AMERICAN REALTY TRUST INC, S-4/A, 1998-12-02

AMERICAN REALTY TRUST INC
S-4/A, 1998-12-02
REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1998
Registration Statement No. 333-43777
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933

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

AMERICAN REALTY TRUST, INC.
(Exact name of registrant as specified in its governing instrument)

<TABLE>
<S> <C> <C>
GEORGIA 6513 54-0697989
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
</TABLE>

10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Address and telephone number of principal executive offices)
ROBERT A. WALDMAN, ESQ.
10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Name, address and telephone number of agent for service)

-------------------------
Copy to:
THOMAS R. POPPLEWELL, ESQ.
ANDREWS & KURTH L.L.P.
1717 MAIN STREET, SUITE 3700
DALLAS, TEXAS 75201
-------------------------

If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
============================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock, $2.00 par value...................... 99,212 SHARES $673,976 $152.23 (3)
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, $0.01 PAR VALUE......................... (2)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Pursuant to rules 457(f) and 457(c) under the securities act of 1933, as
amended, and estimated solely for the purpose of calculating the
registration fee, the proposed maximum aggregate offering price is equal to
the market value of the EQK shares to be acquired

<PAGE> 2

by art in connection with the merger and is based upon $0.8125, the average
of the closing bid and asked prices of the EQK Shares as reported on the
over-the-counter market as of November 30, 1998.

(2) The number of shares of Common Stock of the Registrant to be registered is
such currently indeterminate number of shares of Common Stock as may be
required for issuance upon conversion of the Preferred Stock being
registered hereunder. Such shares of Common Stock will, if issued, be
issued for no additional consideration and therefore, pursuant to Rule
457(g), no separate registration fee is required.

(3) ART has previously paid a registration fee of $1,550.36 in connection with
this filing.
- --------------------------------------------------------------------------------

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE> 3

EQK REALTY INVESTORS I

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

5775 Peachtree Dunwoody Road, Suite 200D
Atlanta, Georgia 30342

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

______________, 1999

Dear Shareholder:

You are cordially invited to attend the 1999 annual meeting (the "Meeting")
of the shareholders of EQK Realty Investors I ("EQK") to be held at the offices
of EQK, 5775 Peachtree Dunwoody Road, Suite 200D in Atlanta, Georgia on
__________, 1999 at 9:00 a.m. Eastern Standard Time. At the Meeting, you will be
asked to consider and vote upon (1) an Amended and Restated Agreement and Plan
of Merger, dated as of August 25, 1998 (the "Merger Agreement"), pursuant to
which ART Newco, LLC ("ART Newco"), an affiliate of American Realty Trust, Inc.,
a Georgia corporation ("ART"), is to merge with and into EQK (the "Merger"),
with EQK being the surviving entity (the "Merger Proposal"), (2) an amendment
and restatement of EQK's Amended and Restated Declaration of Trust (the
"Declaration Amendment Proposal"), (3) the termination of EQK's advisory
agreement with Lend Lease Portfolio Management, Inc. ("LLPM") and the execution
by EQK of a new advisory agreement with Basic Capital Management, Inc., an
affiliate of ART, as the advisor (the "New Advisory Agreement Proposal"), and
(4) the election of the Board of Trustees of EQK (the "Board Election Proposal"
and, together with the Merger Proposal, the Declaration Amendment Proposal and
the New Advisory Agreement Proposal, the "Proposals")) . If the Merger Proposal
is approved by the requisite number of EQK shareholders, you will retain each
EQK Share you own and you will be entitled to receive $0.14 per each EQK Share
owned, consisting of 0.014 of a share of Series F Cumulative Convertible
Preferred Stock of ART having a liquidation value of $10.00 per share
(individually, an "ART Preferred Share" and collectively, the "ART Preferred
Shares") (the "EQK Merger Consideration"). ART will be entitled to receive
673,976 newly-issued EQK Shares. Immediately after the Merger, ART would own not
more than 49% of EQK's outstanding shares and would have significant influence
over EQK. ART currently intends (but is not obligated) to acquire the rest of
the EQK Shares at some time after the third anniversary of the consummation of
the Merger for not less than $0.486 per EQK Share in the form of an additional
0.0486 of an ART Preferred Share.

Each of LLPM, Summit Ventures, L.P. ("Summit") and Sutter Opportunity Fund,
LLC ("Sutter") has agreed to vote their EQK Share in favor of the Proposals,
other than the Board Election Proposal. LLPM, Summit, Sutter and Maurice A.
Halperin currently own 17.50%, 9.52%, 9.55% and 8.87%, respectively, of the
issued and outstanding EQK Shares. ART does not currently and will not own any
EQK Shares at the time of the EQK Annual Meeting.

EQK intends to sell Harrisburg East Mall, EQK's sole remaining real estate
asset, and to distribute EQK's net liquid assets after such sale. The completion
of the sale and the distribution of net assets are preconditions to the closing
of the merger.

Further information concerning the Meeting and the terms of the Proposals
are set forth in the enclosed Notice of Annual Meeting and Prospectus/Proxy
Statement. EQK's management will be in attendance at the annual meeting to
answer questions and to explain the proposed merger in detail.

Your vote on the Merger is of great importance. The affirmative vote of the
holders of three-quarters of the outstanding shares of beneficial interest of
EQK entitled to vote, among other conditions, is required for the approval of
the Proposals, other than the Board Election Proposal. Even if you plan to
attend the Meeting, we ask that you execute and promptly return your completed
proxy in the enclosed postage-paid envelope so that your vote can be recorded at
the meeting. If you attend the Meeting, you may withdraw your proxy and vote
your shares personally.

<PAGE> 4

The EQK Board of Trustees has considered and approved the Proposals,
including the Merger Proposal, and unanimously recommends that shareholders vote
FOR approval of the Proposals.

Very truly yours,

----------------------------------------------
President and Chief Executive Officer

<PAGE> 5

EQK REALTY INVESTORS I
5775 Peachtree Dunwoody Road, Suite 200D
Atlanta, Georgia 30342

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD __________, 1999

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

The 1999 annual meeting of the shareholders of EQK Realty Investors I (the
"Meeting") is to be held at the offices of EQK Realty Investors I ("EQK") at
5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia on __________, 1999
at 9:00 a.m. Eastern Standard Time, for the following purposes:

(1) To consider and vote upon an Amended and Restated Agreement and Plan of
Merger, dated as of August 25, 1998 (the "Merger Agreement"), which
provides for, among other things, the merger of ART Newco, LLC, an
affiliate of American Realty Trust, Inc., a Georgia corporation
("ART"), with and into EQK Realty Investors I (the "Merger"), with EQK
Realty Investors I being the surviving entity;

(2) To consider and vote on an amendment and restatement of EQK's Amended
and Restated Declaration of Trust, which includes provisions that would
o extend the duration of EQK,
o remove the current limitation on the number of
authorized shares of EQK,
o reduce the number of EQK shareholders and trustees
required to vote on certain matters,
o remove prohibitions and restrictions which currently
prohibit EQK from engaging in certain activities and
investments,
o remove prohibitions on the issuance of additional
shares of beneficial interest in EQK and other
securities, o remove borrowing restrictions on EQK,
o revise certain trust governance provisions,
o implement an ownership limit on the number of shares
of EQK which may be owned by any single shareholder,
and
o change EQK's name.

(3) To consider and vote on the termination of EQK's advisory agreement
with Lend Lease Portfolio Management, Inc. and the execution by EQK of
a new advisory agreement between EQK and Basic Capital Management,
Inc., an affiliate of and advisor to ART;

(4) To consider and vote on the election of EQK's Board of Trustees; and

(5) To transact such other business as may properly come before the annual
meeting or any adjournment thereof.

In addition, none of the aforementioned matters to be considered and voted
upon will take effect unless EQK first completes the sale of its last remaining
real estate asset, the Harrisburg East Mall, and makes a distribution of EQK's
net liquid assets after such sale.

Only EQK shareholders of record at the close of business on _____________
are entitled to notice of and to vote at the Meeting. In the event that there
are insufficient shares represented to approve the Merger at the Meeting, the
Meeting may be adjourned to permit further solicitation. The Meeting was delayed
as a result of the negotiation of the Merger Agreement and related matters.

No statutory dissenter's appraisal rights will be available to EQK
shareholders in connection with the Merger and it is the position of EQK that no
common law dissenter's rights will be available in connection with the Merger;
however, any EQK shareholder who wishes to assert common law dissenter's
appraisal rights may file with EQK's Secretary a written notice stating such
shareholder's intent to dissent to the Merger at the Meeting and to assert such
rights. In the event that holders of more than 3% of the outstanding EQK Shares
assert such dissenter's appraisal rights, the Merger Agreement may be
terminated. For a detailed discussion of the

<PAGE> 6

procedures for asserting such rights, see "The Proposed Merger and Related
Matters -- Availability of Appraisal Rights" in the enclosed Prospectus/Proxy
Statement.

Even if you plan to attend the Meeting, we ask that you execute and
promptly return your completed proxy in the enclosed postage-paid envelope so
that your vote can be recorded at the Meeting. If you attend the Meeting, you
may withdraw your proxy and vote your shares personally.

By Order of the Board of Trustees,

--------------------------------------------
Secretary

Atlanta, Georgia
[DATE]

<PAGE> 7

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

PROSPECTUS/PROXY STATEMENT

SUBJECT TO COMPLETION, DATED DECEMBER 2, 1998
AMERICAN REALTY TRUST, INC.
SERIES F CUMULATIVE CONVERTIBLE PREFERRED STOCK
COMMON STOCK

This Prospectus/Proxy Statement relates to 99,212 shares of Series F
Cumulative Convertible Preferred Stock with a par value of $2.00 per share and a
stated liquidation value ("Liquidation Value") of $10.00 per share
(individually, an "ART Preferred Share" and collectively, the "ART Preferred
Shares"), of American Realty Trust, Inc., a Georgia corporation ("ART"), that
may be issued pursuant to an Amended and Restated Agreement and Plan of Merger,
dated as of August 25, 1998 (the "Merger Agreement"), among ART, ART Newco, LLC,
a Massachusetts limited liability company ("ART Newco") of which ART and ART
Newco Holdings LLC, a Texas limited liability company that is a wholly owned
subsidiary of ART, are the sole members, and EQK Realty Investors I, a
Massachusetts business trust ("EQK"). The Merger Agreement provides for the
merger of ART Newco with and into EQK (the "Merger"), with EQK being the
surviving entity (the "Trust"). As consideration for the Merger, each holder of
record of outstanding shares of beneficial interest no par value of EQK
(individually, an "EQK Share" and collectively, the "EQK Shares") as of ________
(the "EQK Record Date"), other than ART and its affiliates, Lend Lease Portfolio
Management, Inc. ("LLPM"), Summit Venture, L.P. ("Summit"), Sutter Opportunity
Fund, LLC ("Sutter") and Mr. Maurice A. Halperin ("Halperin") (collectively, the
"Public EQK Shareholders"), will be entitled to retain the EQK Shares such
holder holds and to receive for each EQK Share owned by such holder 0.014 of an
ART Preferred Share with a Liquidation Value for such portion of a share of
$0.14 (the "EQK Merger Consideration"). In addition, ART currently intends (but
is not obligated) to acquire the remaining EQK Shares from the Public EQK
Shareholders at some time after the third anniversary of the consummation of the
Merger for not less than 0.0486 of an ART Preferred Share with a Liquidation
Value for such portion of a share of $0.486 for each EQK Share owned by the
Public EQK Shareholders. As consideration for the Merger, ART will be entitled
to receive 673,976 newly-issued EQK Shares (the "ART Merger Consideration" and,
together with the EQK Merger Consideration, the "Merger Consideration").
Immediately prior to the Merger, ART expects to purchase an aggregate of
4,376,056 EQK Shares from LLPM, Summit, Sutter and Halperin pursuant to the
terms of separate stock purchase agreements (collectively, the "Block Purchase")
for consideration of 0.030 ART Preferred Shares per each EQK Share owned by
LLPM, Summit, Sutter or Halperin, as applicable (the "Block Purchase
Consideration"). Upon consummation of the Block Purchase and the Merger, ART
would own not more than 49% of the issued and outstanding EQK Shares. If the
Merger is consummated as described herein, the Public EQK Shareholders will have
effectively sold approximately 3.6% of their EQK Shares to ART for a price per
EQK Share equal to 0.214 of an ART Preferred Share with a Liquidation Value of
$2.14. The Merger will not take effect unless EQK first completes the sale of
its last remaining real estate asset, the Harrisburg East Mall (the "Center"),
and makes a distribution of EQK's net liquid assets after such sale. As of the
date hereof, Halperin has not agreed to sell his EQK Shares to ART. After the
Registration Statement to which this Prospectus/Proxy Statement is a part has
been declared effective by the Commission and before this Prospectus/Proxy
Statement is mailed to the EQK Shareholders, ART intends to file an amendment to
the Registration Statement to indicate whether or not Halperin has agreed to
sell his EQK Shares to ART.

This Prospectus/Proxy Statement relates to the ART Preferred Shares to
be paid as consideration to the Public EQK Shareholders and Halperin in
connection with the Merger and the Block Purchase, respectively. The ART
Preferred Shares to be paid as consideration to LLPM, Summit and Sutter pursuant
to the Block Purchase are not being offered hereby.

This Prospectus/Proxy Statement is being furnished to all holders of
EQK Shares (the "EQK Shareholders") as of the EQK Record Date in connection with
the solicitation of proxies by the Board of Trustees of EQK (the "EQK Board")
from EQK Shareholders, for use at the 1999 annual meeting of EQK Shareholders
(the "EQK Annual Meeting") scheduled to be held on ________ __, 1999 at EQK's
corporate offices at 5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia
at 9:00 a.m., Eastern Standard Time, and at any adjournment or postponement
thereof. The EQK Annual Meeting was delayed as a result of the negotiation of
the Merger Agreement and related matters. This Prospectus/Proxy Statement,
together with the applicable Notices of Annual Meeting of Shareholders and
Letters to Shareholders and the accompanying Proxy Cards, are first being mailed
to the EQK Shareholders on or about _______, 1999.

<PAGE> 8

stating such shareholder's intent to dissent to the Merger at the EQK Annual
Meeting and to assert such rights. In the event that holders of more than 3% of
the outstanding EQK Shares assert such dissenter's appraisal rights, the Merger
Agreement may be terminated.

This Prospectus/Proxy Statement also relates to the shares of ART
Common Stock ("ART Common Shares") issuable upon conversion of the ART Preferred
Shares that are part of the EQK Merger Consideration, as described herein.

ART has filed a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering up to
99,212 ART Preferred Shares issuable in connection with the Merger and the ART
Common Shares issuable on conversion thereof. This Prospectus/Proxy Statement
constitutes the Prospectus of ART filed as part of the Registration Statement
with respect to such ART Preferred Shares and ART Common Shares. This
Prospectus/Proxy Statement is first being mailed to EQK Shareholders on or about
____________, 1999.

SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR MATERIAL RISKS THAT SHOULD
BE CONSIDERED BY THE EQK SHAREHOLDERS, INCLUDING:

o The potential conflicts of interest between EQK and its
affiliate LLPM and between ART and its affiliate and advisor,
Basic Capital Management, Inc. ("BCM").

o The listing and possible subsequent de-listing of ART
Preferred Shares

o The reliance on the ART Board of Directors (the "ART Board")
to declare dividends on the ART Preferred Shares.

o The anti-takeover effect caused by ART's acquisition of EQK
Shares.

o The ability of the EQK Board of Trustees to make investment
policy changes without EQK Shareholder approval.

o The possible dilution of current EQK Shareholders' percentage
of equity in EQK through the issuance of additional EQK
Shares.

o The possible loss of EQK's net operating losses.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus/Proxy Statement is December 2, 1998.

<PAGE> 9

THE EQK BOARD HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS FAIR AND IN THE
BEST INTERESTS OF EQK AND THE EQK SHAREHOLDERS, AND RECOMMENDS THAT EQK
SHAREHOLDERS APPROVE THE MERGER.

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

The EQK Shares were listed and traded on the New York Stock Exchange
("NYSE") prior to May 4, 1998. On April 23, 1998, the NYSE announced that
trading of the EQK Shares would be suspended prior to the opening of the NYSE on
May 4, 1998, as EQK had fallen below the NYSE's continued listing criteria for
net tangible assets available to common stock (less than $12 million) and 3-year
average net income (less than $600,000). On August 25, 1998, the last trading
day prior to the public announcement of the Merger Agreement, the average of the
closing bid and asked prices of the EQK Shares as reported on the
over-the-counter market was $1.00 per EQK Share, and on November 30, 1998, the
most recent date for which prices were available prior to the date of filing
this Prospectus/Proxy, the average of the bid and asked price of the EQK Shares
as reported in the over-the-counter market was $0.8125 per EQK Share.

SEE "COMPARISON OF EQK SHARES TO ART PREFERRED SHARES" ON PAGE 110 FOR A
DESCRIPTION OF THE PRINCIPAL TERMS OF AND CERTAIN SIGNIFICANT CONSIDERATIONS
RELATING TO THE MERGER, THE ART PREFERRED SHARES AND THE EQK SHARES.

