<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 MARCH 31, 1997
                                                      --------------

                         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 c1asses of
Common Stock, as of the latest practicable date.

Common Stock, $.01 par value                            12,194,644
----------------------------                  ------------------------------
          (Class)                             (Outstanding at April 30, 1997)



                                       1


<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>
                                                            March 31,         December 31,  
                                                               1997               1996      
                                                            ---------         ------------  
                                                                 (dollars in thousands)    
                     Assets                                                                 
<S>                                                          <C>              <C>           
Notes and interest receivable                                                               
   Performing ............................................   $ 50,660         $ 50,784      
   Nonperforming .........................................        149            1,627      
                                                             --------         --------      
                                                               50,809           52,411      
                                                                                            
Less - allowance for estimated losses ....................    (3,926)           (3,926)     
                                                             --------         --------      
                                                               46,883           48,485      
                                                                                            
Real estate held for sale, net of accumulated                                               
   depreciation ($5,098 in 1997 and 1996) ................     82,409           77,688      
                                                                                            
                                                                                            
Real estate held for investment, net of accumulated                                         
   depreciation ($4,670 in 1997 and $4,234 in 1996) ......     41,680           41,347      
                                                                                            
Marketable equity securities, at market value ............      3,861            2,186      
Cash and cash equivalents ................................        713            1,254      
Investments in equity investees ..........................     56,848           55,880      
Other assets .............................................     10,106            8,197      
                                                             --------         --------      
                                                                                            
                                                             $242,500         $235,037      
                                                             ========         ========      
</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>
                                                           March 31,        December 31, 
                                                             1997               1996     
                                                           ---------        ------------ 
                                                               (dollars in thousands)  
      Liabilities and Stockholders' Equity                                               
<S>                                                        <C>                <C>        
Liabilities                                                                              
Notes and interest payable ($9,078 in 1997 and                                           
   $8,973 in 1996 to affiliates) .....................     $129,660           $127,863   
Margin borrowings ....................................       42,609             40,044   
Accounts payable and other liabilities (including                                        
   $5,141 in 1997 to affiliate) ......................       12,291              8,433   
                                                           --------           --------   
                                                                                         
                                                            184,560            176,340   
                                                                                         
                                                                                         
Minority interest ....................................       10,810             10,911   
                                                                                         
                                                                                         
Commitments and contingencies                                                            
                                                                                         
                                                                                         
Stockholders' equity                                                                     
Preferred Stock, $2.00 par value, authorized                                             
   20,000,000 shares, issued and outstanding                                             
       4,000 shares Series B .........................            8                  8   
       16,274 shares Series C ........................           33                 32   
Common stock, $.01 par value; authorized                                                 
   16,667,000 shares, issued 13,479,348 shares                                           
   in 1997 and 1996 ..................................          134                129   
Paid-in capital ......................................       68,642             68,601   
Accumulated (deficit) ................................     (21,674)           (20,978)   
Treasury stock at cost, 1,284,704 shares in 1997                                         
   and 564,704 shares in 1996 ........................         (13)                (6)   
                                                           --------           --------   
                                                                                         
                                                             47,130             47,786   
                                                           --------           --------   
                                                                                         
                                                           $242,500           $235,037   
                                                           ========           ========   
</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
                                                               Ended March 31,
                                                       -----------------------------
                                                            1997              1996
                                                       -------------    ------------
                                                           (dollars in thousands,
                                                             except per share)
<S>                                                     <C>             <C>
Income
   Rents ............................................   $      5,908    $      5,310
   Interest .........................................          1,121           1,138
   Other ............................................            470             342
                                                        ------------    ------------
                                                               7,499           6,790
Expenses
   Property operations ..............................          4,453           3,710
   Interest .........................................          5,204           3,146
   Advisory and servicing fees to affiliate .........            424             320
   Incentive compensation to affiliate ..............            411            --
   General and administrative .......................            795             642
   Depreciation .....................................            547             437
   Minority interest ................................            372            --
                                                        ------------    ------------
                                                              12,206           8,255
                                                        ------------    ------------

(Loss) from operations ..............................         (4,707)         (1,465)
Equity in income of investees .......................            280             678
Gain on sale of real estate .........................          4,287             559
                                                        ------------    ------------

(Loss) before extraordinary gain ....................           (140)           (228)
Extraordinary gain ..................................           --                13
                                                        ------------    ------------
Net (loss) ..........................................           (140)           (215)

Preferred dividend requirement ......................             50            --
                                                        ------------    ------------

Net (loss) applicable to Common shares ..............   $       (190)   $       (215)
                                                        ============    ============


Earnings per share
   Net (loss) .......................................   $       (.01)   $       (.02)
                                                        ============    ============


Weighted average Common shares used in computing
   earnings per share ...............................     12,194,644      11,716,656
                                                        ============    ============
</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 March 31, 1997


<TABLE>
<CAPTION>
                                      Series B   Series C
                                      Preferred  Preferred Common  Treasury      Paid-in     Accumulated  Stockholders'
                                       Stock       Stock   Stock    Stock        Capital     (Deficit)       Equity
                                     ----------  --------- ------  --------      --------    -----------  -------------
                                                         (dollars in thousands)
<S>                                   <C>       <C>       <C>       <C>           <C>          <C>         <C>    
Balance, January 1, 1997 ..........   $     8   $    32   $   129   $   (6)      $ 68,601     $(20,978)    $47,786


