to acquire  74.9 acres of partially developed land in Irving,
Texas.  In June 1995, the Company borrowed an additional $3.0 million from this
lender increasing the term loan balance to $18.0 million.  See NOTE 3. "REAL
ESTATE."  The principal balance of the loan was $15.5 million at September 30,
1995.  A remaining $2.0 million principal reduction payment is due by December
31, 1995.

In October 1995, the Company obtained $7.0 million of purchase money financing
in order to acquire an additional 92.6 acres of partially developed land in
Irving, Texas.  See NOTE 3. "REAL ESTATE."  The outstanding principal balance
of this note was $6.5 million at October 31, 1995.

As discussed in the Company's 1994 Form 10-K, the Company's underlying liens
secured by the wraparound mortgage note receivable on Continental





                                       15
<PAGE>   16
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 7.  NOTES AND INTEREST PAYABLE (Continued)

Hotel and Casino in Las Vegas, Nevada matured July 1, 1995.  The Company and
the underlying lienholder agreed to extend the underlying liens to December 31,
1995.  The principal balance of the underlying liens was $4.0 million at
September 30, 1995.  See NOTE 2. "NOTES AND INTEREST RECEIVABLE."

Also, as discussed in the Company's 1994 Form 10-K, the Company has a borrowing
from a financial institution with a principal balance of $8.0 million at
September 30, 1995.  The borrowing is collateralized by a note receivable with
a principal balance of $17.0 million at September 30, 1995.  In December 1994,
the loan was modified and extended to December 18, 1997.  On June 27, 1995, the
lender took exception to the Company's granting a second lien on the note
receivable and has given the Company until December 31, 1995 to seek third
party financing to pay off the loan or make other arrangements to resolve the
matter.  See NOTE 3. "REAL ESTATE."

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 arrangements are secured
by equity securities of the Trusts, NRLP and other marketable equity
securities, and bear interest rates ranging from 7% to 11% per annum.  Margin
borrowing totaled $33.3 million at September 30, 1995.

NOTE 8.    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
three and nine months ended September 30, 1994 or 1995.

NOTE 9.     COMMITMENTS AND CONTINGENCIES

Litigation.  The Company is involved in various lawsuits arising in the
ordinary course of business.  In the opinion of the Company's management the
outcome of these lawsuits will have no material impact on the Company's
financial condition or results of operations.

NOTE 10.    SUBSEQUENT EVENTS

In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets.  Assets
transferred by the Company pursuant to the asset sales agreement included a
retail shopping center in





                                       16
<PAGE>   17
                         AMERICAN REALTY TRUST, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 10.    SUBSEQUENT EVENTS (Continued)

Lubbock, Texas with a carrying value of $2.0 million at the date of transfer, a
$1.5 million senior participation in a second lien mortgage note secured by the
Las Vegas Plaza, a retail shopping center in Las Vegas, Nevada with a carrying
value of $18.8 million prior to transfer, a $315,000 participation in a first
mortgage note on unimproved land in Virginia Station, Virginia and a $799,000
participation in a second lien mortgage note on the Country Club Apartments in
Flagstaff, Arizona.  In return, the Company received a $1.9 million
participation in a first mortgage note on the Kauai Inn, a hotel property in
Lihue, Hawaii, a $1.0 million participation in a first mortgage note secured by
land in Maricopa County, Arizona, a $118,000 first lien mortgage note secured
by a single-family residence in Silver Creek, Colorado and $1.5 million in
cash.  The asset sales agreement contained put and guaranty provisions whereby,
at any time, either party could demand that the seller reacquire any asset sold
pursuant to the terms of the asset sales agreement for the consideration
originally received.  In March 1992, the Company received payment in full on
the $118,000 note secured by the single-family residence in Silver Creek,
Colorado.

In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions, of the asset sales agreement, of its desire to
divest itself of all assets received.  The Receiver refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
On September 3, 1992, the Court approved the Receiver's Petition of Order of
Liquidation for the insurance company.

In March 1992, the Company recorded a provision for loss of $496,000 to reduce
the note receivable secured by land in Maricopa County, Arizona, to its then
estimated fair value.  The Company foreclosed on the land securing the note in
June 1992.  In December 1992, the Company recorded an additional provision for
loss on such land of $349,000 to reduce the land's carrying value to its then
estimated fair value.  During September 1992, the Company recorded the
insubstance foreclosure of the Kauai Inn, which secured the $1.9 million first
mortgage participation received by the Company.  Subsequently, the hotel
suffered severe hurricane damage and was shut down.