CERTAIN STATEMENTS, EXCLUDING THOSE MADE BY EQK, UNDER CAPTIONS "SUMMARY OF
TERMS," "RISK FACTORS," "THE BUSINESS OF ART" AND "ART MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ART,"
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
ART TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS
CONDITIONS, WHICH WILL, AMONG OTHER THINGS, AFFECT THE SUPPLY AND DEMAND FOR
COMMERCIAL REAL ESTATE, AVAILABILITY AND CREDITWORTHINESS OF PROSPECTIVE
TENANTS, LEASE RATES AND THE AVAILABILITY OF FINANCING; ADVERSE CHANGES IN THE
REAL ESTATE MARKETS INCLUDING, AMONG OTHER THINGS, COMPETITION WITH OTHER
COMPANIES, RISKS ASSOCIATED WITH REAL ESTATE ACQUISITIONS; GOVERNMENTAL ACTIONS
AND INITIATIVES; ENVIRONMENTAL/SAFETY REQUIREMENTS; AND OTHER CHANGES AND
FACTORS REFERENCED IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE.

AVAILABLE INFORMATION

ART and EQK are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, file reports and other information with the Commission. Reports and
proxy and information statements filed by ART and EQK with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, including ART and EQK, that file
electronically with the Commission. The address of such Web site is
"http://www.sec.gov". In addition, reports, proxy statements and other
information concerning ART (symbol: "ARB") can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005-2601, on which the ART Common Shares are currently listed and on
which ART intends to seek listing of the ART Preferred Shares.

-ii-

<PAGE> 10

ART has filed with the Commission the Registration Statement under the
Securities Act, with respect to the ART Preferred Shares and the ART Common
Shares. This Prospectus/Proxy Statement does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to ART, the ART Preferred Shares, the ART Common Shares
and EQK, reference is made to the Registration Statement and to the exhibits
thereto and the documents incorporated by reference herein. Statements contained
herein concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto may be inspected without
charge at the office of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies thereof may be obtained from the Commission upon payment of
the prescribed fees.

The information set forth or incorporated by reference herein concerning
ART has been furnished by ART and the information set forth herein concerning
EQK has been provided by EQK or derived from public filings previously made by
EQK. ART does not have independent knowledge of the matters set forth or
incorporated by reference herein concerning EQK. EQK does not have independent
knowledge of the matters set forth or incorporated by reference herein
concerning ART.

No person has been authorized to give any information or make any
representation other than those set forth or incorporated by reference herein
and, if given or made, such information must not be relied upon as having been
authorized by ART or EQK or any of their respective affiliates. This
Prospectus/Proxy Statement does not constitute an offer to, or a solicitation
of, any person in any jurisdiction in which such offer or solicitation is
unlawful.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

This Prospectus/Proxy Statement incorporates by reference documents not
presented herein or delivered herewith. Each of ART and EQK will provide without
charge to each person, including any EQK Shareholder, to whom a copy of this
Prospectus/Proxy Statement is delivered, upon the written or oral request of any
such person, a copy of any document described below (other than exhibits).
Requests for such copies should be directed to (i) in the case of ART, American
Realty Trust, Inc., 10670 North Central Expressway, Suite 300, Dallas, Texas
75231, Attention: Investor Relations, telephone number: (214) 692-4700, and (ii)
in the case of EQK, EQK Realty Investors I, Inc., 5775 Peachtree Dunwoody Road,
Suite 200D, Atlanta, Georgia 30342, Attention: Investor Relations, telephone
number (404) 303- 6100. In order to ensure timely delivery of such documents,
any request for documents should be submitted not later than five business days
before the date of the EQK Annual Meeting.

The following documents, heretofore filed by ART with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein:

1. ART's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, as filed with the Commission on March 30, 1998, as amended by ART's Annual
Report on Form 10-K/A, as filed with the Commission on November 24, 1998.

2. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission on May 14, 1998, as amended by ART's
Quarterly Report on Form 10-Q/A, as filed with the Commission on November 24,
1998.

3. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 14, 1998, as amended by ART's
Quarterly Report on Form 10-Q/A, as filed with the Commission on November 24,
1998.

4. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 16, 1998.

-iii-

<PAGE> 11

5. ART's Current Report on Form 8-K dated May 1, 1998, as filed with the
Commission on June 25, 1998, as amended by ART's Current Report on Form 8-KA, as
filed with the Commission on July 16, 1998.

6. The Annual Report on Form 10-K for Continental Mortgage and Equity Trust
("CMET") for the year ended December 31, 1997, as filed with the Commission on
March 20, 1998.

7. CMET's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission on May 14, 1998.

8. CMET's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 11, 1998.

9. CMET's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 12, 1998.

10. CMET's Current Report on Form 8-K dated April 3, 1998, as filed with
the Commission on June 25, 1998.

11. CMET's Current Report on Form 8-K dated September 1, 1998, as filed
with the Commission on September 28, 1998.

12. The Annual Report on Form 10-K for Income Opportunity Realty Investors,
Inc. ("IORI") for the year ended December 31, 1997, as filed with the Commission
on March 20, 1998.

13. IORI's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission on May 4, 1998.

14. IORI's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 5, 1998.

15. IORI's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 9, 1998.

16. IORI's Current Report on Form 8-K dated November 19, 1997, as filed
with the Commission on December 3, 1997, as amended by IORI's Current Report on
Form 8-K/A, as filed with the Commission on January 14, 1998, and as further
amended by IORI's Current Report on Form 8-K/A, as filed with the Commission on
August 5, 1998.

17. IORI's Current Report on Form 8-K dated December 30, 1997, as filed
with the Commission on January 9, 1998.

18. The Annual Report on Form 10-K for Transcontinental Realty Investors,
Inc. ("TCI") for the year ended December 31, 1997, as filed with the Commission
on March 20, 1998.

19. TCI's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission on May 4, 1998.

20. TCI's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 5, 1998.

21. TCI's Current Report on Form 8-K dated December 22, 1997, as filed with
the Commission on January 9, 1998, as amended by TCI's Current Report on Form
8-K/A, as filed with the Commission on June 29, 1998.

22. TCI's Current Report on Form 8-K dated May 29, 1998, as filed with the
Commission on July 2, 1998, as amended by TCI's Current Report on Form 8-K/A, as
filed with the Commission on September 23, 1998.

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23. TCI's Current Report on Form 8-K dated June 26, 1998, as filed with the
Commission on July 21, 1998, as amended by TCI's Current Report on Form 8-K/A,
as filed with the Commission on October 16, 1998.

24. TCI's Current Report on Form 8-K dated September 21, 1998, as filed
with the Commission on September 28, 1998.

25. The Annual Report on Form 10-K for National Realty, L.P. ("NRLP") for
the year ended December 31, 1997, as filed with the Commission on March 26,
1998, as amended by NRLP's Annual Report on Form 10-K/A, as filed with the
Commission on November 24, 1998.

26. NRLP's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission May 14, 1998.

27. NRLP's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 14, 1998.

28. NRLP's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 16, 1998.

29. The description of the Common Stock contained in ART's Registration
Statement under Section 12 of the Exchange Act and all amendments and reports
filed for the purpose of updating that description.

In addition, the following documents, heretofore filed by EQK with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:

1. EQK's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, as filed with the Commission on March 31, 1998.

2. EQK's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission on May 15, 1998.

3. EQK's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 14, 1998.

4. EQK's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 16, 1998.

Any statement contained herein or in a document that is deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed amendment hereto modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
AVAILABLE INFORMATION............................................................................................ii

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...............................................................iii

SUMMARY OF TERMS..................................................................................................1
General.....................................................................................................1
Future Proposals of Stockholders............................................................................1
ART's Purpose for the Merger................................................................................1
Summary of Risk Factors.....................................................................................2
ART.........................................................................................................3
Business of ART.............................................................................................3
ART Newco...................................................................................................4
EQK.........................................................................................................4
Business of EQK.............................................................................................4
Merger Proposal.............................................................................................5
Declaration Amendment Proposal.............................................................................10
New Advisory Agreement Proposal............................................................................10
Board Election Proposal....................................................................................11
New York Stock Exchange Listing of ART Preferred Shares....................................................11
Regulatory Approval........................................................................................11
The EQK Annual Meeting.....................................................................................11
Federal Income Tax Considerations..........................................................................12
Description of ART Preferred Shares........................................................................12
Description of EQK Shares..................................................................................13
The Dealer Manager.........................................................................................14
Market and Trading Information.............................................................................14
Comparative Per Share Data.................................................................................15

RISK FACTORS.....................................................................................................17
Possible Detrimental Effects of the Merger.................................................................17
Dilution of Current EQK Shareholders and Likely Decline in Trading Price per EQK Share. ...............17
Anti-Takeover Effect. .................................................................................17
Leverage of EQK after the Merger........................................................................17
Benefits to LLPM. ......................................................................................17
Conflicts of Interest Between LLPM and EQK..............................................................17
Conflicts of Interest Between EQK and BCM...............................................................17
ART Preferred Shares.......................................................................................18
Application for the Listing and Trading of ART Preferred Shares and Possible Subsequent Delisting.......18
Reliance on the ART Board to Declare Dividends on the ART Preferred Shares..............................18
Possibility that an Active Trading Market Will Not Exist for the ART Common Shares When the ART
Preferred Shares are Converted.................................................................19
Potential Adverse Consequences of the Declaration Amendment Proposal.......................................19
Effect of Limits on Ownership and Issuance of Additional EQK Shares or other Securities.................19
Changes in EQK's Policies without Shareholder Approval..................................................19
Removal of Prohibitions and Restrictions from Certain Activities and Investments........................20
Possible Issuance of Additional EQK Shares or Other Securities..........................................20
Potential Adverse Consequences Associated with Affiliate of Controlling Shareholder of New Advisor.........20
</TABLE>

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<TABLE>
<S> <C>
Correlation between the Value of the ART Preferred Shares and the Success of ART's Business................20
Recent Operating History................................................................................21
Changes in ART's Policies Without Stockholder Approval..................................................21
Investments in Real Property............................................................................21
Nature of Investments Made by ART May Involve High Risk; Illiquidity of Real Estate Investments.........21
Difficulty of Locating Suitable Investments; Competition................................................21
General Investment Risks Associated With Acquisition Activities.........................................21
Dependence on Rental Income from Real Property..........................................................22
Properties that Serve as Collateral for ART's Mortgage Notes Receivable.................................22
Operating Risks of ART's Properties.....................................................................22
Existing Debt Maturities................................................................................23
Rising Interest Rates on Variable Rate Debt.............................................................23
Covenants...............................................................................................24
Lack of Control and Other Risks of Equity Investments in and with Third Parties.........................24
Investments in Non-Recourse Mortgage Loans..............................................................24
Limitations on Remedies.................................................................................24
Possibility of Uninsured Loss on Uninsurable or Economically Uninsurable Properties.....................25
Costs of Compliance with the Americans with Disabilities Act and Similar Laws...........................25
Potential Environmental Liability Affecting ART.........................................................25
Noncompliance with Other Laws...........................................................................26
Changes in Laws.........................................................................................26
Dependence on Key Personnel.............................................................................26
Correlation between the Value of the EQK Shares and the Success of EQK's Business..........................26
Possible Loss of NOLs...................................................................................26

RATIO OF EARNINGS TO FIXED CHARGES...............................................................................27

USE OF PROCEEDS..................................................................................................27

THE EQK ANNUAL MEETING...........................................................................................27
Introduction...............................................................................................27
Date, Time and Place of Meetings...........................................................................27
Matters to Be Considered at the EQK Annual Meeting.........................................................27
Record Date and Vote Required..............................................................................27
Proxy......................................................................................................28
Solicitation of Proxies....................................................................................28
Other Matters..............................................................................................29

THE PROPOSED MERGER AND RELATED MATTERS..........................................................................29
Background of the Merger...................................................................................29
General....................................................................................................32
Effects of the Merger......................................................................................32
Effective Time of the Merger...............................................................................33
Terms of the Merger........................................................................................33
Cash in Lieu of Fractional Shares of ART Preferred Shares..................................................33
Availability of Appraisal Rights...........................................................................34
Conditions to the Merger; Termination; Waiver and Amendment................................................34
Solicitation Permitted; Board Action; Fees and Expenses....................................................35
Conduct of EQK's Businesses Pending Completion of the Merger...............................................35
Sale of The Center and Acquisition of Oak Tree Village.....................................................36
ART's Purposes for the Merger..............................................................................39
The EQK Board Recommendation...............................................................................39
</TABLE>

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<TABLE>
<S> <C>
Federal Income Tax Consequences............................................................................40
Effect of Merger on Market for EQK Shares; Registration Under the Exchange Act.............................44
Fees and Expenses in Connection with the Merger............................................................45
Accounting Treatment.......................................................................................45
Stock Exchange Listing.....................................................................................45
EQK Litigation.............................................................................................45

THE DECLARATION AMENDMENT PROPOSAL...............................................................................45

THE NEW ADVISORY AGREEMENT PROPOSAL..............................................................................47

THE BOARD ELECTION PROPOSAL......................................................................................48

DESCRIPTION OF ART...............................................................................................51

EXECUTIVE COMPENSATION OF ART....................................................................................52

THE BUSINESS OF ART..............................................................................................52
General....................................................................................................52
Geographic Regions.........................................................................................54
Real Estate................................................................................................54
Mortgage Loans.............................................................................................69
Investments in Real Estate Investment Trusts and Real Estate Partnerships..................................71

SELECTED FINANCIAL DATA OF ART...................................................................................79

ART MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ART...........................................................................81
Introduction...............................................................................................81
Liquidity and Capital Resources............................................................................81
Commitments and Contingencies..............................................................................86
Results of Operations......................................................................................86
Environmental Matters......................................................................................91
Inflation..................................................................................................91
Year 2000..................................................................................................91

DESCRIPTION OF THE CAPITAL STOCK OF ART..........................................................................92
General....................................................................................................92
ART Preferred Shares.......................................................................................92
ART Common Shares..........................................................................................93
Special Stock..............................................................................................93

DESCRIPTION OF EQK...............................................................................................97

THE BUSINESS OF EQK..............................................................................................97
General....................................................................................................97
Summary of the Existing Declaration of Trust...............................................................99
Property Management Agreement.............................................................................100

SELECTED FINANCIAL DATA OF EQK..................................................................................101
</TABLE>

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<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<S> <C>
OF EQK....................................................................................................104
Capital Resources.........................................................................................104
EQK Background............................................................................................104
Center....................................................................................................105
Mortgage Debt Extensions..................................................................................105
Liquidity.................................................................................................106
Year 2000 Readiness Disclosure............................................................................108
Results of Operations.....................................................................................108

DESCRIPTION OF THE EQK SHARES...................................................................................110

COMPARISON OF EQK SHARES TO ART PREFERRED SHARES................................................................110

DESCRIPTION OF THE HARRISBURG EAST MALL.........................................................................114

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF ART AND EQK......................................121

PLAN OF DISTRIBUTION............................................................................................133

LEGAL MATTERS...................................................................................................133

EXPERTS.........................................................................................................133

INDEX TO FINANCIAL STATEMENTS................................................................................F-1

APPENDICES:

APPENDIX A - Glossary of Select Terms
APPENDIX B - Amended and Restated Merger Agreement
APPENDIX C - New Advisory Agreement
APPENDIX D - Second Amended and Restated Declaration of Trust of EQK
</TABLE>

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<PAGE> 17

SUMMARY OF TERMS

The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the documents
incorporated herein by reference. Certain capitalized terms used herein may be
defined elsewhere in this Prospectus/Proxy Statement. See "Glossary of Selected
Terms" included as Appendix A to this Prospectus/Proxy Statement.

GENERAL

This Prospectus/Proxy Statement relates to the EQK Annual Meeting at which
the EQK Shareholders will consider and vote upon the following proposals:

(1) The Merger Agreement and the Merger (the "Merger Proposal");

(2) An amendment and restatement of EQK's Amended and Restated Declaration
of Trust dated February 27, 1985, as amended on March 5, 1986 (the "Declaration
of Trust"), as described herein (the "Declaration Amendment Proposal");

(3) The termination of LLPM's rights and obligations under the advisory
agreement between LLPM and EQK (the "Advisory Agreement") and the execution by
EQK of a new advisory agreement (the "New Advisory Agreement") between EQK and
Basic Capital Management, Inc., a Nevada corporation and an affiliate of and
advisor to ART ("BCM"), as the new advisor to EQK (the "New Advisory Agreement
Proposal");

(4) The election of the EQK Board (the "Board Election Proposal"); and

(5) Such other business as may properly come before the EQK Annual Meeting
or any adjournment thereof.

The Board Election Proposal will require the affirmative vote of EQK
Shareholders representing a majority of the total votes authorized to be cast by
EQK Shares then outstanding which are present at the EQK Annual Meeting in
person or by proxy and entitled to vote thereon. The Merger Proposal, the
Declaration Amendment Proposal and the New Advisory Agreement Proposal
(collectively, the "Merger-Related Proposals") will each require the affirmative
vote of EQK Shareholders representing three-quarters of the total votes
authorized to be cast by EQK Shares then outstanding (the "Requisite Shareholder
Approval"). None of the Merger-Related Proposals will take effect unless all
such proposals receive the Requisite Shareholder Approval. In addition, none of
the Merger-Related Proposals will take effect unless EQK first completes the
sale of its last remaining real estate asset, the Center, and makes a
distribution of EQK's net liquid assets after such sale. The Board Election
Proposal and the Merger-Related Proposals are referred to herein collectively as
the "Proposals."