Dividends
   Common Stock ...................      --        --        --          --            --         (506)       (506)
   Series B Preferred Stock .......      --        --        --          --            --          (10)        (10)
   Series C Preferred Stock .......      --           1      --          --            39          (40)         --


Treasury stock, at cost ...........      --        --           5       (7)             2           --          --


Net (loss) ........................      --        --        --         --             --         (140)       (140)
                                      --------   ------   -------   ------       --------     --------    --------




Balance, March 31, 1997 ...........   $     8   $    33   $   134   $  (13)      $ 68,642     $(21,674)    $47,130
                                      =======   =======   =======   ======       ========     ========     =======
</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 Three Months
                                                              Ended March 31,
                                                          ----------------------
                                                            1997         1996
                                                          --------    ----------
                                                          (dollars in thousands)
<S>                                                       <C>         <C>     
Cash Flows From Operating Activities
   Rents collected ....................................   $  5,128    $  5,384
   Interest collected .................................      1,127       1,123
   Distributions received from equity investees'
      operating cash flow .............................        568       3,986
   Payments for property operations ...................     (5,386)     (4,942)
   Interest paid ......................................     (3,533)     (2,438)
   Advisory and servicing fees paid to affiliate ......       (424)       (320)
   General and administrative expenses paid ...........       (870)       (672)
   Other ..............................................        437         207
                                                          --------    --------
      Net cash provided by (used in) operating
          activities ..................................     (2,953)      2,328


Cash Flows From Investing Activities
   Collections on notes receivable ....................      1,931         261
   Proceeds from sale of real estate ..................      1,219         891
   Acquisition of real estate .........................     (1,421)       --
   Proceeds from sale of marketable equity
      securities ......................................        469       8,830
   Notes receivable funded ............................       (150)       --
   Purchase of marketable equity securities ...........     (1,789)     (7,939)
   Earnest money deposits .............................     (2,557)       --
   Investment in real estate entities .................       (463)       (210)
   Real estate improvements ...........................       (769)       (273)
                                                          --------    --------
      Net cash provided by (used in) investing
          activities ..................................     (3,530)      1,560


Cash Flows From Financing Activities
   Proceeds from notes payable ........................      5,867      12,000
   Payments on notes payable ..........................     (5,138)    (10,912)
   Deferred borrowing costs ...........................       (707)       (672)
   Net advances (payments) to/from affiliates .........      5,125      (2,998)
   Common dividends paid ..............................       (506)       --
   Preferred dividends paid ...........................        (10)       --
   Minority interest ..................................       (372)       --
   Margin borrowings (repayments), net ................      1,683      (2,034)
                                                          --------    --------
      Net cash provided by (used in) financing
          activities ..................................      5,942      (4,616)

      Net (decrease) in cash and cash equivalents .....       (541)       (728)

Cash and cash equivalents, beginning of period ........      1,254       1,054
                                                          --------    --------

Cash and cash equivalents, end of period ..............   $    713    $    326
                                                          ========    ========
</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 Three Months
                                                              Ended March 31,
                                                          ----------------------
                                                             1997        1996
                                                          ---------   ----------
                                                          (dollars in thousands)
<S>                                                       <C>        <C>
Reconciliation of net (loss) to net cash provided
   by (used in) operating activities

Net (loss) ............................................   $  (140)   $  (215)
Adjustments to reconcile net (loss) to net cash
    provided by (used in) operating activities
    Extraordinary gain ................................      --          (13)
    Depreciation ......................................       547        437
    Gain on sale of real estate .......................    (4,287)      (559)
    Distributions from equity investees' operating
       cash flow ......................................       568      3,986
    Equity in (income) of investees ...................      (280)      (678)
    Unrealized (gain) on marketable equity
       securities .....................................      (356)      (629)
    Decrease in accrued interest receivable ...........        35         49
    Decrease in other assets ..........................     2,301        536
    Increase in accrued interest payable ..............        48         60
    (Decrease) in accounts payable and other
       liabilities ....................................    (1,208)      (902)
    Other .............................................      (181)       256
                                                          -------    -------

       Net cash provided by (used in) operating
         activities ...................................   $(2,953)   $ 2,328
                                                          =======    =======
</TABLE>



Schedule on noncash investing and financing
   activities

   Notes payable from acquisition of real estate....      $ 5,125    $     -

   Stock dividends on Series C Preferred Stock......           40          -





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 of American Realty Trust,
Inc. 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 three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996 (the "1996 Form 10-K").

Certain balances for 1996 have been reclassified to conform to the 1997
presentation. Shares and per share data have been restated for the two for one
forward share splits effected January 2, 1996 and February 17, 1997.

NOTE 2.           SYNTEK ASSET MANAGEMENT, L.P.

In August 1996, the Company purchased a pool of assets from Southmark
Corporation ("Southmark") for $3.1 million. Included in the asset pool was
Southmark's 19.2% limited partner interest in Syntek Asset Management, L.P.
("SAMLP"). Such purchase increased the Company's limited partner interest in
SAMLP from 76.8% to 96%. SAMLP is the general partner of National Realty, L.P.
("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 of SAMLP, and until March 4,
1994, William S. Friedman, a Director and President of the Company until
December 31, 1992, was also a general partner of SAMLP. As of March 31, 1997,
the Company owned approximately 54.6% of the outstanding limited partner units
of NRLP.