A settlement between the Company and the Receiver was approved by the court on
February 15, 1995.  Under the terms of the settlement, the Company paid the
insurance company $1.0 million.  In exchange, the Company received back the
shopping center and the loan participation that the insurance company had
received from the Company.  The Company incurred no loss on the settlement.
The final settlement payment and asset transfer was made on November 3, 1995.





                                       17
<PAGE>   18
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS

Introduction

American Realty Trust, Inc. (the "Company") was organized in 1961 to provide
investors with a professionally managed, diversified portfolio of equity real
estate and mortgage loan investments selected to provide opportunities for
capital appreciation as well as current income.

Liquidity and Capital Resources

General.  Cash and cash equivalents at September 30, 1995 aggregated $1.2
million, compared with $193,000 at December 31, 1994.  Although the Company
anticipates that during the remainder of 1995 it will generate excess cash flow
from operations, as discussed below, such excess cash flow is not sufficient to
discharge all of the Company's debt obligations as they mature.  The Company
will therefore continue to rely on externally generated funds, including
borrowing against its investments in various real estate entities and other
marketable securities, mortgage notes receivable and the sale or refinancing of
properties to meet its debt service obligations, pay taxes, interest and other
non-property related expenses.

At September 30, 1995, notes payable totaling $6.5 million have scheduled
maturities during the remainder of 1995.  The Company intends to either payoff,
extend the maturity dates or obtain alternate financing for its debt
obligations that mature during the remainder of 1995.  There can be no
assurance, however, that these efforts to obtain alternative financing or debt
extensions will be successful.

The Company expects a modest increase in cash flow from property operations
during the remainder of 1995.  This increase in cash flow is expected to be
derived from improved operations of the Kansas City Holiday Inn, which the
Company acquired in 1993, due to major rehabilitation completed in 1994 and
from the operations of the Denver Merchandise Mart and Inn at the Mart
(collectively the "Mart") which were obtained in the second quarter of 1994.

The Company expects that funds from existing cash sources, collections on
mortgage notes receivable, sales or refinancing of real estate and/or mortgage
notes receivable, and borrowings against its investments in marketable equity
securities and notes receivable will be sufficient to meet the cash
requirements associated with its current and anticipated level of operations,
maturing debt obligations and existing commitments in the foreseeable future.
To the extent that the Company's liquidity permits, the Company may make equity
investments in real estate, additional investments in marketable equity
securities and fund or acquire mortgage notes.

Notes Receivable.  The Company has received $1.4 million in principal payments
in the nine months ended September 30, 1995, including an $860,000 note payoff
at its maturity in February 1995.

Loans Payable.  In April 1995, the Company refinanced the mortgage debt secured
by the Kansas City Holiday Inn.  The Company received net cash


                                       18
<PAGE>   19
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

of $485,000 after the payoff of the existing $2.9 million mortgage and the
payment of closing costs associated with the refinancing.  In October 1995, the
Company again refinanced the mortgage debt secured by the Kansas City Holiday
Inn in the amount of $6.0 million.  The Company received net cash of $2.3
million after the payoff of $3.5 million of existing debt and the payment of
associated closing costs.  See NOTE 7. "NOTES AND INTEREST PAYABLE."

In May 1995, the Company borrowed $15.0 million under a term loan to purchase
four tracts of partially developed land totaling 74.9 acres in Irving, Texas.
After purchase of land and the payment of related closing costs the Company
received net cash of $210,000.  In June 1995, the Company borrowed an
additional $3.0 million under the term loan.  On September 15, 1995, the
Company sold 6.9 acres for $2.9 million in cash. The Company applied the net
proceeds of the sale, $2.6 million, to paydown the term loan balance.  The
principal balance of the loan was $15.5 million at September 30, 1995.  A $2.0
million principal reduction payment on the term loan is due by December 31,
1995.  See NOTE 3. "REAL ESTATE."

In October 1995, the Company obtained $7.0 million purchase money financing in
order to acquire an additional 92.6 acres of partially developed land in
Irving, Texas.  See NOTE 3. "REAL ESTATE."

The Company has margin arrangements with various brokerage firms which provide
for borrowing up to 50% of the market value of marketable equity securities.
The borrowing under such margin arrangements are secured by such equity
securities and bear interest rates ranging from 7% to 11% per annum.  Margin
borrowings totaled $33.3 million at September 30, 1995, an increase of $6.9
million from December 31, 1994.