FUTURE PROPOSALS OF STOCKHOLDERS

Any proposal intended to be presented by an EQK Stockholder at the 1999
Annual Meeting of EQK Shareholders must be received at EQK's principal office
not later than ___, 1999, in order to be considered for that meeting.

ART'S PURPOSE FOR THE MERGER

ART intends to acquire an aggregate of 5,050,032 EQK Shares pursuant to the
Block Purchase and the Merger for the purpose of investment and in order to
achieve the listing of the ART Preferred Shares on the NYSE. The ART Board
believes that the issuance and the proposed listing of the ART Preferred Shares
on the NYSE in connection with the Merger would provide ART with greater access
to the public capital markets for future acquisition transactions. The ART Board
also considered the amount of EQK's net operating loss carryovers (the "NOLs")
which approximate $94,000,000 as of September 30, 1998 and the resulting
benefits to ART of acquiring an indirect interest in such NOLs through EQK
pursuant to the Merger. Assuming market conditions, industry conditions and
EQK's business and financial condition do not suffer adversely in the interim,
it is currently ART's intention (but not obligation) to seek to acquire
substantially all of the remaining outstanding EQK Shares at some time after the
third anniversary of the

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<PAGE> 18

consummation of the Merger for consideration of 0.0486 of an ART Preferred Share
(with a Liquidation Value for such portion of an ART Share of $0.486) per
currently outstanding EQK Share. Notwithstanding the foregoing, ART is not
obligated to make any further acquisition of EQK Shares and no assurance can be
given that ART will make any such acquisitions in the future. In addition, any
such acquisitions may be for a consideration per EQK Share which is greater or
less than the consideration offered in the Merger.

SUMMARY OF RISK FACTORS

In considering whether or not to vote in favor of the Merger-Related
Proposals, EQK Shareholders should carefully consider all of the information set
forth in this Prospectus/Proxy Statement and, in particular, should evaluate the
factors set forth under the caption "Risk Factors" herein. Such factors include,
among other things:

o Dilution of Current EQK Shareholders and Likely Decline in Trading
Price per EQK Share. If the Merger is consummated, the percentage ownership of
the Public EQK Shareholders in EQK will be diluted as a result of the issuance
of EQK Shares to ART as the ART Merger Consideration. Accordingly, after the
Merger, the trading price of the EQK Shares is likely to decline as a result of
such dilution.

o Application for the Listing and Trading of ART Preferred Shares and
Possible Subsequent Delisting. As of November 16, 1998, there were 3,350,000 ART
Preferred Shares outstanding, 2,200,000 of which are not held by affiliates of
ART; however, there is currently no established public market for the ART
Preferred Shares. While the listing of the ART Preferred Shares on the NYSE is a
condition precedent to EQK's obligation to consummate the Merger, there can be
no assurance that an active market for the ART Preferred Shares will develop or
be sustained in the future on such exchange if the listing is approved. Listing
of the ART Preferred Shares will also depend upon the satisfaction of the NYSE's
listing requirements as described herein under "Risk Factors -- Risks Relating
to the ART Preferred Shares -- Risks Relating to the Listing and Trading of the
ART Preferred Shares."

o Reliance on the ART Board to Declare Dividends on the ART Preferred
Shares. Although dividends accrue cumulatively on the ART Preferred Shares from
the date of issuance, such dividends will not be paid unless and until they are
declared by the ART Board. Holders of ART Preferred Shares will not have the
authority to direct or compel the ART Board to declare dividends with respect to
the ART Preferred Shares.

o Potential Adverse Consequences of the Declaration Amendment Proposal.
Subject to the Requisite Shareholder Approval of the Declaration Amendment
Proposal, EQK's Declaration of Trust will be amended to provide for, among other
things, (i) the Ownership Limit; (ii) a 20 year extension of the finite life of
the trust, (iii) the ability to change investment, financing, borrowing and
distribution policies without shareholder approval, (iv) the removal of
prohibitions from certain activities and investments, and (v) the ability to
issue additional EQK Shares and other types of securities. Such amendments will,
among other things, expand the scope of the actions that may be taken by the New
EQK Board (as defined herein under "The Board Election Proposal") without
shareholder approval. See "Risk Factors -- Potential Adverse Consequences of the
Declaration Amendment Proposal" and "The Declaration Amendment Proposal."

o Anti-Takeover Effect. If the Merger and the Block Purchase are
consummated, ART will acquire an aggregate of 5,050,032 EQK Shares, or
approximately 49% of the EQK Shares to be outstanding after the Merger. As a
result of the foregoing and the effect of the Ownership Limit (as defined below
under "--Declaration Amendment Proposal"), third party attempts to acquire
control of EQK may not be practicable. Accordingly, if the Merger is approved,
it is unlikely that an attempted take-over of EQK, which might result in an
increase in the price at which EQK Shares could be sold, will occur.

o The Value of the ART Preferred Shares is Substantially related to the
Success of ART's Business. The future value of the ART Preferred Shares will be
substantially dependent upon the results of ART's business, which is subject to
a number of risks as generally described herein under "Risk Factors -- Risks
Relating to ART's Business."

o The Value of the EQK Shares is Substantially Related to the Success
of EQK's Business. The future value of the EQK Shares will be substantially
dependent upon the results of EQK's business, which is subject to many of the

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<PAGE> 19

same risks to which ART is subject, in addition to the risks described below.
However, after the sale of the Center and the distribution of EQK's net liquid
assets to the EQK Shareholders, EQK will have limited assets and limited or no
capital.

o Possible Loss of NOLs. EQK currently has NOLs for federal income tax
purposes of approximately $94,000,000, prior to the anticipated utilization of a
portion of these NOLs to offset the taxable gain expected to be realized upon
the sale of Harrisburg East Mall. In general, such NOLs may be used to offset
any taxable gains realized upon the sale of EQK's assets so long as there is not
more than a 50 percentage point change in the ownership of the EQK Shares during
any three year period. In the event that there is more than a 50 percentage
point change in the ownership of EQK Shares during a three year period, the
availability of such NOLs to offset taxable gains or income would be reduced to
a very significant extent. Although it is not expected that the Merger, the
Block Purchase or the Standstill Agreements (as defined in "--Merger Proposal --
Conditions of the Merger") would reduce the availability of the NOLs, future
transfers of EQK Shares may be made over which ART will have no control. A
reduction in the availability of such NOLs could have a material adverse effect
on the market value of EQK and the EQK Shares.

o Sale of the Center. As described below under "--Business of EQK," EQK
has negotiated a forbearance agreement with the holder of its existing mortgage
debt (aggregating $45,375,000 as of September 30, 1998) until December 15, 1998.
Pursuant to the Merger Agreement, ART has agreed to permit EQK to sell the
Center and distribute the remaining net liquid assets to the EQK Shareholders
(including LLPM, Summit, Sutter and Halperin) as a condition precedent to the
Merger. Upon consummation of the sale of the Center and the distribution of the
net proceeds therefrom to the EQK Shareholders, the market value of the EQK
Shares will be substantially reduced and it is unlikely that EQK will have
sufficient net earnings available for future distributions to EQK Shareholders.

ART

ART, a Georgia corporation, is the successor to a District of Columbia
business trust organized pursuant to a declaration of trust dated July 14, 1961.
The business trust merged into ART on June 24, 1988. ART elected to be treated
as a real estate investment trust ("REIT") under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code") during the period from
July 1, 1987 through December 31, 1990. ART allowed its REIT status to lapse in
1991.

ART, through a wholly owned subsidiary, Pizza World Supreme, Inc. ("PWSI"),
also operates and franchises pizza parlors featuring pizza delivery, carry-out
and dine-in under the trademark "Me-N-Ed's" in California and Texas. The first
Me-N-Ed's pizza parlor opened in 1962. At September 30, 1998, there were 57
Me-N-Ed's pizza parlors in operation, consisting of 51 owned and six franchised
pizza parlors. Seven of the owned pizza parlors were in Texas and the remainder
in California.

ART's principal offices are located at 10670 North Central Expressway,
Suite 300, Dallas, Texas 75231. ART's telephone number is (214) 692-4700. See
"Description of ART."

BUSINESS OF ART

The ART Board has broad authority under ART's governing documents to make all
types of real estate investments, including investments in mortgage loans and
equity real estate investments, as well as investments in the securities of
other entities, regardless of whether such entities are engaged in real
estate-related activities.

Although the ART Board is directly responsible for managing ART's affairs
and for setting the policies which guide it, the day-to-day operations of ART
are conducted by BCM, an affiliate of and advisor to ART. BCM is a contractual

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advisor to ART under the supervision of the ART Board. The duties of BCM
include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources for ART. BCM also serves as a
consultant in connection with ART's business plan and investment policy
decisions made by the ART Board.

ART's businesses are not seasonal. With regard to real estate, ART is
seeking both current income and capital appreciation. ART's plan of operation is
to continue, to the extent its liquidity permits, to make equity investments in
income producing real estate such as apartment complexes and commercial
properties or equity securities of real estate- related entities and to continue
to service and hold for investment mortgage loans. ART also intends to pursue
higher risk, higher reward investments, such as undeveloped land, where it can
obtain financing of a significant portion of a property's purchase price. In
addition, ART will continue to seek selected dispositions of certain of its
assets where the prices obtainable for such assets justify their disposition and
will pursue its rights vigorously with respect to mortgage notes receivable that
are in default. For a detailed description of ART's business, see "The Business
of ART."

ART NEWCO

ART Newco is a limited liability company formed under the laws of the
Commonwealth of Massachusetts. The members of ART Newco consist of ART and ART
Newco Holdings, LLC, a Texas limited liability company, of which ART is the sole
member. ART Newco was formed specifically for purposes of the Merger and, as
described herein, subject to the Requisite Shareholder Approval, will be merged
with and into EQK pursuant to the Merger.

EQK

EQK was formed pursuant to the filing of its initial declaration of trust
on October 8, 1984. LLPM currently acts as the advisor (in such capacity, the
"Advisor") to EQK. On June 10, 1997, Lend Lease Corporation, an Australian
public property and financial services company, acquired Equitable Real Estate
Investment Management, Inc. ("ERE"), including two of its subsidiaries, LLPM
(formerly Equitable Realty Portfolio Management) and Compass Retail, Inc.
("Compass") from The Equitable Life Assurance Society of the United States
("Equitable"). ERE and certain of its business units, including the Advisor,
currently operate under the name "Lend Lease." Upon consummation of the Merger,
subject to Requisite Shareholder Approval of the Merger-Related Proposals, LLPM
has agreed to terminate its rights and duties as Advisor under the Advisory
Agreement, at which time BCM, an affiliate of and advisor to ART, will become
the new advisor to EQK (in such capacity, the "New Advisor") under the New
Advisory Agreement.

The principal executive offices of EQK and LLPM are located at 5775
Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia, 30342, and their
telephone number is (404) 303-6100. See "Description of EQK."

BUSINESS OF EQK

EQK was formed for the purpose of acquiring three substantially unleveraged
income-producing properties. EQK sold two of such properties, one in
transactions in 1992 and 1993 and the other in transactions in 1991 and 1995.
The Center is currently EQK's only real estate investment. The Center is a
two-level enclosed regional mall shopping center located approximately three
miles from the central business district of Harrisburg, Pennsylvania. EQK is
currently a closed-end trust (i.e., it may not issue any additional EQK Shares
without the approval of holders of three-quarters of the outstanding EQK
Shares), and, except in limited circumstances, it may not make any additional
real estate investments and must distribute to its shareholders the net proceeds
from each sale and financing of any investment. Consequently, EQK is currently a
self-liquidating trust. As described below, upon consummation of the Merger,
subject to the Requisite Shareholder Approval, the Declaration of Trust will be
amended to extend the term of EQK by 20 years and to permit EQK to issue
additional equity securities and to make all types of real estate investments,
including, without limitation, acquisitions of additional real property. See
"Risk Factors -- Potential Adverse Consequences of the Declaration Amendment
Proposal -- Extension of Finite Life of EQK."

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<PAGE> 21

Pursuant to the Merger Agreement, ART has agreed to permit EQK to sell the
Center and to distribute the net liquid assets to the EQK Shareholders as a
condition precedent to the Merger. Subject to Requisite Shareholder Approval of
the Merger Related Proposals, EQK has agreed to acquire from ART a retail
shopping center known as "Oak Tree Village" located in Lubbock, Texas ("Oak Tree
Village") upon the terms and conditions described herein under "The Proposed
Merger and Related Matters -- Sale of the Center and Acquisition of Oak Tree
Village."

MERGER PROPOSAL

Background of the Merger. On March 5, 1996, Mr. Doug Tibetts, President of
Equitable (formerly the indirect parent of LLPM which holds 1,685,556 EQK
Shares), met with ART representatives at ART's office in Dallas. The meeting was
general in nature without a formal agenda. Mr. Tibetts suggested that
representatives of ART speak with Mr. Gregory R. Greenfield, Executive Vice
President and Treasurer of EQK, concerning the possible sale of EQK. During
March and April of 1996, various telephone conversations were held between Mr.
Cooper B. Stuart, an Executive Vice President of BCM, an affiliate of and
advisor to ART, and Mr. Greenfield regarding the Center and a possible
transaction involving EQK.

In August of 1996, Messrs. Stuart and Greenfield had various additional
discussions regarding the possible sale of EQK. Mr. Greenfield informed Mr.
Stuart that EQK needed to focus on completing the sale of certain properties and
Messrs. Stuart and Greenfield agreed to discontinue their discussions until the
beginning of 1997.

On January 23, 1997, representatives of ART held a meeting with Mr. William
G. Brown, Vice President and Controller of EQK, and Mr. Greenfield to discuss a
proposed exchange offer by ART with respect to the EQK Shares. EQK agreed to
engage an independent financial advisor (the "Financial Advisor") to review the
fairness of the proposed exchange offer for the EQK Board.

On February 20, 1997, Mr. Stuart and Mr. A. Cal Rossi, Jr., an Executive
Vice President of BCM, met with Messrs. Greenfield and Brown to further discuss
the proposed exchange offer pursuant to which ART would offer to exchange a
combination of cash and ART Preferred Shares for up to 50% of the outstanding
EQK Shares.

On March 6, 1997, ART and EQK entered into a cost sharing agreement with
respect to the proposed exchange offer. Under the terms of such agreement, (i)
if ART and EQK do not execute a definitive agreement, EQK's liability would
shall be limited to the lesser of 50% of the actual transaction costs or $50,000
and ART shall be responsible for all additional transaction costs, (ii) if ART
and EQK agree upon the terms of and execute a definitive agreement and proceed
in good faith to complete the proposed transaction, but are unsuccessful in this
effort by reason of inadequate shareholder response to the related proxy
statement or otherwise, EQK's liability shall be limited to the lesser of 50% of
the actual transaction costs or $100,000, and ART shall be responsible for all
additional transaction costs, and (iii) if the proposed transaction is
ultimately initiated and successfully achieves the desired shareholder exchange
in accordance with the terms of a definitive agreement, EQK's liability shall be
limited to the lesser of 50% of the actual transaction costs or $150,000, and
ART shall be responsible for all additional transaction costs.

On March 24, 1997, representatives of the Financial Advisor visited ART's
offices to interview key personnel of both ART and BCM.

During April 1997, discussions continued between representatives of ART and
EQK concerning the terms of the ART Preferred Shares, the terms of the proposed
exchange offer and the fairness opinion. Although an offer was never extended,
ART informally proposed to offer to exchange a combination of (i) cash of
approximately $0.40/share and (ii) ART Preferred Shares having a liquidation
value of approximately $1.85 for up to 50% of the outstanding EQK Shares. EQK
had 9,264,344 shares outstanding and The Prudential Insurance Company of America
("Prudential"), the lender on the Center, held warrants to acquire 367,868
shares (the "Prudential Warrants"), for a total of 9,632,212 shares. The ART
Preferred Shares would pay a 10% annual dividend beginning August 16, 1998 and
have a stated liquidation value of $10.00 per ART Preferred Share, plus accrued
and unpaid dividends. If the proposed exchange offer was 100% successful and ART
acquired 4,632,172 shares of EQK and if the actual exchange offer was the same
as that informally discussed, ART would have paid $1,852,869 in cash and issued
856,952 ART Preferred Shares (having a liquidation value of $8,569,520). The
terms of the ART Preferred Shares have not changed in any material

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manner from those preliminary discussions. For a description of the ART
Preferred Shares see "Description of the Capital Stock of ART -- ART Preferred
Shares." On April 11, 1997, BCM received from EQK a copy of a draft appraisal
with respect to the leasehold interests in the Center. On May 7, 1997, the
Financial Advisor orally issued a fairness opinion with respect to the terms of
the proposed exchange offer. The EQK Board met on May 7, 1997 and approved the
terms of the proposed exchange offer from ART to the EQK Shareholders.