NRLP, SAMLP and Messrs. Phillips and Friedman were among 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 provided for, among other things, the
appointment of an NRLP oversight committee; the establishment of specified
annually increasing targets for five years relating to the price of NRLP's
units of limited partner interest; a limitation and deferral or waiver of
NRLP's reimbursement to SAMLP of certain future salary costs; a deferral or
waiver of certain future compensation to SAMLP; 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; the issuance of unit purchase warrants to
members of the plaintiff class; and the contribution by the then individual
general partners of $2.5 million to NRLP over a four-year period. In



                                       8


<PAGE>   9




                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 2.           SYNTEK ASSET MANAGEMENT, L.P. (Continued)

accordance with the indemnification provisions of SAMLP's agreement of limited
partnership, SAMLP agreed to indemnify 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 resignation and replacement of SAMLP
as general partner if the unit price targets are not met for two consecutive
anniversary dates. NRLP did not meet the unit price targets for the first and
second anniversary dates. 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 $40.2 million at March 31, 1997,
before reduction for the principal balance ($4.2 million at March 31, 1997) and
accrued interest ($6.4 million at March 31, 1997) on the note receivable from
SAMLP for its original capital contribution to the partnership.

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 to succeed
SAMLP and for the resolution of all related matters under the class action
settlement. On February 20, 1996, the parties to the Implementation Agreement
executed an Amended and Restated Implementation Agreement.

In April 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.

Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from NRLP. This amount represents a compromise settlement of the
net amounts owed by NRLP to SAMLP upon SAMLP's withdrawal as general partner
and any amounts which SAMLP and its affiliates may owe to NRLP. This amount
shall be paid to SAMLP pursuant to a promissory note in accordance with the
terms set forth in the Amended and Restated Implementation Agreement.




                                       9

<PAGE>   10


                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 2.           SYNTEK ASSET MANAGEMENT, L.P. (Continued)

In September 1996, the Judge appointed to supervise the class action settlement
(the "Supervising Judge") entered an order granting tentative approval of the
Amended and Restated Implementation Agreement and the form of notice to be sent
to the original class members. However, the order reserved jurisdiction to
determine other matters which must be resolved prior to final approval. 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 NRLP's unitholders, SAMLP shall resign as general partner of
NRLP and NOLP 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 third quarter of 1997.

The Amended and Restated 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 36 months from the date
the successor general partner takes office.

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 Amended and
Restated Implementation Agreement shall be voided, including the compromise
settlement referred to above.

On September 3, 1996, Joseph B. Moorman filed a Motion for Orders Compelling
Enforcement of the existing settlement agreement, appointment of a receiver and
collateral relief with the court. The motion alleges that the settling
defendants had failed or refused to perform their obligations under the
existing settlement agreements. The motion requested that SAMLP be removed as
general partner and a receiver be appointed to manage the Partnership. The
motion also requested that the Company be ordered to deliver to the court all
NRLP units which had been purchased by the Company since August 7, 1991. A
hearing was held on this motion on October 4, 1996, and the Court took the
matter under submission. On January 2, 1997, the Supervising Judge entered an
order denying the motion.

On January 27, 1997, Joseph B. Moorman filed motions to (i) discharge the NRLP
Oversight Committee and (ii) vacate the Court's orders and renewed his prior
motions to compel enforcement of the Moorman Settlement Agreement, appoint a
receiver over the Partnership, and for collateral relief against the Company.
Also on January 27, 1997, Robert



                                      10

<PAGE>   11




                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 2.           SYNTEK ASSET MANAGEMENT, L.P. (Continued)

A. McNeil filed motions to (i) be installed as receiver for the
Partnership, (ii) vacate the Court's orders, and (iii) disband the NRLP
Oversight Committee.

A hearing on the motions to discharge or disband the Oversight Committee and to
vacate the Court's orders was held on March 21, 1997, and the Supervising Judge
ruled that neither Mr. McNeil nor Mr. Moorman had standing to bring the
motions. The Supervising Judge also set June 27, 1997 as the hearing date for
final approval of the Amended and Restated Implementation Agreement.

NOTE 3.           NOTES AND INTEREST RECEIVABLE

The borrower on a $1.7 million mortgage note receivable secured by land in
Osceola, Florida failed to pay the note on its November 1, 1993 maturity. The
Company instituted foreclosure proceedings and was awarded a summary judgment
in January 1994. During 1994 and 1995, the borrower paid the Company a total of
$270,000 in nonrefundable fees to delay foreclosure of the property until April
24, 1995. On April 25, 1995, the borrower filed for bankruptcy protection. On
August 24, 1996, the bankruptcy court's stay was lifted allowing the Company to
proceed with foreclosure. In February 1997, the Company sold its mortgage note
receivable for $1.8 million in cash. The Company recognized a gain of $171,000
on the sale.

NOTE 4.           REAL ESTATE

In January 1997, the Company sold 3.0 acres of the Las Colinas I Land in Las
Colinas, Texas, for $1.2 million in cash. The Company recognized a gain of
$697,000 on the sale.

In January 1997, the Company purchased Scout land, 546 acres of undeveloped
land in Tarrant County, Texas, for $2.2 million. The Company paid $725,000 in
cash and obtained mortgage financing for the remaining $1.5 million of the
purchase price. The mortgage bears interest at 16% per annum, requires
quarterly interest payments of $61,000 beginning in April 1997, and matures in
January 2000. The Company paid a real estate brokerage commission of $135,000
to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of Basic Capital
Management, Inc. ("BCM"), the Company's advisor, based on the $2.2 million
purchase price of the property.