Equity Investments.  The Company has investments in shares of three Real Estate
Investment Trusts (the "Trusts") having the same advisor as the Company, and
units of limited partner interest in National Realty, L.P. ("NRLP").  It is
anticipated that additional equity securities of the Trusts, Continental
Mortgage and Equity Trust ("CMET"), Income Opportunity Realty Trust ("IORT")
and Transcontinental Realty Investors, Inc. ("TCI"), and of NRLP may, in
certain circumstances, be acquired in the future through open-market and
negotiated transactions to the extent the Company's liquidity permits.

Equity securities of the Trusts and NRLP held by the Company may, in certain
circumstances, be subject to disposition under Rule 144 of the Securities Act
of 1933 ("Securities Act").  In certain circumstances, the Company may be
unable to sell a significant amount of such equity securities other than in a
registered public offering or pursuant to an exemption under the Securities
Act.  Such practical limitations may reduce the Company's ability to realize
the full fair market value of all such equity investments if the Company
attempted to dispose of all of the securities of any entity in a short period
of time.


                                       19
<PAGE>   20
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

The Company's cash flow from these investments is dependent on the ability of
each of the entities to make distributions.  TCI's distribution policy provides
for an annual determination of distributions after year end, and then only to
the extent necessary to retain its status as a REIT for federal tax purposes.
The Company expects to receive no distributions from TCI in 1995.  CMET, IORT
and NRLP pay regular quarterly distributions.  The Company has received
distributions totaling $926,000 in the first nine months of 1995 from CMET,
IORT and NRLP.

On a quarterly basis, the Company's management reviews the carrying value of
the Company's mortgage notes receivable, properties held for investment and
properties held for sale. Generally accepted accounting principles require that
the carrying amount of such assets cannot exceed the lower of their respective
carrying amounts or estimated net realizable value.  In an instance where the
estimated net realizable value is less than the carrying amount at the time of
evaluation, a provision for loss is recorded by a charge against earnings.  The
estimate of net realizable value of a mortgage note receivable is based on
management's review and evaluation of the collateral property securing such
note.  The 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 the maintenance requirements, discussions with
the manager of the property and a review of the surrounding area.

Commitments and Contingencies

Syntek Asset Management, L.P. ("SAMLP") serves as the general partner of NRLP.
The Company owns a 76.8% limited partner interest in SAMLP.  The Company also
owns approximately 52% of the outstanding units of NRLP.  In January 1995,
NRLP, SAMLP, the NRLP oversight committee and William H. Elliott executed an
Implementation Agreement which provides for the nomination of an entity
controlled by Mr. Elliott to stand for election as the successor general
partner of NRLP and for the resolution of all related matters under a prior
class action settlement.  The Implementation Agreement was subject to receipt
of a notice from Mr. Elliott that he consented to stand for election as the
successor general partner.  On April 20, 1995, Mr. Elliott formally notified
the parties that he would stand for such election.

On June 29, 1995, the Implementation Agreement was submitted to the Supervising
Judge for tentative approval and approval of the notice to be sent to the
original class members.  As of November 3, 1995, the tentative approval of the
Supervising Judge had not been obtained and therefore the class members had not
been notified.  Upon final approval by the Supervising Judge, the proposal to
elect the successor general partner will be submitted to the NRLP unitholders
for a vote.  In addition, the unitholders will vote upon amendments to NRLP's
partnership agreement which relate to the proposed compensation of the
successor general partner and other related matters.


                                       20
<PAGE>   21
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS (Continued)

Commitments and Contingencies (Continued)

Upon approval by the unitholders, SAMLP shall withdraw as general partner and
the successor general partner shall take office.  If the required approvals are
obtained, it is anticipated that the successor general partner may be elected
and take office during the first or second quarter of 1996.

The Implementation Agreement provides that SAMLP, and its affiliates owning
units in NRLP (including the Company), shall not vote to remove the successor
general partner, except for removal with cause, for a period of thirty months
from the date the successor general partner takes office.  In addition, the
Supervising Judge shall make a determination of any amounts which NRLP may owe
to SAMLP upon SAMLP's withdrawal as general partner and any amounts which SAMLP
or its affiliates may owe to NRLP.  Any amounts which NRLP may be determined to
owe to SAMLP may be paid over a period of time to be determined by the parties
on terms which shall not hinder NRLP's ability to meet its other financial
obligations.

Upon the election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated.  If the
successor general partner nominee is not elected, the existing settlement shall
remain in full force and effect and all of the provisions of the Implementation
Agreement shall be voided.