On June 10, 1997, Lend Lease Corporation acquired ERE, including its
subsidiaries, LLPM and Compass. In connection with such acquisition, the
ownership of LLPM's EQK Shares was transferred for tax purposes, thus
effectively limiting the number of EQK Shares that could be acquired by ART in
an exchange offer without limiting the availability of EQK's NOLs. As a result,
during June and July of 1997, Mr. Stuart and Mr. Brown held further discussions
regarding a proposed change in the structure of the transaction from an exchange
offer to a merger and two separate stock purchases between ART and each holder
of 5% or more of the EQK Shares (excluding ART) (each a "5% Holder") who had
acquired or experienced a change in ownership in EQK Shares during the past
three years. The merger would result in the EQK Shareholders (other than LLPM
and Greenspring Fund, Incorporated ("Greenspring") which would sell all of their
shares in the stock purchase transactions) retaining all of their EQK Shares and
receiving a combination of cash and ART Preferred Shares. The public EQK
Shareholders' aggregate percentage interest in EQK would be reduced as a result
of the issuance of EQK Shares to ART pursuant to the merger. This reduction in
percentage interest would effectively be equivalent to the sale by each public
EQK Shareholder of approximately 25% of such EQK Shareholder's shares at the
same price per share ($.40 in cash and a portion of an ART Preferred Share with
a Liquidation Value of $1.85) as was to be offered in the exchange offer. It was
then contemplated that LLPM and Greenspring would receive for each EQK Share
sold by them a portion of an ART Preferred Share with a Liquidation Value of
$2.25.

On July 9, 1997, ART and EQK entered into a revised cost sharing agreement
that reflected the change in the proposed structure of the transaction from an
exchange offer to a merger. The terms and conditions of the revised cost sharing
agreement remained substantially the same.

As a further condition precedent to the Merger, ART agreed to offer to
enter into a Standstill Agreement with each 5% Holder of EQK Shares (other than
LLPM and Greenspring) whereby ART would pay $0.10 per existing EQK Share held by
the two remaining 5% Holders (paid on a maximum of 2,156,600 shares or a maximum
of $215,660 in cash) as compensation for such holder's agreement not to sell any
of its EQK Shares or acquire any additional EQK Shares for a period of 42 months
after the consummation of the Merger.

As consideration for the Merger, the Public EQK Shareholders would have
been entitled to receive approximately 453,552 ART Preferred Shares (having a
liquidation value of $4,535,519) and $1,884,891 in cash. Each Public EQK
Shareholder would also have been entitled to retain its EQK Shares. In addition,
as consideration for the Merger, ART would be entitled to receive 4,804,761
newly-issued EQK Shares.

ART had also agreed to issue 333,500 ART Preferred Shares (having a
Liquidation Value of $3,335,000) to LLPM in settlement of deferred advisory and
disposition fees owed by EQK to LLPM under the Advisory Agreement. One- half of
the deferred advisory fee (136,000 ART Preferred Shares having a Liquidation
Value of $1,360,000) would have been paid to LLPM at closing, and the other half
would have been paid to LLPM three years after the Closing Date. BCM would act
as successor advisor to EQK under the terms and conditions of a new advisory
agreement.

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<PAGE> 23

On September 30, 1997, the Financial Advisor orally issued a revised
fairness opinion with respect to the proposed Merger.

On September 30, 1997 and November 13, 1997, the EQK Board and the ART
Board, respectively, approved the terms of the initial Agreement and Plan of
Merger (the "Original Merger Agreement").

In October 1997 Mr. Brown contacted Greenspring regarding its interest in
the Block Purchase. From September 30, 1997 until December 24, 1997 the parties
held numerous telephone conferences to finalize the definitive agreements for
the Merger and Block Purchase.

On December 24, 1997, ART and EQK issued a joint press release to the
effect that the Original Merger Agreement had been signed.

On January 6, 1998, ART filed the Registration Statement with the
Commission.

On January 21, 1998, ART filed Amendment No. 1 to the Registration
Statement.

In January 1998, Halperin filed a Schedule 13D with the Commission
disclosing that he had purchased 854,200 EQK Shares during the period from
December 26, 1997 through January 20, 1998 (the "Halperin Purchase"). During
January and February of 1998, Messrs. Stuart and Brown had several discussions
regarding the Halperin Purchase. After consulting with its counsel, ART decided
that it would make an offer to Halperin to purchase his EQK Shares after the
Registration Statement had been declared effective by the Commission. Such offer
would be made upon the same terms and conditions as ART's offer to purchase the
EQK Shares held by LLPM and Greenspring. If Halperin declines such offer, ART
will amend the Registration Statement to reflect such fact, but the
consideration to be paid to the Public EQK Shareholders, LLPM and Greenspring in
connection with the Merger and the Block Purchase would remain the same.

On February 20, 1998, ART received the Commission's comments to the
Registration Statement.

During March and April 1998, ART and EQK prepared their respective
responses to the Commission's comments to the Registration Statement.

On March 19, 1998, Prudential gave EQK notice of its intent to exercise the
Prudential Warrants. The Prudential Warrants were exercised on April 8, 1998,
and on May 7, 1998, 367,868 EQK Shares were issued to Prudential.

On April 23, 1998, the NYSE announced that trading in the EQK Shares would
be suspended prior to the opening of the NYSE on May 4, 1998 because EQK had
fallen below the NYSE's continued listing criteria for net tangible assets
available to common stock (less than $12 million) and 3-year average net income
(less than $600,000).

During May 1998, Mr. Brown informed Mr. Stuart that the EQK Board had
decided that it was in the best interests of the EQK Shareholders to terminate
the Original Merger Agreement and to sell the Center and distribute the net
liquid assets to the EQK Shareholders. Mr. Brown stated that the EQK Board was
concerned that the Original Merger Agreement would hinder EQK's ability to
consummate a sale of the Center prior to December 15, 1998, the date on which
the forbearance agreement relating to the Center's mortgage terminates.

During May 1998, Mr. Brown and Mr. Stuart held various discussions
regarding the proposed termination of the Original Merger Agreement. On May 15,
1998, Mr. Stuart executed and delivered to Mr. Brown a letter setting forth
ART's desire to continue discussions with EQK for a modified structure and ART's
consent to the proposed sale of the Center prior to the consummation of the
Merger.

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<PAGE> 24

proceeds from the sale of the Center. The parties agreed that the consideration
to be paid to LLPM, Greenspring and Halperin in connection with the Block
Purchase would be a portion of an ART Preferred Share with a liquidation value
of $0.328 per EQK Share purchased and the consideration to be paid to the Public
EQK Shareholders would be a portion of an ART Preferred Share with a liquidation
value of $0.157 per EQK Share, with the Public EQK Shareholders retaining all of
their EQK Shares subject to the dilution resulting from the issuance of
additional EQK Shares as the ART Merger Consideration.

As a result of the revised structure and the sale of the Center prior to
the consummation of the Merger, the EQK Board determined that it would no longer
be practicable to obtain a fairness opinion with respect to the Merger. This
determination was based primarily on the fact that, upon the sale of the Center
and the resulting distribution to EQK Shareholders, EQK would have no assets
other than its NOLs, the availability of which is uncertain. Legg Mason
indicated to EQK that, under these circumstances, it would not be able to render
a fairness opinion. In this regard, EQK obtained the right to solicit and
negotiate regarding alternate proposals subject to the obligation to make
certain termination payments under certain specified circumstances as described
under "The Proposed Merger and Related Matters -- Solicitation Permitted; Board
Action; Fees and Expenses."

In August 1998, Summit and Sutter each filed a Schedule 13G with the
Commission disclosing that they had purchased an aggregate of 1,252,500 EQK
Shares (the "Summit/Sutter Purchases"). These purchases were from one of the 5%
Holders. During August 1998, Messrs. Stuart and Brown had several discussions
regarding the impact of the Summit/Sutter Purchases. One effect of the
Summit/Sutter purchases was to reduce, as a result of tax considerations, the
number of shares that ART could purchase that were held by Public EQK
Shareholders. As a result, the parties determined that the terms of the
consideration for the Merger and the Block Purchases should be adjusted so that
the consideration to be paid to LLPM, Greenspring, Summit, Sutter and Halperin
in connection with the Block Purchase would be a portion of an ART Preferred
Share with a liquidation value of $0.30 per EQK Share purchased and the
consideration to be paid to the Public EQK Shareholders would be a portion of an
ART Preferred Share with a liquidation value of $0.14 per EQK Share, with the
Public EQK Shareholders retaining all of their EQK Shares subject to the
dilution resulting from the issuance of additional EQK Shares as the ART Merger
Consideration. Upon reaching a preliminary agreement as to the consideration for
the Merger and the Block Purchases, ART then offered to purchase from Summit and
Sutter all of their respective EQK Shares upon the same terms and conditions as
the LLPM and Greenspring purchases. Each of Summit and Sutter has accepted ART's
purchase offer. Additionally, on August 27, 1998, Summit and Sutter each
purchased one half of Greenspring's total EQK shares, thereby increasing the
number of shares to be acquired by ART from Summit and Sutter pursuant to the
Block Purchases.

As a condition precedent to the Merger, ART also agreed to offer to enter
into a Standstill Agreement with the remaining 5% Holder (other than LLPM,
Summit, Sutter and Halperin) whereby ART would pay $0.10 per existing EQK Share
held by the such 5% Holder (paid on a maximum of 906,600 shares or a maximum of
$90,660 in cash) as compensation for such 5% Holder's agreement not to sell any
of its EQK Shares or acquire any additional EQK Shares for a period of 42 months
after the consummation of the Merger.

On August 25, 1998, ART and EQK executed the Merger Agreement.

On September 3, 1998, ART filed Amendment No. 2 to the Registration
Statement.

EQK Board Recommendation. The EQK Board believes that the Merger is fair
to, and in the best interests of, EQK and the EQK Shareholders. The EQK Board
also believes that the proposed amendments to the Declaration of Trust as
described herein under "The Declaration Amendment Proposal" are in the best
interests of EQK and the EQK Shareholders in order to facilitate the Merger. The
EQK Board has unanimously approved the terms and conditions of the Merger and
the proposed amendments to the Declaration of Trust and the transactions
contemplated thereby as set forth in the Merger Agreement and unanimously
recommends that the EQK Shareholders vote FOR the Declaration Amendment
Proposal, the Merger Proposal and the New Advisory Agreement Proposal. See "The
Proposed Merger and Related Matters."

Conditions of the Merger. The Merger is conditioned upon, among other
things, (i) EQK's sale of the Center and distribution of the net liquid assets
to the EQK shareholders, (ii) the consummation of the Block Purchase, (iii) the
Requisite Shareholder Approval of the Merger-Related Proposals, (iv) the
acquisition by EQK from ART of the Oak

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<PAGE> 25

Tree Village upon the terms and conditions described herein under "The Proposed
Merger and Related Matters -- Sale of the Center and Acquisition of Oak Tree
Village," (v) the execution by each 5% Holder (other than LLPM, Summit, Sutter
and Halperin) of an agreement pursuant to which such 5% Holder will receive
$0.10 in cash per EQK Share held by such 5% Holder in exchange for a restriction
on the rights of such 5% Holder to sell or purchase any EQK Shares for a period
of 42 months after the consummation of the Merger (a "Standstill Agreement"),
(vi) the authorization of the ART Preferred Shares for listing on the NYSE,
subject to official notice of issuance, (vii) no stop order suspending the
effectiveness of the Registration Statement having been issued and no
proceedings for that purpose having been initiated or threatened by the
Commission, (viii) no order, injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, (ix) the receipt by ART and EQK of all required
material governmental authorizations, permits, consents, orders or approvals,
(x) the receipt of all licenses, permits, consents, approvals and authorizations
from all third parties and governmental bodies and agencies which are necessary
in connection with consummation of the Merger and the conduct of EQK's business
after the Merger (xi) EQK operating in all respects in its ordinary course of
business without any material adverse change in its business, properties or
financial condition, (xii) the receipt by ART of written resignations from all
members of the current EQK Board, (xiii) the number of outstanding EQK Shares
immediately prior to the Merger being 9,632,212 and no additional EQK Shares or
other equity interests or any option, warrant, right or other security
exercisable for, convertible into or exchangeable for EQK Shares or other equity
interests in EQK being issued since September 30, 1998, and (xiv) the
representations and warranties of EQK in the Merger Agreement being true,
complete and accurate in all material respects as of the date when made and as
of the date the Merger is consummated. See "The Proposed Merger and Related
Matters -- Conditions to the Merger; Termination; Waiver and Amendment."

ART and EQK may, by an appropriate instrument executed at any time prior to
the Effective Time (as defined below under "--The Merger Agreement"), whether
before or after the Requisite Shareholder Approval is obtained, amend the Merger
Agreement; provided that after the receipt of such approvals, no amendment or
modification may be made which alters the amount or changes the form of the EQK
Merger Consideration or ART Merger Consideration.

The parties to the Merger Agreement may, at any time prior to the Effective
Time, by action taken by their Board of Directors or Trustees, as applicable:
(i) extend the time for the performance of any of the obligations or other acts
of the other party; (ii) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant thereto and (iii) subject to limitations on amendment, waive compliance
with any of the agreements or conditions contained in the Merger Agreement to
the extent permitted by law. EQK intends to resolicit shareholder approval for
the Merger if EQK desires to waive any material conditions to the Merger
Agreement.

Effect of Merger on Market for EQK Shares. The sale of the Center, the
resulting distribution of the net liquid assets to the EQK Shareholders, the
Block Purchase, the Merger and the Standstill Agreements will have the
cumulative effect of reducing the number of EQK Shares that are likely to trade
publicly. This may adversely affect the liquidity of the market for EQK Shares
after the Merger. As a result of this and the dilution resulting from the
issuance of additional EQK Shares as the ART Merger Consideration, the market
value of the remaining EQK Shares held by the Public EQK Shareholders is likely
to be materially adversely affected. See "The Proposed Merger and Related
Matters -- Effect of Merger on Market for EQK Shares; Registration Under the
Exchange Act." herein.

Regulatory and Foreign Approvals. To the best of ART's knowledge, ART is
not aware of any license or regulatory permit that appears to be material to its
business that might be adversely affected by its acquisition of EQK Shares in
connection with the Merger or of any approval or other action by any government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, that would be required for the acquisition or ownership of EQK Shares
pursuant to the Merger. Should any such approval or other action be required,
ART currently contemplates that it will seek such approval or other action.
There can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
the failure to obtain any such approval or other action might not result in
adverse consequences to ART's business. ART intends to make all required filings
under the Securities Act, the Exchange Act and state securities laws.

Availability of Appraisal Rights. No statutory dissenter's appraisal rights
will be available to EQK shareholders in connection with the Merger and it is
the position of EQK that no common law dissenter's rights will be available in
connection with the Merger; however, any EQK shareholder who wishes to assert
common law dissenter's appraisal

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rights may file with the Secretary of EQK Realty Investors I a written notice
stating such shareholder's intent to dissent to the Merger at the EQK Meeting
and to assert such rights. In the event that holders of more than 3% of the
outstanding EQK Shares assert such dissenter's appraisal rights, the Merger
Agreement may be terminated. For a detailed discussion of the procedures that
may be required to exercise this right should it be available, see "The Proposed
Merger and Related Matters -- Availability of Appraisal Rights."

The Merger Agreement. The Merger Agreement provides that, subject to the
satisfaction or waiver of certain conditions, ART Newco will be merged with and
into EQK, whereupon the separate existence of ART Newco will cease and EQK will
be the surviving entity of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of the Commonwealth of
Massachusetts (the "Effective Time"). At the Effective Time, ART will pay the
EQK Merger Consideration to the EQK Shareholders and EQK will pay the ART Merger
Consideration to ART. See "The Proposed Merger and Related Matters."

The Merger Agreement may be terminated and the Merger abandoned prior to
the Effective Time, whether before or after the EQK Shareholder Approvals are
obtained, as follows: (i) by mutual written consent of ART, ART Newco and EQK;
(ii) by ART Newco or ART, on or after December 15, 1998, if any of the
conditions precedent to ART or ART Newco's obligations under the Merger
Agreement have not been met or, to the extent permitted by applicable law, have
not been waived in writing by ART and ART Newco prior to such date, (iii) by EQK
on or after December 15, 1998, if any of the conditions precedent to EQK's
obligations under the Merger Agreement have not been met or, to the extent
permitted by applicable law, have not been waived in writing by EQK prior to
such date; (iv) by EQK if EQK accepts a proposal from a party other the ART or
ART's affiliates concerning a merger, sale of substantial assets or similar
transaction involving EQK or the sale of any EQK Shares, (iv) by EQK upon a
determination by the EQK Board that, in the exercise of its fiduciary duties, it
can no longer recommend the approval of the Merger-Related Proposals to the EQK
Shareholders (a "Negative Determination"), or (v) by EQK if the EQK Board
determines that compliance with the Merger Agreement is reasonably likely to
materially impair or delay its ability to sell the Center or result in a
material reduction in the consideration that would be received by EQK or the EQK
Shareholders in connection with such sale.

Under the Merger Agreement, the EQK Board has agreed to propose and
recommend to the EQK Shareholders at the EQK Annual Meeting the adoption and
approval of the Declaration Amendment Proposal, the New Advisory Agreement
Proposal and the Merger Proposal, each as described herein.