In October 1995, the Company purchased BP Las Colinas, a 92.6 acre parcel of
partially developed land in Las Colinas, Texas. In February 1996, the Company
entered into a contract to sell 72.5 acres of such parcel for $12.9 million.
The contract called for the sale to close in two phases. In July 1996, the
Company completed the first phase sale of 32.3 acres. In February 1997, the
Company completed the second phase sale of 40.2 acres for $8.0 million, of
which $7.2 million was paid in cash. Of the net sales proceeds of $6.9 million,
$1.5 million was used



                                      11

<PAGE>   12


                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 4.           REAL ESTATE (Continued)

to payoff the underlying debt secured by the BP Las Colinas parcel, pay a
$500,000 maturity fee to the lender, make a $1.5 million principal paydown on
note secured by Parkfield land in Denver, Colorado with the same lender, and
$1.0 million was applied as a principal paydown on the term loan secured by the
Las Colinas I land parcel. In conjunction with the sale the Company provided
$800,000 in purchase money financing in the form of a six month unsecured loan.
The loan bears interest at 12% per annum, with all accrued but unpaid interest
and principal due at maturity. The Company recognized a gain of $3.4 million on
such sale, deferring an additional $800,000 of gain until the loan is paid in
full. The Company paid a real estate brokerage commission of $239,000 to Carmel
Realty based on the $8.0 million sales price of the property.

In March 1997, the Company purchased Katy Road land, 130.6 acres of undeveloped
land in Harris County, Texas, for $5.6 million. The Company paid $1.6 million
in cash with the seller providing purchase money financing for the remaining
$4.0 million of the purchase price. The mortgage bears interest at 9% per
annum, requires quarterly interest only payments of $92,000 and matures in
March 2000. The Company paid a real estate brokerage commission of $209,000 to
Carmel Realty based on the $5.6 million purchase price of the property.

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,
1996, 188 of the residential lots had been sold. In January 1997, one lot was
sold for a gain of $3,000. At March 31, 1997, 9 lots remained to be sold.

NOTE 5.           INVESTMENTS IN EQUITY INVESTEES

Real estate entities. The Company's investment in real estate entities at March
31, 1997, includes (i) 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"), (ii) units of limited partner
interest of NRLP, (iii) a general partnership interest in NRLP and NOLP, the
operating partnership of NRLP, through the Company's 96% limited partner
interest in SAMLP and (iv) interests in real estate joint venture partnerships.
BCM, the Company's advisor, serves as advisor to the REITs, and performs
certain administrative and management functions for NRLP and NOLP on behalf of
SAMLP.

The Company accounts for its investment in the REITs, NRLP and the joint
venture partnerships under the equity method. The Company continues to account
for its investment in NRLP under the equity method due to the pending
resignation of SAMLP as general partner of NRLP. See NOTE 2. "SYNTEK ASSET
MANAGEMENT, L.P." Substantially all of the Company's equity securities of the
REITs and NRLP are pledged as collateral for borrowings. See NOTE 7. "MARGIN
BORROWINGS."



                                      12


<PAGE>   13




                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 5.           INVESTMENTS IN EQUITY INVESTEES (Continued)

The Company's investment in real estate entities, accounted for using the
equity method, at March 31, 1997 was as follows:

<TABLE>
<CAPTION>
                                                                             Equivalent
                   Percentage                    Carrying                     Investee
                 of the Company's                Value of                   Book Value            Market Value
                  Ownership at                 Investment at                    at              of Investment at
Investee          March 31, 1997               March 31, 1997              March 31, 1997         March 31, 1997
--------        ------------------           ------------------          ------------------     ----------------
<S>                     <C>                     <C>                        <C>                  <C>
NRLP                    54.6%                   $     14,104               $           *         $       5,970
CMET                    40.6                          13,904                      35,210                24,507
IORI                    29.6                           3,181                       7,048                 6,583
TCI                     30.5                           6,327                      24,038                14,922
                                                ------------                                     -------------
                                                      37,516                                     $      51,982
                                                                                                 =============

General partner interest in
  NRLP and NOLP                                        6,513
Other                                                 (1,382)
                                                ------------
                                                $     42,647
                                                ============
</TABLE>

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

*    At March 31, 1997, NRLP reported a deficit partners' capital.  The
     Company's share of NRLP's revaluation equity at December 31, 1996, was
     $181.5 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, 1996.

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.

The Company's management continues to believe that the market value of each of
the REITs and NRLP undervalues their assets and the Company may, therefore,
continue to increase its ownership in these entities in 1997.

Other equity investees. The Company owns 80% of the common stock of an entity
which operates pizza parlors in California and Texas. Concurrent with its
purchase, the Company granted to an individual an option to purchase 36.25% of
the Company's interest, at any time for 36.25% of the Company's net investment.
The Company anticipates taking such entity public during 1997. Accordingly, the
Company believes its control of such entity is temporary and accounts for such
entity under the equity method.



                                      13


<PAGE>   14




                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 5.         INVESTMENT IN EQUITY INVESTEES (Continued)

Set forth below is summarized results of operations for the Company's equity
investees for the three months ended March 31, 1997:

<TABLE>
Equity investee owned over 50%:
<S>                                                                      <C>
     Revenues.........................................................   $33,666
     Property operating expenses......................................    22,603
     Depreciation.....................................................     2,501
     Interest expense.................................................     8,726
                                                                         -------
     Net (loss).......................................................   $  (164)
                                                                         =======
</TABLE>

The Company's share of over 50% owned equity investees' losses was $174,000 for
the three months ended March 31, 1997.