On April 24, 1995, the Company's Board of Directors approved the Company's
entering into a comfort and indemnification letter whereby the Company would
agree to indemnify Mr. Elliott and any entity controlled  by Mr. Elliott which
is elected to serve as the successor general partner of NRLP and NOLP.  Such
indemnification will stand behind any indemnification to which Mr. Elliott or
any entity controlled by Mr. Elliott may be entitled to under the NRLP
partnership agreement.

Results of Operations

For the three months ended September 30, 1995, the Company reported a net
income of $1.2 million, compared to net income of $599,000 for the three months
ended September 30, 1994.  For the nine months ended September 30, 1995, the
Company had a net loss of $3.1 million compared with a net loss of $1.9 million
for the nine months ended September 30, 1994.  The primary factors contributing
to the Company's three month net income and nine month net loss are discussed
in the following paragraphs.

Net rental income (rental income less expenses applicable to rental income)
increased from $2.0 million and $3.9 million for the three and nine months
ended September 30, 1994 to $2.2 million and $4.0 million for the three and
nine months ended September 30, 1995.  The increases are principally due to
improved performance at the Kansas City Holiday Inn and the Mart offset by the
Company's sale of four apartment complexes in November 1994 and an additional
apartment complex sale in February 1995.


                                       21
<PAGE>   22
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            AND RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Interest income from mortgage notes receivable increased from $1.1 million and
$2.9 million for the three and nine months ended September 30, 1994 to $1.2
million and $3.8 million for the three and nine months ended September 30,
1995.  The increase in both periods is primarily due to the collection of
interest on the note receivable secured by the Continental Hotel and Casino
throughout the entire first nine months of 1995 compared to the note's
nonperformance through May 1994.

Equity in loss of investees increased from a loss of $1.0 million and $2.1
million for the three and nine months ended September 30, 1994 to a loss of
$1.4 million and $4.4 million for the three and nine months ended September 30,
1995.  The increase in equity losses is attributable to the Company's continued
increase in equity ownership in each of CMET, IORT, TCI and NRLP, increasing
the Company's proportionate share of equity in the results of operations of
each such entity.  Combined operating losses of the four entities increased
from a loss of $578,000 and $5.2 million for the three and nine months ended
September 30, 1994 to an operating loss of $2.8 million and $11.2 million for
the three and nine months ended September 30, 1995.

Other income increased from $461,000 for the three months ended September 30,
1994 to $739,000 for the three months ended September 30, 1995 and decreased
from $1.2 million for the nine months ended September 30, 1994 to $700,000 for
the nine months ended September 30, 1995.  The increase in other income in the
three months ended September 30, 1995 is primarily attributable to a $491,000
positive market value adjustment to the Company's trading portfolio of
marketable equity securities as compared to a $103,000 market decline for the
three months ended September 30, 1994.  The nine month decrease is primarily
due to a net $408,000 decline in the Company's trading portfolio compared to a
net $187,000 decline for the nine months ended September 1994 and a $341,000
decrease in realized gains on the sale of trading portfolio securities.  These
decreases were offset in part by a $656,000 increase in dividend income on the
Company's trading portfolio.  See NOTE 6. "MARKETABLE EQUITY SECURITIES -
TRADING PORTFOLIO."

Interest expense increased from $1.8 million and $5.5 million for the three and
nine months ended September 30, 1994 to $2.4 million and $6.1 million for the
three and nine months ended September 30, 1995.  The three and nine month
increase is primarily attributable to debt assumed by the Company upon
obtaining the Mart in March 31, 1994 and a $4.5 million increase in margin
borrowing from September 30, 1994 and in the three months ended September 30,
1995, debt incurred in connection with the purchase of land in Irving, Texas.

Depreciation and amortization at $416,000 and $1.2 million for the three and
nine months ended September 30, 1995 was comparable to that in the three and
nine months ended September 30, 1994.

Advisory and mortgage servicing fees at $328,000 and $871,000 for the three and
nine months ended September 30, 1995 were also comparable to those in the three
and nine months ended September 30, 1995.


                                       22
<PAGE>   23
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

General and administrative expenses decreased from $520,000 for the three
months ended September 30, 1994 to $382,000 for the three months ended
September 30, 1995 and increased from $1.5 million for the nine months ended
September 30, 1994 to $1.6 million for the nine months ended September 30,
1995.  The three month decrease is primarily attributable to a decrease in
litigation fees related to the settlement of litigation.  See NOTE 10.
"SUBSEQUENT EVENTS."  The nine month increase is primarily due to consulting
fees incurred in connection with the Company's notes receivable and hotel
operations.