DECLARATION AMENDMENT PROPOSAL

In connection with the Merger, subject to the Requisite Shareholder
Approval, EQK's Declaration of Trust will be amended and restated (such
Declaration of Trust, as so amended and restated, the "Amended Declaration of
Trust") to, among other things, (i) extend the finite life of EQK for an
additional 20 year period, (ii) reduce the number of EQK Shareholders required
to vote on the duration of EQK and approve certain other amendments of the
Declaration of Trust from three-quarters to a majority, (iii) remove certain
prohibitions on investments and activities, including (a) prohibitions on the
issuance of additional EQK Shares or other securities, (b) restrictions on
additional investments in the fee ownership of real estate and investments in
mortgage loans and unimproved, non-income producing real property, and (c)
aggregate borrowing restrictions, (iv) authorize an unlimited number of EQK
Shares, (v) revise certain provisions with respect to the number of trustees
unaffiliated with EQK and voting requirements in respect thereof, (vi) add
specific provisions restricting the ownership of more than 4.9% of the
outstanding EQK Shares by any single shareholder, other than ART and E.I. duPont
de Nemours Co. Inc. Trust Fund ("duPont") (the "Ownership Limit"), (vii) change
the name of EQK to "ART Realty Investors I," and (viii) reduce the number of
members of the EQK Board (each, a "Trustee") required to approve certain
matters. See "Risk Factors -- Potential Adverse Consequences of the Declaration
of Amendment Proposal" and "Declaration of Trust -- Statement of Policy" and
"--Amendment Procedure." The full text of the Amended Declaration of Trust is
attached hereto as Appendix D.

NEW ADVISORY AGREEMENT PROPOSAL

Upon consummation of the Merger and subject to Requisite Shareholder
Approval of the Merger-Related Proposals by the New EQK Board (as defined herein
under "The Board Election Proposal"), LLPM will terminate its rights and duties
as Advisor under the Advisory Agreement and BCM, an affiliate of and advisor to
ART, will enter into the New

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Advisory Agreement pursuant to which BCM will become the New Advisor of EQK. See
"The New Advisory Agreement Proposal" herein. The full text of the New Advisory
Agreement is attached hereto as Appendix C.

BOARD ELECTION PROPOSAL

The term of office of each Trustee expires at the EQK Annual Meeting or
when the respective successor is elected and qualifies. At the EQK Annual
Meeting, the EQK Shareholders, voting together as a class, will be asked to
consider and vote upon the Board Election Proposal. The Board Election Proposal
will require the affirmative vote of EQK Shareholders representing a majority of
the total votes authorized to be cast by EQK Shares then outstanding which are
present at the meeting in person or by proxy and entitled to vote thereon. See
"The Board Election Proposal."

NEW YORK STOCK EXCHANGE LISTING OF ART PREFERRED SHARES

Following the execution of the Merger Agreement by EQK, ART will promptly
take such actions as are necessary and within its control to cause the ART
Preferred Shares to become listed on the NYSE. Approval of the listing of such
shares for trading on the NYSE is a condition to the respective obligations of
ART and EQK to consummate the Merger. See "The Proposed Merger and Related
Matters -- Conditions to the Merger; Termination, Waiver and Amendment."

REGULATORY APPROVAL

Other than (i) the Commission's declaring the Registration Statement
effective , (ii) certain approvals in connection with compliance with applicable
Blue Sky or state securities laws, (iii) the filing of the Certificate of Merger
with the Secretary of the Commonwealth of Massachusetts, (iv) the filing of such
reports under Section 13(a) of the Exchange Act as may be required subsequent to
the Merger in connection with the Merger Agreement, and (v) such filings as may
be required in connection with the payment of any transfer taxes, neither ART's
nor EQK's management believes that any filing with or approval of any
governmental authority is necessary in connection with the consummation of the
Merger.

THE EQK ANNUAL MEETING

The EQK Annual Meeting will be held at the corporate offices of EQK, 5775
Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia on ________ __, 1999, at
9:00 a.m., Eastern Standard Time. At the EQK Annual Meeting, the EQK
Shareholders, voting together as a class, will be asked to consider and vote
upon the Proposals.

The Board Election Proposal will require the affirmative vote of EQK
Shareholders representing a majority of the total votes authorized to be cast by
EQK Shares then outstanding which are present at the EQK Annual Meeting in
person or by proxy and entitled to vote thereon. The Merger-Related Proposals
will each require the Requisite Shareholder Approval. None of the Merger-Related
Proposals will take effect unless all such proposals receive the Requisite
Shareholder Approval. LLPM, Summit and Sutter have agreed to vote their EQK
Shares in favor of the Merger-Related Proposals. LLPM, Summit, Sutter and
Halperin currently own 17.50%, 9.52%, 9.55% and 8.9%, respectively, of the
issued and outstanding EQK Shares. ART does not currently and will not own any
EQK Shares at the time of the EQK Annual Meeting.

As of September 30, 1998, Trustees and executive officers of EQK as a group
beneficially held EQK Shares representing less than 1% of all the votes entitled
to be cast by EQK Shareholders at the EQK Annual Meeting and as of the EQK
Record Date, such persons as a group held outstanding EQK Shares representing
less than 1% of such shares. The Block Purchase will not be consummated unless
the EQK Shareholders first approve the Merger-Related Proposals at the EQK
Annual Meeting. See "The EQK Annual Meeting."

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MERGER-RELATED PROPOSALS AT THE EQK ANNUAL MEETING REQUIRES THE AFFIRMATIVE VOTE
OF THREE QUARTERS OF THE OUTSTANDING EQK SHARES AS DESCRIBED MORE FULLY IN "THE
EQK ANNUAL MEETING--MATTERS TO BE CONSIDERED AT THE EQK ANNUAL MEETING," ANY
BROKER NON-VOTES OR ABSTENTIONS ON THE PROPOSALS WILL HAVE THE SAME EFFECT AS A
VOTE "AGAINST" THE MERGER-RELATED PROPOSALS AND ACCORDINGLY WILL AFFECT WHETHER
THE MERGER-RELATED PROPOSALS WILL BE APPROVED.

FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Andrews & Kurth L.L.P. ("Tax Counsel"), the issuance of
(i) the ART Preferred Shares and cash to the Public EQK Shareholders as the EQK
Merger Consideration and (ii) the EQK Shares to ART as the ART Merger
Consideration pursuant to the Merger will be treated as a taxable transaction
for Federal income tax purposes. Such opinion is not binding on the Internal
Revenue Service or any court and is subject to the accuracy of certain facts and
assumptions stated and referenced therein, and no ruling has been sought from
the Internal Revenue Service as to the Federal income tax consequences of the
Merger.

In general, a Public EQK Shareholder will recognize a gain equal to the
fair market value of the EQK Merger Consideration over the adjusted tax basis of
EQK Shares deemed sold in the taxable Merger. It is expected that such Public
EQK Shareholders will be deemed to have sold approximately 3.6% of their
respective EQK Shares held before the Merger. Such gain will be treated as a
capital gain if the EQK Shares are capital assets in the hands of the Public EQK
Shareholder.

The tax consequences described in the preceding paragraphs may not apply to
certain non-resident aliens and foreign corporations and stockholders who are
otherwise subject to special tax treatment under the Code.

The Federal income tax consequences set forth above are for general
information only. Each Public EQK Shareholder is urged to consult his own tax
advisor to determine the particular tax consequences to him of the Merger,
including the applicability and effect of state, local and other tax laws. See
"The Merger -- Federal Income Tax Consequences" herein.

DESCRIPTION OF ART PREFERRED SHARES

The ART Board has designated and authorized the issuance of 15,000,000 ART
Preferred Shares with a par value of $2.00 per share and a preference on
liquidation equal to the Liquidation Value ($10.00 per share) plus the amount of
any accrued and unpaid dividends. The Liquidation Value plus such amount is
referred to as the "Adjusted Liquidation Value." The ART Preferred Shares are
non-voting except (i) as provided by law, (ii) with respect to an amendment to
ART's articles of incorporation or bylaws that would materially alter or change
the existing terms of the ART Preferred Shares, and (iii) at any time or times
when all or any portion of the dividends on the ART Preferred Shares for any six
quarterly dividends, whether or not consecutive, shall be in arrears and unpaid.
In the latter event, the number of directors constituting the ART Board shall be
increased by two and the holders of ART Preferred Shares, voting separately as a
class, shall be entitled to elect two directors to fill such newly created
directorships with each holder being entitled to one vote in such election for
each share of ART Preferred Shares held. ART is not obligated to maintain a
sinking fund with respect to the ART Preferred Shares.

The ART Preferred Shares are convertible, at the option of the holder, into
fully paid and nonassessable ART Common Shares at any time and from time to
time, in whole or in part, after the earliest to occur of (i) the August 15,
2003; (ii) the first business day, if any, occurring after a Quarterly Dividend
Payment Date (as defined below) on which dividends equal to or in excess of 5%
of the Liquidation Value (i.e., $0.50 per ART Preferred Share) are accrued and
unpaid, or (iii) ART becomes obligated to mail a statement, signed by an officer
of ART, to the holders of record of each of the ART Preferred Shares because of
a proposal by ART, to merge or consolidate with or into any other corporation
(unless ART is the surviving entity and holders of ART Common Shares continue to
hold such ART Common Shares without modification and without receipt of any
additional consideration), or to sell, lease, or convey all or substantially all
its property or business, or to liquidate, dissolve or wind up. The ART
Preferred Shares are convertible into that number of shares of ART Common Shares
obtained by multiplying the number of ART Preferred Shares being

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<PAGE> 29

converted by $10.00, then adding all accrued and unpaid dividends, then dividing
such sum by (in most instances) 90% of the simple average of the daily closing
price of the ART Common Shares for the 20 business days ending on the last
business day of the calendar week immediately preceding the date of conversion
on the principal stock exchange on which such ART Common Shares are then listed
(the "Conversion Price"). Notwithstanding the foregoing, ART, at its option, may
elect to redeem any ART Preferred Shares sought to be so converted by paying the
holder of such ART Preferred Shares cash in an amount equal to the Conversion
Price.

The ART Preferred Shares bear a cumulative, compounded dividend per share
equal to 10% per annum of the Accumulated Liquidation Value, payable quarterly
on the 15th day of the month following the end of each calendar quarter (each, a
"Quarterly Dividend Payment Date"), and commencing accrual on the date of
issuance to and including the date on which the redemption price of such shares
is paid, whether or not such dividends have been declared and whether or not
there are profits, surplus or other funds of ART legally available for the
payment of such dividends. Dividends on the ART Preferred Shares are in
preference to and with priority over dividends upon the ART Common Shares.
Except as described in the following sentence, the ART Preferred Shares rank on
a parity as to dividends and upon liquidation, dissolution or winding up with
all other Special Stock (as defined herein under "Description of Capital Stock
of ART") issued by ART. ART will not issue any shares of Special Stock of any
series which are superior to the ART Preferred Shares as to dividends or rights
upon liquidation, dissolution or winding up of the corporation as long as any
ART Preferred Shares are issued and outstanding, without the prior written
consent of the holders of at least 662/3% of such ART Preferred Shares then
outstanding voting separately as a class. As of November 16, 1998, ART had
outstanding 3,350,000 ART Preferred Shares, 16,681 shares of Series C 10%
Cumulative Preferred Stock, and 1,000 shares of Series G 10% Cumulative
Convertible Preferred Stock. The Series C shares were called for redemption on
November 24, 1998.

ART may redeem any or all of the ART Preferred Shares at any time and from
time to time, at its option, for cash upon no less than 20 days nor more than 30
days prior notice thereof. The redemption price of ART Preferred Shares to be
redeemed shall be an amount per share equal to (i) 104% of the Adjusted
Liquidation Value of such shares during the period from August 16, 1998 through
August 15, 1999; and (ii)103% of the Adjusted Liquidation Value of such shares
at any time on or after August 16, 1999.

There is no established trading market for the ART Preferred Shares. While
the listing of the ART Preferred Shares on the NYSE is a condition precedent to
EQK's obligation to consummate the Merger, there can be no assurance that an
active market for the ART Preferred Shares will develop or be sustained in the
future on the NYSE or otherwise. There is no assurance that the ART Preferred
Shares will have a market value at or near their Adjusted Liquidation Value if
they are listed on the NYSE. See "Risk Factors -- ART Preferred Shares."

DESCRIPTION OF EQK SHARES

EQK is currently authorized to issue 10,055,555 EQK Shares, and the EQK
Board may not currently issue any additional EQK Shares unless such issuance is
approved by the holders of three-quarters of the outstanding EQK Shares. As of
September 30, 1998, there were 9,632,212 EQK Shares issued and outstanding.
Subject to Requisite Shareholder Approval, EQK's Declaration of Trust will be
amended to remove all limitations on the authorized number of EQK Shares that
may be issued by the EQK Board. See "Risk Factors -- Potential Adverse
Consequences of the Declaration Amendment Proposal -- Possible Issuance of
Additional EQK Shares or Other Securities." The EQK Shareholders are entitled to
receive and to participate ratably in dividends, when and as declared by the EQK
Board out of any funds legally available for such purpose and, in the event of
termination of EQK or upon the distribution of its net assets, to receive and to
participate ratably in payments and distributions. All EQK Shares have equal
voting rights. The EQK Shares do not have any preference, appraisal, conversion,
exchange or preemptive rights. Outstanding EQK Shares are freely transferable,
subject to the Ownership Limit (if the Declaration Amendment Proposal is adopted
and implemented) and except that, in certain limited circumstances, the EQK
Board currently may refuse to transfer EQK Shares or may compel redemption of
EQK Shares. See "Description of the EQK Shares." The outstanding EQK Shares have
been legally issued and are fully paid and nonassessable, except to the extent
of any personal liability of the EQK Shareholders as described herein under
"Description of the EQK Shares."

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<PAGE> 30

THE DEALER MANAGER

Interfirst Capital Corporation, a California corporation that is an
affiliate of ART and BCM, will act as dealer manager ("Dealer Manager") for the
Merger. The Dealer Manager will be responsible for distributing the EQK Merger
Consideration to the Public EQK Shareholders in certain jurisdictions to the
extent required by applicable state law. The Dealer Manager will be entitled to
receive a reasonable and customary fee for such services, plus reimbursement for
out-of-pocket expenses, and ART will indemnify the Dealer Manager against
certain liabilities and expenses in connection with the Merger, including
liabilities under federal securities laws. The telephone number of the Dealer
Manager is (214) 692-4713.

MARKET AND TRADING INFORMATION

Prior to May 4, 1998, the EQK Shares were listed and traded on the NYSE. On
April 23, 1998, the NYSE announced that trading of the EQK Shares would be
suspended prior to the opening of the NYSE on May 4, 1998, as EQK had fallen
below the NYSE's continued listing criteria for net tangible assets available to
common stock (less than $12 million) and 3-year average net income (less than
$600,000). The EQK Shares are currently included for quotation on the OTC
Bulletin Board. The over-the-counter market quotations reflect interdealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. The following table sets forth for the calendar
periods indicated the high and low per share closing sales prices for the EQK
Shares as reported in published financial sources:

<TABLE>
<CAPTION>
Year Ended December 31, 1998 HIGH LOW
---- ---

<S> <C> <C>
First Quarter $2.063 $1.000
Second Quarter 1.313 0.250
Third Quarter 1.063 0.625
Fourth Quarter (through November 13, 1998) 0.813 0.750

<CAPTION>
Year Ended December 31, 1997 HIGH LOW
---- ---

First Quarter $1.625 $1.375
Second Quarter 1.500 1.125
Third Quarter 1.250 1.062
Fourth Quarter 1.250 0.813

<CAPTION>
Year Ended December 31, 1996 HIGH LOW
---- ---

First Quarter $1.500 $1.125
Second Quarter 1.750 1.250
Third Quarter 1.750 1.375
Fourth Quarter 1.500 1.250
</TABLE>

EQK has not paid any dividends with respect to the EQK Shares since 1991.
On August 25, 1998, the last trading day prior to the public announcement of the
Merger Agreement, the closing sales price of the EQK Shares as reported in the
over-the-counter market was $1.00 per EQK Share, and on November 30, 1998, the
most recent date for which prices were available prior to the date of filing
this Prospectus/Proxy, the average of the bid and asked price of the EQK Shares
as reported in the over-the-counter market was $0.8125 per EQK Share. EQK
Shareholders are urged to obtain a current market quotation for the EQK Shares.
See "Risk Factors -- Delisting of the EQK Shares and Adverse Effect on Trading".

HOLDERS OF EQK SHARES ARE URGED TO OBTAIN CURRENT INFORMATION WITH RESPECT
TO THE SALES PRICES OF THE EQK SHARES.

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<PAGE> 31

While the listing of the ART Preferred Shares on the NYSE is a condition
precedent to EQK's obligation to consummate the Merger, there can be no
assurance that an active market for the ART Preferred Shares will develop or be
sustained in the future on the NYSE or otherwise. Listing will depend upon the
satisfaction of the NYSE's listing requirements with respect to the ART
Preferred Shares. Accordingly, no assurance can be given as to the liquidity of,
or trading for, the ART Preferred Shares.

COMPARATIVE PER SHARE DATA

The following table sets forth per share data of the ART Common Shares and
EQK Shares on both historical and pro forma combined bases. This table should be
read in conjunction with the historical and financial statements and notes
thereto contained in ART's Annual Report on Form 10-K (the "ART Form 10-K") for
the year ended December 31, 1997 and EQK's Annual Report on Form 10-K (the "EQK
Form 10-K") for the year ended December 31, 1997, each of which is incorporated
by reference herein, and in conjunction with the unaudited pro forma combined
financial information appearing elsewhere in this Prospectus/Proxy Statement.