<TABLE>
Equity investees owned less than 50%:
<S>                                                                      <C>
     Revenues.........................................................   $28,625
     Equity in (loss) of partnerships.................................       412
     Property operating expenses......................................    18,944
     Depreciation.....................................................     4,140
     Interest expense.................................................     8,233
                                                                         -------
     (Loss) before gains on sale of real estate and extraordinary
       gains..........................................................    (2,280)
     Gain on sale of real estate......................................     3,249
     Extraordinary gain...............................................        --
                                                                         -------
     Net income.......................................................   $   969
                                                                         =======

</TABLE>

The Company's share of less than 50% owned equity investees' loss before gain
on the sales of real estate was $525,000 for the three months ended March 31,
1997. The Company's share of equity investees gains on sale of real estate was
$979,000 for the three months ended March 31, 1997.

The Company's cash flow from the REITs and NRLP is dependent on the ability of
each of the entities to make distributions. In the first three months of 1997
the Company received aggregate distributions of $568,000 from the REITs and
NRLP.

In the first three months of 1997, the Company purchased a total of $173,000 of
equity securities of the REITs and NRLP.

In January 1992, the Company entered into a partnership agreement with an
entity affiliated with the owner, at the time, of 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, 1996, 184 residential lots had been sold. In the first three months of 1997
no additional lots were sold. At March 31, 1997, 103 lots remained to be sold.



                                      14


<PAGE>   15




                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 5.         INVESTMENT IN EQUITY INVESTEES (Continued)

In April 1996, the Company purchased a 28% general partner interest in Campbell
Center Associates, Ltd. which in turn has a 56.25% interest in Campbell Centre
Joint Venture, which owns a 413,175 square foot office building in Dallas,
Texas. In January 1997, the Company exercised its option to purchase an
additional 28% general partner interest in Campbell Center Associates, Ltd. The
purchase price was $300,000 in cash and a $750,000 note, which bears interest
at 8% per annum, requires monthly interest only payments commencing in April
1997 and matures in April 2000.

In July 1996, a newly formed limited partnership, of which the Company is 1%
general partner, purchased the Highway 380 Land, 580 acres of undeveloped land
in Collin County, Texas, for $5.7 million. The partnership agreement designates
the Company as the managing general partner. The Partnership agreement also
provides that the limited partner receive a 12% preferred cumulative return on
its investment before any sharing of partnership profits occur. In April 1997,
the Partnership sold 35 acres of the Highway 380 Land for $1.3 million in cash.
In accordance with the provisions of the partnership agreement the net sales
proceeds of $1.2 million were distributed to the limited partner.

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 three months of 1997, the Company purchased $1.8
million and sold $469,000 of such securities. These equity securities are
considered a trading portfolio and are carried at market value. At March 31,
1997, the Company recognized an unrealized increase in the market value of its
trading portfolio securities of $356,000. Also in the first three months of
1997, the Company realized a net gain of $7,000 from the sale of trading
portfolio securities and received $24,000 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.         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 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 $42.6
million at March 31, 1997.

In August 1996, the Company consolidated its existing NRLP margin debt held by
the various brokerage firms into a single loan of $20.3 million. The loan is
secured by the Company's NRLP units with a market value of




                                       15

<PAGE>   16




                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 7.         MARGIN BORROWINGS (Continued)

at least 50% of the principal balance of the loan. As of March 31, 1997,
3,349,169 NRLP units with a market value of $58.6 million were pledged as
security for such loan.

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 months ended March 31, 1997 or 1996.

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 not have a material impact on the Company's financial
condition, results of operations or liquidity.

NOTE 10.         SUBSEQUENT EVENTS

In April 1997, the Company purchased McKinney Corners I, 30.4 acres of
undeveloped land in McKinney, Texas, for $3.5 million. The Company paid $1.0
million in cash and obtained mortgage financing for the remaining $2.5 million
of the purchase price. The loan bears interest at 14% per annum, requires
monthly interest only payments of $29,000 and matures in April 1998. The
Company paid a real estate brokerage commission of $208,000 to Carmel Realty
based on the $3.5 million purchase price of the property.

In April 1997, the Company purchased McKinney Corners II, 173.86 acres of
undeveloped land in McKinney, Texas, for $5.7 million. The Company paid
$700,000 in cash and obtained mortgage financing for the remaining $5.0 million
of the purchase price as a fourth advance under the term loan from the Las
Colinas I lender. The term loan was amended increasing the term loan amount
from $19.5 million to $24.5 million. The amendment also changed the required
principal reduction payments to $500,000 in June, July, September and October
1997 and $1.0 million in August and November 1997. The McKinney Corners II land
was added as additional collateral on the term loan. The Company paid a real
estate brokerage commission of $343,000 to Carmel Realty based on the $5.7
million purchase price of the property.

In April 1997, the Company sold 3.115 acres of the Las Colinas I land for $1.3
million in cash. The Company used $1.0 million of the sales proceeds as a
collateral escrow deposit in accordance with the provision of the Valley Ranch
land loan. The Company will recognize a




                                      16


<PAGE>   17



                          AMERICAN REALTY TRUST, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 10.         SUBSEQUENT EVENTS (Continued)

gain of approximately $800,000 on the sale. The Company paid a real estate
brokerage commission of $38,000 to Carmel Realty based on the $1.3 million
sales price of the property.