Minority interest increased from $158,000 for the nine months ended September
30, 1994 to $671,000 for the nine months ended September 30, 1995.  The
increase is due to final settlement of the Company's investment in a joint
venture.  See NOTE 3. "REAL ESTATE."

Gains on sale of real estate were $1.6 million and $2.5 million for the three
and nine months ended September 30, 1995 compared with $910,000 and $1.1
million for the three and nine months ended September 30, 1994.  In the three
months ended September 30, 1995, the Company recognized a $1.5 million gain on
the sale of 6.9 acres of partially developed land in Irving, Texas.  The first
nine months of 1995 include an additional $924,000 gain on the sale of the
Boulevard Villas Apartments in February and a $24,000 gain on the sale of the
final four lots in the Denton Road project.  The 1994 gains relate to the sale
of residential lots.

The extraordinary gain of $431,000 and $758,000 for the three and nine months
ended September 30, 1995 is the Company's share of an equity investee's
extraordinary gain from the early payoff of debt.  The extraordinary gains for
the three and nine months ended September 30, 1994 of $273,000 and $323,000,
result from the forgiveness of a portion of a first mortgage as the result of
the early payoff of a second mortgage.

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, 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.

The Company's 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.


                                       23
<PAGE>   24
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS (Continued)

Inflation

The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations generally 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.  Moreover, the Company frequently lends at fixed rates while it borrows
at floating rates.  In  periods of falling interest rates, this could result in
the Company's mortgage loan portfolio yielding above-market rates while the
cost of borrowing decreases.

Recent Accounting Pronouncement

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No.  121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of".
The statement requires that long-lived assets be considered impaired "...if the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset."  If impairment exists,
an impairment loss shall be recognized, by a charge against earnings, equal to
"...the amount by which the carrying amount of the asset exceeds the fair value
of the asset."  If impairment of a long-lived asset is recognized, the carrying
amount of the asset shall be reduced by the amount of the impairment, shall be
accounted for as the asset's "new cost" and such new cost shall be depreciated
over the asset's remaining useful life.

SFAS No. 121 further requires that long-lived assets held for sale "...be
reported at the lower of carrying amount or fair value less cost to sell."  If
a reduction in a held for sale asset's carrying amount to fair value less cost
to sell is required, a provision for loss shall be recognized by a charge
against earnings.  Subsequent revisions, either upward or downward, to a held
for sale asset's fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the asset's
carrying amount when originally classified or held for sale.  A corresponding
charge or credit to earnings is to be recognized.   Long-lived assets held for
sale are not to be depreciated.  SFAS No. 121 is effective for fiscal years
beginning after December 15, 1995.

The Company's management has not fully evaluated the effects of  adopting SFAS
No. 121, but expects that the Company's policy with regard to the
classification of revenue producing properties as assets held for sale prior to
entering into a firm contract of sale, will require reevaluation.

The Company's management estimates that if the Company had adopted SFAS No. 121
effective January 1, 1995, its depreciation and net loss in the  three and nine
months ended September 30, 1995 would not have been affected and that a
provision for loss for either impairment of its


                                       24
<PAGE>   25
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS (Continued)

Recent Accounting Pronouncement (Continued)

properties held for investment or for a decline in estimated fair value less
cost to sell of its properties held for sale would not have been required in
either period.

                        _____________________________


                         PART II.  OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:


Exhibit
Number                           Description                       
-------            ---------------------------------------
 27.0              Financial Data Schedule, filed herewith.


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

        None.


                                       25
<PAGE>   26

                                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.





Date:    November 14, 1995                         By:  /s/ Karl L. Blaha
--------------------------                              ------------------------
                                                        Karl L. Blaha
                                                        President





Date:    November 14, 1995                         By:  /s/ Thomas A. Holland
--------------------------                              ------------------------
                                                        Thomas A. Holland
                                                        Executive Vice President
                                                        and Chief Financial 
                                                        Officer (Principal 
                                                        Financial and
                                                        Accounting Officer)





                                       26
<PAGE>   27
                         AMERICAN REALTY TRUST, INC.

                                 EXHIBITS TO

                        QUARTERLY REPORT ON FORM 10-Q

                   For the Quarter ended September 30, 1995


Exhibit                                                            Page
Number                         Description                        Number
-------     ----------------------------------------------------  ------

  27.0      Financial Data Schedule                                 28


                                       27