Pro forma combined per share data reflects the historical results of ART
combined with EQK under the equity method of accounting as if the Merger had
been consummated for all periods presented. This information has been prepared
on the basis of accounting for the Merger as a purchase and is based on the
assumptions set forth in the notes thereto. The pro forma share data is not
necessarily indicative of actual results had the Merger been consummated on such
dates or of future expected result

ART COMMON SHARES

<TABLE>
<CAPTION>
Historical Proforma Combined
---------- -----------------
<S> <C> <C>
Income (loss) per share
- -----------------------
Nine months ended
September 30, 1998 $0.14 0.09
Fiscal year ended
December 31, 1997 (0.22) (0.28)

Cash dividends per Common Share
- -------------------------------
Nine months ended
September 30, 1998 $0.15 $0.15
Fiscal year ended
December 31, 1997 0.20 0.20

Book Value per Common Share
- ---------------------------
September 30, 1998 $2.88 $2.88

December 31, 1997 3.86 3.86
</TABLE>

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<PAGE> 32

EQK SHARES

<TABLE>
<CAPTION>
Historical Proforma Combined
---------- -----------------
<S> <C> <C>
(Loss) per share
- ----------------
Nine months ended
September 30, 1998 $ (0.02) $ ($0.02)
Fiscal year ended
December 31, 1997 (0.21) (0.05)

Cash dividends per Common Share
- -------------------------------
Nine months ended
September 30, 1998 -- --
Fiscal year ended
December 31, 1997 -- --

Book Value per Common Share
- ---------------------------
September 30, 1998 $ (0.54) $ 0.00
</TABLE>

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

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<PAGE> 33

RISK FACTORS

EQK Shareholders should consider, among other things, the following risk
factors in connection with the transactions contemplated by the Merger. These
factors are intended to identify the significant sources of risk affecting an
investment in the ART Preferred Shares and the EQK Shares.

POSSIBLE DETRIMENTAL EFFECTS OF THE MERGER

Dilution of Current EQK Shareholders and Likely Decline in Trading Price
per EQK Share. The sale of the Center and the resulting distribution to EQK
Shareholders, as well as the issuance of EQK Shares to ART as the ART Merger
Consideration, is likely to result in the trading price of EQK Shares declining
substantially. As a result of the distribution to EQK Shareholders and the
acquisition of Oak Tree Village for a note in the full amount of the purchase
price, EQK is not expected to have any net worth after the Merger.

Anti-Takeover Effect. Consummation of the Merger and the Block Purchase
will result in the acquisition by ART of an aggregate of 5,050,032 EQK Shares
(or approximately 49% of the EQK Shares to be outstanding after the Merger). As
a result of the foregoing and the effect of the Ownership Limit described herein
under "The Declaration Amendment Proposal -- Addition of Excess Share
Provisions," third party attempts to acquire control of EQK may not be
practicable. Accordingly, if the Merger is approved, it is unlikely that an
attempted take-over of EQK, which might result in an increase in the price at
which EQK Shares could be sold, will occur.

Leverage of EQK after the Merger. If the Center is sold, the net proceeds
distributed to EQK Shareholders, and if the Merger is consummated, EQK's only
real estate asset would be Oak Tree Village which would be subject to two
mortgages which, in the aggregate, would equal to its purchase price. EQK's high
degree of leverage may have significant consequences, including the following:
(i) the ability of EQK to obtain additional financing for acquisitions, working
capital, capital expenditures or other purposes, if necessary, may be impaired
or such financing may not be on terms favorable to the surviving entity; (ii) a
substantial portion of EQK's cash flow will be used to pay its interest expense,
which will reduce the funds that would otherwise be available to EQK for its
operations and future business opportunities; (iii) a substantial decrease in
operating cash flow or an increase in expenses of EQK could make it difficult
for EQK to meet its debt service requirements and force it to modify its
operations; (iv) EQK's high level of debt and resulting interest expense may
place it at a competitive disadvantage with respect to certain competitors with
lower amounts of indebtedness; and (v) EQK's high degree of leverage may make it
more vulnerable to downturn in its business or the economy generally.

Benefits to LLPM. LLPM has entered into an agreement (the "LLPM/ART Stock
Purchase Agreement") with ART to sell all of its 1,685,556 EQK Shares to ART for
50,566 ART Preferred Shares with an aggregate Liquidation Value of $505,660. The
Block Purchase with LLPM is conditioned upon the consummation of the Merger.

Conflicts of Interest Between LLPM and EQK. The management of EQK is
subject to conflicts of interest in recommending the Merger and approval of the
Merger-Related Proposals because most members of management of EQK also are
members of the management of LLPM, which is receiving the benefits described
above under "-- Benefits to LLPM."

Conflicts of Interest Between EQK and BCM. Management of BCM (including
Karl L. Blaha, Al Gonzalez, Thomas A. Holland, A. Cal Rossi, Jr. and Cooper B.
Stuart, who are expected to become the Trustees of EQK upon consummation of the
Merger) will be subject to conflicts of interest in carrying out its duties as
New Advisor to EQK because: (i) properties owned by the affiliates of BCM (the
"BCM Affiliates") may compete with the properties that EQK may acquire for
tenants; (ii) BCM Affiliates may compete with EQK in connection with the
acquisition of properties; (iii) BCM's personnel and other resources must be
allocated among EQK and other BCM Affiliates; (iv) decisions may have to be made
with respect to the extension, termination or modification of the New Advisory
Agreement with BCM; and (v) BCM will be subject to conflicts between its
obligations as New Advisor and its interests in and as an affiliate of and
advisor to ART in light of ART's intended purchase of additional EQK Shares
three years after the date of the consummation of the Merger. See "The Proposed
Merger and Related Matters -- ART's Purposes for the Merger."

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<PAGE> 34

Pro Forma Net Losses and Accumulated Deficit for the Future Combined
Entity. The unaudited pro forma combined financial information of ART and EQK
for the periods ending December 31, 1997 and September 30, 1998 indicates that
the consummation of the Merger will likely result in net losses and accumulated
deficit for the combined entity. See "Selected Unaudited Pro Forma Combined
Financial Information of ART and EQK."

ART PREFERRED SHARES

Application for the Listing and Trading of ART Preferred Shares and
Possible Subsequent Delisting. As of November 16, 1998, there were 3,350,000 ART
Preferred Shares outstanding; however, there is currently no established public
market for the ART Preferred Shares. While the listing of the ART Preferred
Shares on the NYSE is a condition precedent to EQK's obligation to consummate
the Merger, there can be no assurance that an active market for the ART
Preferred Shares will develop or be sustained in the future on such exchange if
the listing is approved. Listing will also depend upon the satisfaction of the
NYSE's listing requirements with respect to the ART Preferred Shares. Although
the NYSE has not established any minimum numerical criteria for the listing of
preferred stock, it has published certain numerical delisting criteria therefor.
Pursuant to such criteria, the NYSE will consider suspending or delisting a
series of preferred stock if the aggregate market value of publicly-held shares
of such preferred stock is less than $2,000,000 and the number of publicly-held
shares of such preferred stock is less than 100,000. Upon consummation of the
Merger, the aggregate number and aggregate value of the ART Preferred Shares
will satisfy the NYSE listing requirements; however, since the ART Preferred
Shares are subject to conversion or redemption as described herein under
"Description of the Capital Stock of ART -- ART Preferred Shares," there can be
no assurance that the ART Preferred Shares will continue to satisfy the NYSE's
continued listing requirements. In addition, no assurance can be given as to the
liquidity of, or trading for, the ART Preferred Shares. The trading price of ART
Preferred Shares is likely to be below their Liquidation Value and there is no
assurance as to the price at which the ART Preferred Shares will actually trade.

Reliance on the ART Board to Declare Dividends on the ART Preferred Shares.
Although dividends will accrue cumulatively on the ART Preferred Shares from the
date of issuance, such dividends will not be paid unless and until they are
declared by the ART Board. Holders of ART Preferred Shares will not have the
authority to direct or compel the ART Board to declare dividends with respect to
the ART Preferred Shares. The ART Preferred Shares are non-voting except (i) as
provided by law, (ii) with respect to an amendment to ART's articles of
incorporation or bylaws that would materially alter or change the existing terms
of the ART Preferred Shares, and (iii) at any time or times when all or any
portion of the dividends on the ART Preferred Shares for any six quarterly
dividends, whether or not consecutive, shall be in arrears and unpaid. In the
latter event, the number of directors constituting the ART Board shall be
increased by two and the holders of ART Preferred Shares, voting separately as a
class, shall be entitled to elect two directors to fill such newly created
directorships with each holder being entitled to one vote in such election for
each share of ART Preferred Shares held.

Risks Associated with Conversion Feature. The ART Preferred Shares are
convertible into ART Common Shares as described herein under "Summary of Terms
- -- Description of ART Preferred Shares" and "Description of the Capital Stock of
ART -- ART Preferred Shares." The Articles of Amendment of ART's Articles of
Incorporation that authorize the ART Preferred Shares provide that a number of
authorized ART Common Shares sufficient to provide for the conversion of the
outstanding ART Preferred Shares as described herein shall at all times be
reserved for such conversion. However, the number of ART Common Shares into
which an ART Preferred Share is convertible is dependent upon the then-current
market price of the ART Common Shares. Therefore, if at the time a holder of ART
Preferred Shares seeks to convert such ART Preferred Shares, ART has failed to
reserve a sufficient number of authorized ART Common Shares to effect such
conversion and assuming that ART does not elect to redeem such ART Preferred
Shares as described herein, such holder would be unable to effect such
conversion. In addition to the ART Preferred Shares, ART has authorized and
issued other preferred stock that may be converted from time to time into ART
Common Shares. See "Description of the Capital Stock of ART." In the future, ART
expects to authorize and issue additional preferred stock or other securities
that may be converted from time to time into ART Common Shares. Certain of the
preferred stock that has been authorized by ART (including the ART Preferred
Shares) is, and securities that may be issued by ART in the future may be,
convertible into a number of ART Common Shares calculated by reference to the
price of ART Common Shares (i.e., the lower the price of the ART Common Shares,
the higher the number of ART Common Shares to be received upon conversion of the
applicable security). At any given time, a decrease in the price of ART Common
Shares below a certain level could result in the number of authorized ART Common
Shares being insufficient to provide for the conversion of all of ART's
convertible securities, including the

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<PAGE> 35

ART Preferred Shares. So long as management of ART and affiliates of ART own a
majority of the ART Common Shares, management expects that ART will have the
ability to increase the number of authorized ART Common Shares to a number
sufficient to provide for the conversion of its convertible preferred stock.
However, there can be no assurance that management and affiliates of ART will
continue to own a majority of the ART Common Shares. The actual basis for
calculating the number of ART Common Shares issuable upon conversion of ART's
authorized preferred stock is described under "Description of the Capital Stock
of ART."

Possibility that an Active Trading Market Will Not Exist for the ART Common
Shares When the ART Preferred Shares are Converted. In the event that ART
Preferred Shares are converted into ART Common Shares, there can be no assurance
as to the existence of an active trading market for the ART Common Shares at the
time of such conversion or that the trading price of the ART Common Shares will
not decline substantially after such conversion.

POTENTIAL ADVERSE CONSEQUENCES OF THE DECLARATION AMENDMENT PROPOSAL

Subject to the Requisite Shareholder Approval of the Declaration Amendment
Proposal, EQK's Declaration of Trust will be amended to provide for, among other
things, (i) the Ownership Limit; (ii) a 20 year extension of the finite life of
the trust, (iii) the ability to change investment, financing, borrowing and
distribution policies without shareholder approval, (iv) the removal of
prohibitions on certain activities and investments, and (v) the ability to issue
additional EQK Shares and other types of securities, in each case as more fully
described below. See "The Declaration Amendment Proposal."

Effect of Limits on Ownership and Issuance of Additional EQK Shares or
other Securities. In order to maintain EQK's qualification as a REIT under the
Code, subject to Requisite Shareholder Approval of the Merger-Related Proposals,
the Declaration of Trust will be amended to prohibit ownership of more than 4.9%
of the outstanding EQK Shares by any single shareholder other than ART and the
current 5% Holders. Under the Amended Declaration of Trust, the EQK Board may
exempt a proposed transferee from this restriction upon receipt of a ruling from
the Internal Revenue Service, an opinion of counsel or other evidence
satisfactory to the EQK Board that ownership of EQK shares by a proposed
transferee will not adversely affect EQK's qualification as a REIT under the
Code, and upon such other conditions as the EQK Board may direct.

The Ownership Limit, as well as the ability of EQK to issue additional EQK
Shares or other securities (which may have rights and preferences senior to the
EQK Shares), may discourage a change of control of EQK and may also (i) deter
future tender or exchange offers for the EQK Shares, which offers may be
advantageous to EQK Shareholders, and (ii) limit the opportunity for EQK
Shareholders to receive a premium for their EQK Shares that might otherwise
exist if an investor were attempting to assemble a block of EQK Shares in excess
of the Ownership Limit or otherwise effect a change of control of EQK.

Extension of Finite Life of EQK. The self liquidating provisions included
in EQK's Declaration of Trust reflected an intention of the original EQK Board
to liquidate EQK's assets by March of 1999, and the Declaration of Trust
provides that no additional investments will be made beyond such date. The EQK
Board however, has the discretion to hold current investments for up to two
years beyond such date should market conditions or other circumstances so
dictate, if such action is in the best interests of the EQK Shareholders. At
some time on or before the date on which EQK would be required to terminate its
operations, EQK's investments would be liquidated and the proceeds thereof, net
of taxes, selling expenses and disposition fees, would be distributed to the EQK
Shareholders.

Subject to Requisite Shareholder Approval, EQK's Declaration of Trust will
be amended to extend the duration of EQK for an additional 20 year period and to
revise the liquidation provisions to which EQK is subject. Following such
amendment, if any asset of EQK is sold, the net proceeds thereof, if any, are
expected to be reinvested in additional assets rather than being distributed to
the EQK Shareholders. As a result of the extension of the finite life of EQK,
the EQK Shareholders will have to sell their EQK Shares in the market to realize
any remaining value of their investment after the distribution to be made to EQK
Shareholders after the sale of the Center. In addition, the extension of EQK's
duration will likely increase the amount of fees paid to BCM, which is expected
to succeed LLPM as EQK's Advisor.

Changes in EQK's Policies without Shareholder Approval. EQK's Declaration
of Trust currently provides that, in general, none of EQK's policies may be
amended without the approval of holders of three-quarters of the outstanding EQK
Shares. Subject to Requisite Shareholder Approval of the Merger-Related
Proposals, EQK's Declaration of Trust

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<PAGE> 36

will be amended to provide that the EQK Board, which will be composed of the ART
Designated Trustees (as defined herein under "The Board Election Proposal"), may
change EQK's investment policies from time to time without the approval of EQK's
Shareholders. Accordingly, EQK Shareholders will be relying upon the discretion
of ART's affiliate and advisor, BCM, as EQK's New Advisor, and the EQK Board in
making changes to any existing investment policies and selecting any additional
investments. Any such change in existing investment policies may affect EQK's
financing, borrowing and distribution policies and may adversely affect EQK's
financial condition, results of operations and the market price of the EQK
Shares without the approval of the EQK Shareholders. The potential conflicts of
interest in the relationship between ART and BCM are described herein under "--
Possible Detrimental Effects of the Merger -- Conflicts of Interest between EQK
and BCM."

Removal of Prohibitions and Restrictions from Certain Activities and
Investments. The Declaration of Trust currently provides that EQK may acquire
additional real properties, but only under very limited circumstances. The
Amended Declaration of Trust will remove all restrictions on EQK's ability to
acquire additional real or personal property and other debt and equity
investments, although except for the acquisition of the Oak Tree Village from
ART, it is not currently intended that EQK will make any further acquisitions or
additional investments in the foreseeable future. Accordingly, EQK Shareholders
will be relying upon the discretion of ART's affiliate and advisor, BCM, as
EQK's New Advisor, and the EQK Board in making changes to any existing
investment policies and selecting any additional investments. The removal of
such restrictions could adversely affect EQK's financial condition, results of
operations and the market price of the EQK Shares without the approval of the
EQK shareholders. See "The Business of EQK -- Summary of the Existing
Declaration of Trust -- Prohibited Activities and Investments."

Possible Issuance of Additional EQK Shares or Other Securities. Subject to
Requisite Shareholder Approval, EQK's Declaration of Trust will be amended to
remove prohibitions relating to the issuance of additional EQK Shares or other
types of securities, including securities with preferential rights senior to the
EQK Shares. Any such issuance of additional EQK Shares would require the
affirmative vote of the holders of not less than a majority of the then
outstanding EQK Shares. Any such issuance of other types of securities would not
require the approval of the EQK Shareholders. In the event that additional EQK
Shares or other equity securities are so issued by EQK, holders of outstanding
EQK Shares will incur dilution in their percentage of equity in EQK.