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

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 March 31, 1997 aggregated $713,000,
compared with $1.3 million at December 31, 1996. Although the Company
anticipates that during the remainder of 1997 it will generate excess cash flow
from property operations, as discussed below, such excess cash is not expected
to be 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 borrowings against its investments in various real estate
entities, mortgage notes receivable, the sale or refinancing of properties and,
to the extent available or necessary, borrowings from its advisor to meet its
debt service obligations, pay taxes, interest and other non-property related
expenses.

At December 31, 1996, notes payable totaling $36.0 million had either scheduled
maturities or required principal reduction payments during 1997. Through April
30, 1997 the Company has paid a total of $5.1 million of such debt. The Company
intends to either pay off, extend the maturity dates or obtain alternate
financing for the remaining $30.9 million debt obligations during the remainder
of 1997. There can be no assurance, however, that these efforts to obtain
alternative financing or debt extensions will be successful.

The Company expects an increase in cash flow from property operations
during the remainder of 1997.  Such increase is expected to be derived
from operations of the Inn at the Mart, Kansas City Holiday Inn, Best
Western Oceanside Hotel, and Rosedale Towers Office Building.  The
Company is also expecting continued lot sales at its Texas residential
subdivisions and substantial sales of the land to generate additional
cash flow.  See NOTE 4. "REAL ESTATE."




                                       17

<PAGE>   18



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

Liquidity and Capital Resources (Continued)

In October 1995, the Company purchased 92.6 acres of partially developed land
in Las Colinas, Texas. In February 1996, the Company entered into a contract to
sell 72.5 of the 92.6 acres for $12.9 million in cash. The contract calls for
the sale to close in two phases. In July 1996, the Company completed the first
phase sale of 32.3 acres for $4.9 million in cash. In accordance with the terms
of the term loan secured by such property, the Company applied the net proceeds
of the sale, $4.7 million, to pay down the term loan, in exchange for that
lenders' release of its collateral interest in the 32.3 acres sold. The Company
recognized a gain of $2.0 million on such sale. In February 1997, the Company
completed the second phase sale of 40.2 acres for $8.0 million, of which $7.2
million was paid in cash. Of the net sales proceeds of $6.9 million, $1.5
million was used to payoff the underlying debt secured by the BP Las Colinas
parcel, pay a $500,000 maturity fee to the lender, make a $1.5 million
principal paydown on note secured by Parkfield land in Denver, Colorado with
the same lender, and $1.0 million was applied as a principal paydown on the
term loan secured by the Las Colinas I land parcel. In conjunction with the
sale the Company provided $800,000 in purchase money financing in the form of a
six month unsecured loan. The loan bears interest at 12% per annum, with all
accrued but unpaid interest and principal due at maturity. The Company
recognized a gain of $3.4 million on such sale, deferring an additional
$800,000 of gain until the loan is paid in full.

In January 1997, the Company sold 3.0 acres of the Las Colinas I Land in Las
Colinas, Texas, for $1.2 million in cash. The Company recognized a gain of
$697,000 on the sale.

In January 1997, the Company purchased Scout land, 546 acres of undeveloped
land in Tarrant County, Texas, for $2.2 million. The Company paid $725,000 in
cash and obtained mortgage financing for the remaining $1.5 million of the
purchase price. The mortgage bears interest at 16% per annum, requires
quarterly interest payments of $61,000 beginning in April 1997, and matures in
January 2000.

In March 1997, the Company purchased Katy Road land, 130.6 acres of undeveloped
land in Harris County, Texas, for $5.6 million. The Company paid $1.6 million
in cash and obtained seller financing for the remaining $4.0 million of the
purchase price. The mortgage bears interest at 9% per annum, requires quarterly
interest payments of $92,000 and matures in March 2000.

The Company expects that funds from existing cash resources, 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, mortgage notes receivable and to the
extent available, borrowings from the Company's advisor, totaling $4.7
million at March 31, 1997, will be sufficient to meet the cash
requirements associated with the Company's current and anticipated level
of operations, maturing debt obligations and existing commitments.  To



                                      18

<PAGE>   19



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

Liquidity and Capital Resources (Continued)

the extent that the Company's liquidity permits or financing sources are
available, the Company may make investments in real estate, primarily
investments in developed, partially developed and/or raw land, continue making
additional investments in real estate entities and marketable equity securities
and fund or acquire mortgage notes.

The Company expects that it will be necessary for it to sell $4.9 million,
$35.3 million and $10.3 million of such land during the remainder of 1997 and
in each of the next two years, respectively, to satisfy the debt on its land
holdings as they mature. If the Company is unable to sell at least the minimum
amount of land to satisfy the debt obligations on such land as it matures, the
Company, 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.

Notes Receivable.  The Company has received $131,000 in principal
payments in the three months ended March 31, 1997.

In February 1997, the Company sold its mortgage note receivable secured by land
in Osceola, Florida for $1.8 million in cash. The note receivable had a
principal balance of $1.6 million at December 31, 1996 and had been in default
since November 1993. See NOTE 3. "NOTES AND INTEREST RECEIVABLE." The Company
recognized a gain of $171,000 on the sale.

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 $42.6
million at March 31, 1997.