POTENTIAL ADVERSE CONSEQUENCES ASSOCIATED WITH AFFILIATE OF CONTROLLING
SHAREHOLDER OF NEW ADVISOR

Upon consummation of the Merger, LLPM and EQK will terminate the Advisory
Agreement and EQK will enter into the New Advisory Agreement with BCM, an
affiliate of and advisor to ART, pursuant to which BCM will become the New
Advisor. BCM is a privately held Nevada corporation owned by a trust established
for the benefit of the children of Gene E. Phillips. Mr. Phillips currently
serves as a representative of such trust and, in such capacity, has substantial
contact with the management of BCM and input with respect to BCM's performance
of advisory services. Mr. Phillips reviews proposals for the acquisition or
disposition of assets and provides advice to BCM's management on financing
transactions and other material business matters relating to the entities
advised by BCM. However, Mr. Phillips is not an officer or director of BCM or
any of the entities BCM advises. Mr. Phillips is the former chairman of
Southmark Corporation ("Southmark"), a real estate syndicator and parent of San
Jacinto Savings Association ("San Jacinto"). Mr. Phillips resigned his positions
with Southmark and certain of its affiliates in January 1989. Southmark filed a
voluntary petition of bankruptcy under Chapter 11 of the United States
Bankruptcy Code in July 1989. In November 1990, San Jacinto was placed under
conservatorship of the Resolution Trust Corporation ("RTC") by federal banking
authorities. Mr. Phillips was named as a defendant in a number of lawsuits
brought by the RTC and private plaintiffs in which the allegations made against
Mr. Phillips included breach of fiduciary duty and other misconduct, which
allegations were denied by Mr. Phillips. All of these actions have been
dismissed or settled. See "Description of ART" and "The Business of ART --
Investments in Real Estate Investment Trusts and Real Estate Partnership."

CORRELATION BETWEEN THE VALUE OF THE ART PREFERRED SHARES AND THE SUCCESS OF
ART'S BUSINESS

As part of the Merger Consideration and pursuant to the Merger, EQK
Shareholders will receive ART Preferred Shares (and subsequently may receive ART
Common Shares upon conversion of the ART Preferred Shares) as described herein,
the value of which will be substantially dependent upon the success of ART's
business. Set forth below is a summary of potential risks relating to ART's
business.

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<PAGE> 37

Recent Operating History. ART has experienced net losses of $2,428,000,
$5,554,000, $2,836,000, $2,426,000, and $4,427,000, respectively, for each of
the fiscal years ended December 31, 1997, 1996, 1995, 1994 and 1993, and ART had
an accumulated deficit at December 31, 1997 of $25,638,000. During the nine
months ended September 30, 1998, ART reported net income of $2,100,000 and an
accumulated deficit of $25,841,000 at September 30, 1998. During the nine months
ended September 30, 1998, ART paid a cumulative dividend of $0.15 with respect
to each ART Common Share. During 1997, ART paid a cumulative dividend of $0.20
with respect to each ART Common Share, and during 1996, ART paid a cumulative
dividend of $0.15 with respect to each ART Common Share. From 1993 through 1995,
ART paid no dividends in respect of the ART Common Shares. There can be no
assurance that ART will be able to pay dividends in respect of the ART Preferred
Shares or the ART Common Shares in the future.

Changes in ART's Policies Without Stockholder Approval. The investment,
financing, borrowing and distribution policies of ART and its policies with
respect to all other activities, growth, debt, capitalization and operations,
will be determined by the ART Board. Although it has no present intention to do
so, the ART Board may amend or revise these policies at any time and from time
to time at its discretion without a vote of the stockholders of ART. A change in
these policies could adversely affect the market price of the ART Preferred
Shares or the ART Common Shares. See "The Business of ART -- General."

Investments in Real Property. Real property investments are subject to
varying degrees of risk and are relatively illiquid. Income from real property
investments and ART's resulting ability to pay dividends to its shareholders may
be adversely affected by a number of factors, including general economic climate
and local real estate conditions (such as oversupply of or reduced demand for
space and changes in market rental rates); the perceptions of prospective
tenants of the safety, convenience and attractiveness of ART's properties; the
ability of ART or the owner of such properties to provide adequate management,
maintenance and insurance; energy and supply shortages; the ability to collect
on a timely basis all rent from tenants and interest from borrowers; the expense
of periodically renovating, repairing and reletting spaces; and increasing
operating costs (including real estate taxes and utilities) which may not be
passed through to tenants. Certain significant expenditures associated with
investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) are generally not reduced when circumstances
cause a reduction in rental revenues from the investment. If a property of ART
is mortgaged to secure the payment of indebtedness and if ART or an entity in
which ART invests or to which it lends is unable to meet its mortgage payments,
a loss could be sustained as a result of foreclosure on the property or the
exercise of other remedies by the mortgagee. Real estate values and income from
properties are also affected by such factors as compliance with laws, including
tax laws, interest rate levels and the availability of financing.

Nature of Investments Made by ART May Involve High Risk; Illiquidity of
Real Estate Investments. ART may make investments in real estate-related assets
and businesses which have experienced severe financial difficulties, which
difficulties may never be overcome. Since such investments may involve a high
degree of risk, poor performance by any such investments could severely affect
the financial condition and results of operations of ART.

The illiquid nature of ART's real estate investments may limit the ability
of ART to modify its portfolio in response to changes in economic or other
conditions. Such illiquidity may result from the absence of an established
market for ART's investments as well as legal or contractual restrictions on
their resale by ART.

Difficulty of Locating Suitable Investments; Competition. Identifying,
completing and realizing on real estate investments has from time to time been
highly competitive, and involves a high degree of uncertainty. ART competes for
investments with many public and private real estate investment vehicles,
including financial institutions (such as mortgage banks, pension funds and real
estate investment trusts) and other institutional investors, as well as
individuals. There can be no assurance that ART will continue to be able to
locate and complete investments which satisfy ART's objectives or realize upon
their value or that it will be able to fully invest its available capital.

Many of those with whom ART competes for investments and its services are
far larger than ART, may have greater financial resources than ART and may have
management personnel with more experience than the officers of ART.

General Investment Risks Associated With Acquisition Activities. From time
to time, ART will acquire existing properties to the extent that they can be
acquired on advantageous terms and meet ART's investment criteria. Acquisitions
of properties entail general investment risks associated with any real estate
investment, including the risk that investments will fail to perform as
expected, that estimates of the cost of improvements to bring an acquired

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<PAGE> 38

property up to standards established for the intended market position may prove
inaccurate and the occupancy rates and rents achieved may be less than
anticipated.

Dependence on Rental Income from Real Property. ART's cash flow, results of
operations and value of its assets would be adversely affected if a significant
number of tenants of ART's properties failed to meet their lease obligations or
if ART or the owner of a property in which ART has an interest were unable to
lease a significant amount of space on economically favorable terms. In the
event of a default by a lessee, the owner may experience delays in enforcing its
rights as lessor and may incur substantial costs in protecting its investment.
The bankruptcy or insolvency of a major tenant may have an adverse effect on a
property. At any time, a tenant may also seek protection under the bankruptcy
laws, which could result in rejection and termination of such tenant's lease and
thereby cause a reduction in the cash flow of the property. If a tenant rejects
its lease, the owner's claim for breach of the lease would (absent collateral
securing the claim) be treated as a general unsecured claim. Generally, the
amount of the claim would be capped at the amount owed for unpaid pre-petition
lease payments unrelated to the rejection, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but not
to exceed the amount of three years' lease payments). No assurance can be given
that the properties in which ART has an interest will not experience significant
tenant defaults in the future.

Properties that Serve as Collateral for ART's Mortgage Notes Receivable. A
substantial portion of ART's assets have been invested in mortgage notes
receivable, principally those secured by income producing real estate. The
income producing real estate properties have included apartment complexes,
hotels, office buildings and shopping centers. Those properties are located in
the Mountain, Southeast and Southwest regions of the United States. Certain
geographic regions of the United States from time to time will experience weaker
regional economic conditions and housing markets, and, consequently, will
experience higher rates of loss and delinquency on mortgage loans generally. Any
concentration of loan assets in such a region may present risk considerations in
addition to those generally present for similar mortgage-backed or asset-backed
securities without such concentration. See "The Business of ART -- Geographic
Regions" for a description of the geographic regions.

Market values of apartment complexes can be affected significantly by the
supply and demand in the geographic market for such properties securing the loan
and, therefore, may be subject to adverse economic conditions. Market values on
apartment complexes may vary as a result of economic events or governmental
regulations outside the control of the borrower or lender. Governmental
regulations such as rent control laws may impact the future cash flow of the
apartment complex.

Like any income producing property, the income generated by a hotel
property is subject to several factors such as local, regional and national
economic conditions and competition. However, because such income is primarily
generated by room occupancy and such occupancy is usually for short periods of
time, the level of such income may respond more quickly to conditions such as
those described above. Such sensitivity to competition may require more frequent
improvements and renovations than other properties. To the extent a hotel is
affiliated to, or associated with, a regional, national, or international chain,
changes in the public perception of such chain may have an impact on the income
generated by the related property. The hotel industry is also generally
seasonal. This will result in fluctuation in the income generated by hotel
properties.

The market value of properties such as office buildings and shopping
centers are subject to risks that, upon expiration, leases for space in the
office buildings and shopping centers may not be renewed, the space may not be
released, or the terms of renewal or re-lease (including the cost of required
renovations or concessions to tenants) may be less favorable than current lease
terms.

Operating Risks of ART's Properties. The properties in which ART has an
interest are subject to operating risks common to the particular property type,
any and all of which may adversely affect occupancy or rental rates. Such
properties are subject to increases in operating expenses such as cleaning;
electricity; heating, ventilation and air-conditioning; elevator repair and
maintenance; insurance and administrative costs; and other general costs
associated with security, landscaping, repairs and maintenance. While commercial
tenants are often obligated to pay a portion of these escalating costs, there
can be no assurance that they will agree to pay such costs or that the portion
that they agree to pay will fully cover such costs. If operating expenses
increase, the local rental market may limit the extent to which rents may be
increased to meet increased expenses without decreasing occupancy rates. To the
extent rents cannot be increased or costs controlled, the cash flow of ART and
its financial condition may be adversely affected.

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<PAGE> 39

Possible Inability to Meet Payments on Debt Financing. ART's debt-to-equity
ratio, inclusive of margin debt, was 4.97 to 1 as of December 31, 1997, and 6.60
to 1 as of September 30, 1998. Under certain circumstances, ART's cash flow may
be insufficient to meet required payments of principal, interest on its debt and
dividend distributions. If a property is mortgaged to secure payment of
indebtedness and ART is unable to meet mortgage payments, the lender could
foreclose upon the property, appoint a receiver and receive an assignment of
rents and leases or pursue other remedies, all with a consequent loss of income
and asset value to ART. If ART defaults on secured indebtedness, the lender may
foreclose and ART could lose its entire investment in the security for such
loan. Because ART may engage in portfolio financings where several investments
are cross-collateralized, multiple investments may be subject to the risk of
loss. As a result, ART could lose its interests in performing investments in the
event such investments are cross- collateralized with poorly performing or
nonperforming investments. In addition, recourse debt may subject other assets
of ART to risk of loss. Any such losses would adversely affect ART's ability to
make distributions in respect of the ART Preferred Shares. Distributions in
respect of the ART Preferred Shares will be subordinate in right of payment to
ART's debt obligations which, as of September 30, 1998, have an aggregate
outstanding principal balance of approximately $426.3 million. Substantially all
of ART's mortgage notes receivable, real estate, equity security holdings in
CMET, IORI, TCI and NRLP and its trading portfolio of equity securities has been
pledged to secure ART's outstanding indebtedness. Such borrowings increase ART's
risk of loss because they represent a prior claim on ART's assets and require
fixed payments regardless of profitability. If ART defaults on such secured
indebtedness, the lender may foreclose on ART's assets securing such
indebtedness, and ART could lose its investment in the pledged assets.

Possible Inability to Refinance Existing Indebtedness. ART may not be able
to refinance existing indebtedness or the terms of such refinancing may not be
as favorable as the terms of current indebtedness and ART may not be able to
finance necessary capital expenditures for renovations and other improvements on
favorable terms or at all. If ART were unable to refinance its indebtedness on
acceptable terms, or at all, ART might be forced to dispose of one or more of
its properties on disadvantageous terms, which might result in losses to ART and
might adversely affect the cash available for distributions to its shareholders.
If interest rates or other factors at the time of the refinancing result in
higher interest rates upon refinancing, ART's interest expense would increase,
which would affect ART's ability to make distributions to its shareholders.
Substantially all of ART's real estate equity investments utilize a leveraged
capital structure, in which case a third party lender would be entitled to cash
flow generated by such investments prior to ART receiving a return. As a result
of such leverage, in addition to the risks described above, ART would be subject
to the risk that existing debt (which in most cases will not have been fully
amortized at maturity) will not be able to be refinanced or that the terms of
such refinancings will not be as favorable to ART and the risk that necessary
capital expenditures for such purposes as renovations and other improvements
will not be able to be financed on favorable terms or at all. While such
leverage may increase returns or the funds available for investment by ART, it
also will increase the risk of loss on a leveraged investment. The
organizational documents of ART do not contain any limitation on the amount of
indebtedness ART may incur. Accordingly, ART could become even more highly
leveraged than it currently is, thus resulting in an increase in debt service
that could increase the risk of default on ART's indebtedness.

Existing Debt Maturities. As of December 31, 1997, approximately $89.0
million of ART's outstanding indebtedness became due within the next twelve
months. ART had the option of extending the maturity dates with respect to $18.3
million of such amount to April and June 1999. In April 1998, ART paid off $5.0
million of such debt and refinanced the remaining $13.3 million with the same
lender, increasing the loan's principal balance by $1.7 million, and extended
the maturity date of such loan to April 2000. On an additional $19.5 million
loan, the lender has extended such loan's maturity date to February 2000. In
March 1998, ART made a $10.2 million paydown on this loan. In addition, through
September 30, 1998, ART paid off a total of $29.5 million of the remainder of
such maturing debt. ART anticipates that only a portion of the principal of its
indebtedness outstanding from time to time will be repaid prior to maturity. ART
may not have sufficient funds to repay such indebtedness at maturity; it may
therefore be necessary for ART to refinance debt through additional debt
financing or equity offerings. The lender on a loan with a principal balance of
$20.7 million at September 30, 1998, has declared events of non-monetary default
to have occurred and has demanded repayment of the amounts owed to it. If ART is
unable to refinance any of the foregoing indebtedness on acceptable terms, ART
may be forced to dispose of properties on disadvantageous terms, which could
result in losses to ART and adversely affect the amount of cash available for
further investment, to make payments on its outstanding indebtedness or to make
distributions in respect of the ART Preferred Shares.

Rising Interest Rates on Variable Rate Debt. As of September 30, 1998,
approximately 15% and 85% of ART's indebtedness is subject to variable interest
rates and fixed interest rates, respectively. ART may incur indebtedness in the
future that also bears interest at a variable rate or may be required to
refinance its debt at higher rates. Accordingly, increases in variable interest
rates could increase ART's interest expense and adversely effect the financial
condition

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<PAGE> 40

and results of operations of ART. In the event that ART's financial condition
and results of operations are adversely affected, the value of the ART Preferred
Shares will likely decline.

Covenants. Various debt obligations may require ART to comply with a number
of customary financial and other covenants on an ongoing basis. Failure to
comply with such covenants may limit ART's ability to borrow funds or may cause
a default under its then-existing indebtedness. Various ART debt obligations
contain specific covenants, which provide that if ART should be declared in
default of any of its debt obligations, and such default is not cured in the
time allowed, then the debt obligations containing such covenant would also be
declared in default, as a result of which, among other consequences, all such
debt would become due and payable.

Lack of Control and Other Risks of Equity Investments in and with Third
Parties. ART may invest in shares or other equity interests of real estate
investment trusts or other entities that invest in real estate assets. In such
cases, ART will be relying on the assets, investments and management of the real
estate investment trust or other entity in which it is investing. Such entities
and their properties will be subject to the other risks affecting the ownership
and operation of real estate set forth herein.

ART may also co-invest with third parties through partnerships, joint
ventures or other entities, acquiring non-controlling interests in or sharing
responsibility for managing the affairs of a property, partnership, joint
venture or other entity and, therefore, will not be in a position to exercise
sole decision-making authority regarding the property, partnership, joint
venture or other entity.

Investments in partnerships, joint ventures, or other entities may, under
certain circumstances, involve risks which would not be present were a third
party not involved, including the possibility that ART's partners or
co-venturers might become bankrupt or otherwise fail to fund their share of
required capital contributions, that such partners or co-venturers might at any
time have economic or other business interests or goals which are inconsistent
with the business interests or goals of ART, and that such partners or
co-venturers may be in a position to take action contrary to the instructions or
the requests of ART and contrary to ART's policies or objectives. Such
investments may also have the potential risk of impasse on decisions, such as a
sale, because neither ART nor the partner or co-venturer would have full control
over the partnership or joint venture. Consequently, actions by such partner or
co-venturer might result in subjecting properties owned by the partnership or
joint venture to additional risk. In addition, ART may in certain circumstances
be liable for the actions of its third-party partners or co-venturers.

Investments in Non-Recourse Mortgage Loans. To the extent ART invests in
mortgage loans, such mortgage loans may or may not be recourse obligations of
the borrower and generally will not be insured or guaranteed by governmental
agencies or otherwise. In the event of a default under such obligations, ART may
have to foreclose its mortgage or protect its investment by acquiring title to a
property and thereafter making substantial improvements or repairs in order to
maximize the property's investment potential. Borrowers may contest enforcement
of foreclosure or other remedies, seek bankruptcy protection against such
enforcement and/or bring claims for lender liability in response to actions to
enforce mortgage obligations. Relatively high "loan-to-value" ratios and
declines in the value of the mortgaged property may prevent ART from realizing
an amount equal to its mortgage loan upon foreclosure.