Equity Investments. During the fourth quarter of 1988, the Company began
purchasing shares of various Real Estate Investment Trusts (collectively, the
"REITs") 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 NRLP and the REITs, Continental Mortgage and Equity Trust
("CMET"), Income Opportunity Realty Investors, Inc. ("IORI") and
Transcontinental Realty Investors, Inc. ("TCI"), will be acquired in the future
through open-market and negotiated transactions to the extent the Company'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 period of two years after they are
acquired. Such restrictions may reduce the Company's ability to realize the
full fair market value of such investments if the Company attempted to dispose
of such securities 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. In the first quarter of 1993, CMET
and IORI resumed quarterly distributions. NRLP resumed distributions in the
fourth quarter of 1993 and TCI resumed distributions in the fourth quarter of
1995. The Company received distributions totaling $568,000 in the first three
months of 1997 from the REITs and NRLP.

The Company's management reviews the carrying values of the Company's
properties and mortgage note receivable 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 January 1995, NRLP, Syntek Asset Management, L.P. ("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 to succeed SAMLP as general partner of NRLP and
National Operating, L.P. ("NOLP"), the operating partnership of NRLP, and for
the resolution of all related matters under the 1990 settlement of a class
action lawsuit. On February 20, 1996, the parties to the Implementation
Agreement executed an Amended and Restated Implementation Agreement.

Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as general partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.

In September 1996, the Judge appointed to supervise the class action settlement
(the "Supervising Judge") entered an order granting tentative approval of the
Amended and Restated Implementation Agreement and the



                                      20
<PAGE>   21




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


Commitments and Contingencies (Continued)

form of notice to be sent to the original class members. However, the order
reserved jurisdiction to determine other matters which must be resolved prior
to final approval. Upon final approval by the Supervising Judge, the proposal
to elect the successor general partner will be submitted to the NRLP's
unitholders for a vote. In addition, the unitholders will vote upon amendments
to the NRLP's Partnership Agreement which relate to the proposed compensation
of the successor general partner and other related matters.

Upon approval by NRLP's 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 will be
elected and take office during the third quarter of 1997.

The Amended and Restated 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 36 months from the date
the successor general partner takes office.

Upon 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 is not elected, the existing class action settlement
shall remain in full force and effect and all of the provisions of the Amended
and Restated Implementation Agreement shall be voided, including the compromise
settlement of amounts owed by SAMLP and NRLP to each other. See NOTE 2. "SYNTEK
ASSET MANAGEMENT, L.P."

In April 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.

On September 3, 1996, Joseph B. Moorman filed a Motion for Orders Compelling
Enforcement of the Moorman Settlement Agreement, Appointment to a Receiver and
Collateral Relief with the Court. The motion alleged that the settling
defendants had failed or refused to perform their obligations under the Moorman
Settlement Agreement and had breached the Moorman Settlement Agreement. The
motion also requested that SAMLP be removed as general partner and a receiver
be appointed to manage the Partnership. The motion also requested that the
Company be ordered to deliver to the Court all NRLP units which had been
purchased by the Company since August 7, 1991. A hearing was held on this
motion in October 1996. In January 1997, the Supervising Judge entered an order
denying the motion.



                                      21


<PAGE>   22



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


Commitments and Contingencies (Continued)

On January 27, 1997, Joseph B. Moorman filed motions to (i) discharge the NRLP
Oversight Committee and (ii) vacate the Court's orders and renewed his prior
motions to compel enforcement of the Moorman Settlement Agreement, appoint a
receiver over the Partnership, and for collateral relief against the Company.
Also on January 27, 1997, Robert A. McNeil filed motions to (i) be installed as
receiver for the Partnership, (ii) vacate the Court's orders, and (iii) disband
the NRLP Oversight Committee.

A hearing on the motions to discharge or disband the Oversight Committee and to
vacate the Court's orders was held on March 21, 1997, and the Supervising Judge
ruled that neither Mr. McNeil nor Mr. Moorman had standing to bring the
motions. The Supervising Judge also set June 27, 1997 as the hearing date for
final approval of the Amended and Restated Implementation Agreement.

Results of Operations

For the three months ended March 31, 1997, the Company reported a net loss of
$140,000, compared to a net loss of $215,000 for the three months ended March
31, 1996. The Company's 1997 net loss includes gains on the sale of real estate
of $4.3 million. The 1996 net loss includes an extraordinary gain of $13,000
and gains on sales of real estate of $559,000. Fluctuations in these and other
components of the Company's revenues and expenses between the 1996 and 1997
periods are described below.

Net rental income (rents less property operating expenses) decreased from $1.6
million for the three months ended March 31, 1996 to $1.5 million in the same
period of 1997. The decrease is principally due to operating expenses of the
Best Western Oceanside Hotel which was acquired in December 1996.

Interest income from mortgage notes receivable was $1.1 million for the three
months ended March 31, 1996 and the same period of 1997. Interest income for
the remaining quarters of 1997 is expected to approximate that of the first
quarter of 1997.

Other income improved from $342,000 for the three months ended March 31, 1996
to income of $470,000 in the same period of 1997. The increase is primarily due
to a $350,000 unrealized gain on the Company's trading portfolio securities.
See NOTE 6. "MARKETABLE EQUITY SECURITIES TRADING PORTFOLIO."

Interest expense increased from $3.1 million for the three months ended March
31, 1996 to $5.2 million in the same period of 1997. The increase is primarily
attributable to the debt incurred related to the acquisition of seven parcels
of land and one commercial property subsequent to March 1996. These increases
were offset in part by a

                                      22

<PAGE>   23




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


Results of Operations (Continued)

decrease of $491,000 due to the sale of 40.2 acres of the BP Las Colinas land
in February 1997. Interest expense is expected to increase as the Company
continues to acquire properties on a leveraged basis.

Depreciation expense increased from $437,000 for the three months ended March
31, 1997 to $547,000 in the same period of 1997. The increase is primarily
attributable to the purchase of Best Western Oceanside Hotel in December 1996.

Advisory and mortgage servicing fees increased from $320,000 for the three
months ended March 31, 1996 to $424,000 in the same period of 1997. The
increase is primarily attributable to the Company's increase in gross assets,
the basis for such fee, and is expected to increase as the Company acquires
additional properties.

General and administrative expenses increased from $642,000 for the three
months ended March 31, 1996 to $795,000 in the same period of 1997. The
increase is primarily attributable to legal fees and travel expenses incurred
in 1997 relating to pending acquisitions and refinancings, and increases in
advisor cost reimbursements.

Equity in income of investees decreased from $678,000 for the three months
ended March 31, 1996 to $280,000 in the comparable period of 1997. The decrease
in equity income is attributable to an increase in the combined operating
losses of the Company's equity investees from $264,000 for the three months
ended March 31, 1996 to $699,000 in the same period of 1997, offset by the
Company's equity share of the equity investees' gain on sale of real estate of
$1.6 million in 1996 and $979,000 in the same period of 1997.

In the three months ended March 31, 1997, the Company recognized a $697,000
gain on the sale of 3.0 acres of Las Colinas I land and $3.4 million on the
sale of 40.2 acres of BP Las Colinas land. In the three months ended March 31,
1996, the Company recognized a $538,000 gain on the sale of 2.3 acres of Las
Colinas I 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, 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.


                                      23


<PAGE>   24




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

Environmental Matters (Continued)

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.

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.


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

                         PART II.  OTHER INFORMATION


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

The Company held its annual meeting of stockholders on April 7, 1997, at such
meeting the Company's stockholders elected the following individuals as Class
II Directors of the Company:


<TABLE>
<CAPTION>
                                                              
                                                                             Shares Voting
                                                                       ------------------------- 
                                                                                      Withheld
           Director                                                         For       Authority
     --------------------                                              ------------   ----------
     <S>                                                                 <C>          <C>
     Roy E. Bode...............................                          12,166,154     29,127
     Al Gonzalez...............................                          12,665,534     29,747

</TABLE>

The Directors whose terms did not expire in 1996 and therefore did not
stand for reelection were Oscar W. Cashwell, Class I Director and Karl
L. Blaha and Dale A. Crenwelge, Class III Directors.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

Exhibit
Number                                Description

   3.0         Articles of Amendment of the Articles of Incorporation of
               American Realty Trust, Inc. setting forth the Certificate
               of Designations, Preferences and Relative Participating or
               Optional or Other Special Rights, and Qualifications,
               Limitations or Restrictions thereof of Special Stock of
               Series C 10% Cumulative Preferred Stock, increasing the
               number of authorized shares, dated April 21, 1997, filed
               herewith.



                                      24

<PAGE>   25




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



<TABLE>
<CAPTION>
Exhibit
Number                         Description
-------                        -----------
<S>            <C>
   3.1         Restated Articles of Amendment of the Articles of
               Incorporation of American Realty Trust, Inc. setting forth
               the Certificate of Designations, Preferences and Relative
               Participating or Optional or Other Special Rights, and
               Qualifications, Limitations or Restrictions thereof of
               Special Stock of Series C 10% Cumulative Preferred Stock,
               dated April 21, 1997, filed herewith.

   10.0        Amended and Restated Advisory Agreement between American Realty 
               Trust, Inc. and Basic Capital Management, Inc., dated April 1, 
               1997, filed herewith.

   27.0        Financial Data Schedule, filed herewith.
</TABLE>


(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:       May 15, 1997                       By:  /s/ Karl L. Blaha
     -------------------------                     -----------------------------
                                                   Karl L. Blaha
                                                   President






Date:       May 15, 1997                       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 March 31, 1997





<TABLE>
<CAPTION>
Exhibit                                                                              Page
Number                              Description                                     Number
------                              -----------                                     ------
<S>                                                                                 <C>
  3.0            Articles of Amendment of the Articles of                              28
                 Incorporation of American Realty Trust, Inc.
                 setting forth the Certificate of Designations, Preferences and
                 Relative Participating or Optional or Other Special Rights,
                 and Qualifications, Limitations or Restrictions thereof of
                 Special Stock of Series C 10% Cumulative Preferred Stock,
                 increasing the number of authorized shares, dated April 21,
                 1997.


  3.1            Restated Articles of Amendment of the Articles of                     30
                 Incorporation of American Realty Trust, Inc.
                 setting forth the Certificate of Designations,
                 Preferences and Relative Participating or Optional
                 or Other Special Rights, and Qualifications,
                 Limitation or Restrictions thereof of Special
                 Stock of Series C 10% Cumulative Preferred Stock,
                 dated April 21, 1997.

 10.0            Amended and Restated Advisory Agreement between                       41
                 American Realty Trust, Inc. and Basic Capital
                 Management, Inc., dated April 1, 1997.


   27.0          Financial Data Schedule.                                              54
</TABLE>





                                      27