ART may participate in loans originated by other financing institutions. As
a participant, ART may not have the sole authority to declare a default under
the mortgage or to control the management or disposition of the related property
or any foreclosure proceedings in respect thereof.

Any investments in junior mortgage loans which are subordinate to liens of
senior mortgages would involve additional risks, including the lack of control
over the collateral and any related foreclosure proceeding. In the event of a
default on a senior mortgage, ART may make payments to prevent foreclosure on
the senior mortgage without necessarily improving ART's position with respect to
the subject real property. In such event, ART would be entitled to share in the
proceeds only after satisfaction of the amounts due to the holder of the senior
mortgage.

Limitations on Remedies. Although ART will have certain contractual
remedies upon the default by borrowers under certain debt instruments, such as
foreclosing on the underlying real estate or collecting rents generated
therefrom, certain legal requirements (including the risks of lender liability)
may limit the ability of ART to effectively exercise such remedies.

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The right of a mortgage lender to convert its loan position into an equity
interest may be limited or prevented by certain common law or statutory
prohibitions.

Possibility of Uninsured Loss on Uninsurable or Economically Uninsurable
Properties. ART carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the improved real property that it
owns, with policy specifications, insured limits and deductibles customarily
carried for similar properties. There are, however, certain types of losses
(such as losses arising from acts of war or relating to pollution) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits occur,
ART could lose its capital invested in a property, as well as the anticipated
future revenue from such property and would continue to be obligated on any
mortgage indebtedness or other obligations related to the property. Any such
loss could adversely affect the financial condition and results of operations of
ART.

With respect to those properties in which ART holds an interest through a
mortgage, as well as those properties owned by entities to whom ART makes
unsecured loans, the borrowers will most likely be obligated to maintain
insurance on such properties and to arrange for ART to be covered as a named
insured on such policies. The face amount and scope of such insurance coverage
may be less comprehensive than ART would carry if it held the fee interest in
such property. Accordingly, in such circumstances, or in the event that the
borrowers fail to maintain required coverage, uninsured or underinsured losses
may occur, which could have an adverse impact on ART's cash flow or financial
condition.

Costs of Compliance with the Americans with Disabilities Act and Similar
Laws. Under the Americans with Disabilities Act of 1980 (the "ADA"), places of
public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with ADA requirements could require both structural and non-structural changes
to the properties in which ART invests and noncompliance could result in
imposition of fines by the United States government or an award of damages to
private litigants. Although management of ART believes that its properties are
substantially in compliance with present requirements of the ADA, ART may incur
additional costs of compliance in the future. A number of additional Federal,
state and local laws exist which impose further burdens or restrictions on
owners with respect to access by disabled persons and may require modifications
to properties in which ART invests, or restrict certain further renovations
thereof. The ultimate amount of the cost of compliance with the ADA or other
such laws is not currently ascertainable. While such costs are not expected to
have a material effect on ART, they could be substantial. If required changes
involve greater expense than ART currently anticipates, ART's financial
condition and results of operations could be adversely affected.

Potential Environmental Liability Affecting ART. Under various Federal,
state and local environmental laws, ordinances and regulations, an owner of real
estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances on such property. These laws often impose
environmental liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure properly to remediate such
substances, may adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Persons who arrange for
the disposal or treatment of hazardous or toxic substances may also be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
person. Certain laws impose liability for release of asbestos- containing
materials ("ACMs") into the air and third parties may seek recovery from owners
or operators of real properties for personal injury associated with ACMs. In
connection with the ownership (directly or indirectly through its lending
activities), operation, management and development of real properties, ART may
be considered an owner or operator of such properties or as having arranged for
the disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as for certain
other related costs, including governmental fines and injuries to persons and
property.

ART's management is not aware of any environmental matters affecting its
properties or investments that would have a material adverse effect on ART's
business, assets or results of operations.

No assurance can be given that existing environmental assessments with
respect to any of ART's properties reveal all environmental liabilities, that
any prior owner of a property did not create any material environmental
condition not known to ART, or that a material environmental condition does not
otherwise exist with respect to any one or more properties of ART.

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Noncompliance with Other Laws. Real estate properties are also subject to
various Federal, state and local regulatory requirements, such as state and
local fire and life safety requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental authorities
or awards of damages to private litigants. ART believes that its properties are
currently in material compliance with all such regulatory requirements. However,
there can be no assurance that these requirements will not be changed or that
new requirements will not be imposed which would require significant
unanticipated expenditures by ART and could have an adverse effect on ART's
results of operations.

Changes in Laws. Increases in real estate taxes, income taxes and service
or other taxes generally are not passed through to tenants under existing leases
and may adversely affect ART's cash flow from operations and its ability to make
distributions to shareholders. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which would adversely affect ART's funds
from operations and thus its ability to make payments on its outstanding
indebtedness and to make distributions to its shareholders.

Dependence on Key Personnel. ART will be dependent on the efforts of its
executive officers and the executive officers of BCM, an affiliate of and
advisor to ART. While ART believes that it and BCM could find replacements for
these key personnel, the loss of their services may have a temporary adverse
effect on the operations of ART. Only Randall M. Paulson, the President of BCM,
has an employment agreement with BCM. None of the other officers has entered or
is expected to enter into employment agreements with ART or BCM.

CORRELATION BETWEEN THE VALUE OF THE EQK SHARES AND THE SUCCESS OF EQK'S
BUSINESS

EQK Shareholders are subject to many of the risks described above under
"--Risks Relating to ART's Business," as they may also pertain to the business
of EQK. The value of the EQK Shares may be affected by such risks and the risks
set forth below. In addition, as a result of the sale of the Center, the
resulting distribution to EQK Shareholders and the acquisition of Oak Tree
Village for a note in the full amount of the purchase price, EQK is not expected
to have any net worth after the Merger.

Possible Loss of NOLs. EQK currently has NOLs of approximately $94,000,000
prior to the anticipated utilization of a portion of these NOLs to offset the
taxable gain expected to be realized upon the sale of Harrisburg East Mall. In
general, such NOLs may be used to offset any taxable gains realized upon the
sale of EQK's assets so long as there is not or more than a 50 percentage point
change in the ownership of the EQK Shares during any three year period. In the
event that there is more than a 50 percentage point change in the ownership of
EQK Shares during a three year period, the availability of such NOLs to offset
taxable gains or income would be reduced to a very significant extent. Although
it is not expected that the Merger, the Block Purchase or the Standstill
Agreements would reduce the availability of the NOLs, a reduction in the
availability of such NOLs could have a material adverse effect on the market
value of EQK and the EQK Shares. For purposes of determining possible
limitations on the availability of the NOLs, since December 31, 1997, there as
been a 21.9% change in the ownership of EQK's Shares. In addition, prior to
December 31, 1997, but within the last three years, an additional 23.5% change
in ownership has occurred. If the Merger is approved, new EQK Shares will be
issued to ART, which will result in a 3.6% ownership change. In the aggregate,
all such ownership changes represent less than 50% of EQK's Shares during the
three-year period preceding the date of the Merger.

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RATIO OF EARNINGS TO FIXED CHARGES

The following table summarizes the ratio of ART's earnings to combined
fixed charges and preferred stock dividends for each of the five fiscal years
ended December 31, 1997:

<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED * * * * *
STOCK DIVIDENDS
</TABLE>

* Earnings were inadequate to cover fixed charges and preferred stock dividends
by $8,474,000, $4,819,000, $189,000, $1,390,000, and $4,923,000 in 1997, 1996,
1995, 1994 and 1993, respectively.

USE OF PROCEEDS

Neither ART nor EQK will receive any cash proceeds from the Merger. ART
plans to hold the EQK Shares that it receives as the ART Merger Consideration
for investment purposes. See "The Proposed Merger and Related Matters --
Purposes of the Merger".

THE EQK ANNUAL MEETING

INTRODUCTION

This Prospectus/Proxy Statement is being furnished in connection with the
solicitation of proxies by the EQK Board for use in connection with the EQK
Annual Meeting and any adjournments or postponements of such meeting.

It is anticipated that the mailing of this Prospectus/Proxy Statement to
EQK Shareholders will commence on _________ __, 1999.

DATE, TIME AND PLACE OF MEETINGS

The EQK Annual Meeting is scheduled to be held at the corporate offices of
EQK, 5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia on ________ __,
1999 at 9:00 a.m. Eastern Standard Time.

MATTERS TO BE CONSIDERED AT THE EQK ANNUAL MEETING

At the EQK Annual Meeting, the EQK Shareholders, voting together as a
single class, will be asked to consider and vote upon the Proposals. The Board
Election Proposal will require the affirmative vote of EQK Shareholders
representing a majority of the total votes authorized to be cast by EQK Shares
then outstanding which are present at the EQK Annual Meeting in person or by
proxy and entitled to vote thereon. The Merger-Related Proposals will each
require the Requisite Shareholder Approval. None of the Merger-Related Proposals
will take effect unless all such proposals receive the Requisite Shareholder
Approval.

RECORD DATE AND VOTE REQUIRED

The EQK Board has fixed the close of business on ________ __, 1999 as the
EQK Record Date for the EQK Annual Meeting. As of such date, there were
_________________ EQK Shares issued and outstanding.

The presence, in person or by proxy, of EQK Shareholders owning EQK Shares
representing a majority of all the votes entitled to be cast by EQK Shareholders
at the EQK Annual Meeting is necessary to constitute a quorum at such meeting.

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The Board Election Proposal will require the affirmative vote of EQK
Shareholders representing a majority of the total votes authorized to be cast by
EQK Shares then outstanding which are present at the EQK Annual Meeting in
person or by proxy and entitled to vote thereon. The Merger-Related Proposals
will each require the Requisite Shareholder Approval. None of the Merger-Related
Proposals will take effect unless all such proposals receive the Requisite
Shareholder Approval. LLPM, Summit and Sutter have agreed to vote their EQK
Shares in favor of the Merger-Related Proposals. LLPM, Summit, Sutter and
Halperin currently own 17.50%, 9.52%, 9.55% and 8.9%, respectively, of the
issued and outstanding EQK Shares. The number of affirmative votes required for
approval of the Proposals at the EQK Annual Meeting is also described above
under "--Matters to be Considered at the EQK Annual Meeting."

As of September 30, 1998, Trustees and executive officers of EQK as a group
beneficially held outstanding EQK Shares representing less than 1% of all the
votes entitled to be cast by EQK Shareholders at the EQK Annual Meeting and each
such person has advised ART that he or she intends to vote to approve and adopt
the Proposals.

A proxy may indicate that all or a portion of the shares represented by
such proxy are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in street
name on certain proposals in the absence of instructions from the beneficial
owner. Such broker non-votes and abstentions will be considered as not present
and entitled to vote on such proposal, even though such shares will be
considered present for purposes of determining a quorum and voting on other
proposals. BECAUSE APPROVAL OF THE MERGER-RELATED PROPOSALS AT THE EQK ANNUAL
MEETING REQUIRES THE AFFIRMATIVE VOTE OF THREE QUARTERS OF THE OUTSTANDING EQK
SHARES AS DESCRIBED MORE FULLY ABOVE IN "--MATTERS TO BE CONSIDERED AT THE EQK
ANNUAL MEETING," ANY BROKER NON-VOTES OR ABSTENTIONS ON THE PROPOSALS WILL HAVE
THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER-RELATED PROPOSALS AND ACCORDINGLY
WILL AFFECT WHETHER THE MERGER-RELATED PROPOSALS WILL BE APPROVED.

PROXY

Enclosed is a form of proxy which should be completed, dated, signed and
returned by each EQK Shareholder before the EQK Annual Meeting to ensure that
such stockholder's shares will be voted at such meeting. Any EQK Shareholder
signing and delivering a proxy has the power to revoke the proxy at any time
prior to its use by filing with the corporate secretary of EQK a written
revocation of the proxy or a duly executed proxy bearing a later date or by
attending and voting in person at the meetings.

Shares represented by a properly executed proxy will be voted in accordance
with the instructions indicated on such proxy with respect to the proposal at
the EQK Annual Meeting, and at the discretion of the proxy holders on all other
matters to come properly before such meeting. If an EQK Shareholder executes a
proxy with no instructions indicated thereon, shares represented by such proxy
will be voted in favor of the Proposals.

SOLICITATION OF PROXIES

ART will bear the expense of the proxy solicitation. ART has retained
Shareholder Communications Corporation (the "Proxy Solicitor") to act as proxy
solicitor in connection with the Merger. The Proxy Solicitor may contact EQK
Shareholders by mail, telephone, telex, telegraph and personal interviews and
may request brokers, dealers and other nominee stockholders to forward the proxy
materials to beneficial owners of EQK Shares. The Proxy Solicitor will receive a
fee estimated not to exceed $9,500 for such services, plus reimbursement of
out-of-pocket expenses, and ART will indemnify the Proxy Solicitor against
certain liabilities and expenses in connection with the Merger, including
liabilities under federal securities laws. The telephone number of the Proxy
Solicitor is 1-800-221-5724.

OTHER MATTERS

The EQK Board of Trustees knows of no matters, other than those described
in this Prospectus/Proxy Statement, which are to be brought before the EQK
Annual Meeting. However, if any other matters properly come before such meeting,
it is the intention of the persons named in the enclosed form of proxy to vote
such proxy in accordance with their judgment on such matters.

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THE PROPOSED MERGER AND RELATED MATTERS

BACKGROUND OF THE MERGER

On March 5, 1996, Mr. Doug Tibetts, President of Equitable (formerly the
indirect parent of LLPM which holds 1,685,556 EQK Shares), met with ART
representatives at ART's office in Dallas. The meeting was general in nature
without a formal agenda. Mr. Tibetts suggested that representatives of ART speak
with Mr. Gregory R. Greenfield, Executive Vice President and Treasurer of EQK,
concerning the possible sale of EQK. During March and April of 1996, various
telephone conversations were held between Mr. Cooper B. Stuart, an Executive
Vice President of BCM, an affiliate of and advisor to ART, and Mr. Greenfield
regarding the Center and a possible transaction involving EQK.

On January 23, 1997, representatives of ART held a meeting with Mr. William
G. Brown, Vice President and Controller of EQK, and Mr. Greenfield to discuss a
proposed exchange offer by ART with respect to the EQK Shares. EQK agreed to
engage the Financial Advisor to review the fairness of the proposed exchange
offer for the EQK Board.

On March 24, 1997, representatives of the Financial Advisor visited ART's
offices to interview key personnel of both ART and BCM.

During April 1997, discussions continued between representatives of ART and
EQK concerning the terms of the ART Preferred Shares, the terms of the proposed
exchange offer and the fairness opinion. Although an offer was never extended,
ART informally proposed to offer to exchange a combination of (i) cash of
approximately $0.40 per share and (ii) ART Preferred Shares having a liquidation
value of approximately $1.85 for up to 50% of the outstanding EQK Shares. EQK
had 9,264,344 shares outstanding and Prudential, the lender on the Center, held
the Prudential Warrants, for a total of 9,632,212 shares. The ART Preferred
Shares would pay a 10% annual dividend beginning August 16, 1998 and have a
stated liquidation value of $10.00 per ART Preferred Share, plus accrued and
unpaid dividends. If the proposed exchange offer was 100% successful and ART
acquired 4,632,172 shares of EQK and if the actual exchange offer was the same
as that informally discussed, ART would have paid $1,852,869 in cash and issued
856,952 ART Preferred Shares (having a liquidation value of $8,569,520). The
terms of the ART Preferred Shares have not changed in any material manner from
those preliminary discussions. For a description of the ART Preferred Shares see
"Description of the Capital Stock of ART -- ART Preferred Shares." On April 11,
1997, BCM received from EQK a copy of a draft appraisal with respect to the
leasehold interests in the Center. On May 7, 1997, the Financial Advisor orally
issued a fairness opinion with respect to the terms of the proposed exchange
offer. The EQK Board met on May 7, 1997 and approved the terms of the proposed
exchange offer from ART to the EQK Shareholders.

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<PAGE> 46

effectively limiting the number of EQK Shares that could be acquired by ART in
an exchange offer without limiting the availability of EQK's NOLs. As a result,
during June and July of 1997, Mr. Stuart and Mr. Brown held further discussions
regarding a proposed change in the structure of the transaction from an exchange
offer to a merger and two separate stock purchases between ART and 5% Holder who
had acquired or experienced a change in ownership in EQK Shares during the past
three years. The merger would result in the EQK Shareholders (other than LLPM
and Greenspring which would sell all of their shares in the stock purchase
transactions) retaining all of their EQK Shares and receiving a combination of
cash and ART Preferred Shares. The public EQK Shareholders' aggregate percentage
interest in EQK would be reduced as a result of the issuance of EQK Shares to
ART pursuant to the merger. This reduction in percentage interest would
effectively be equivalent to the sale by each public EQK Shareholder of
approximately 25% of such EQK Shareholder's shares at the same price per share
($.40 in cash and a portion of an ART Preferred Share with a Liquidation Value
of $1.85) as was to be offered in the exchange offer. It was then contemplated
that LLPM and Greenspring would receive for each EQK Share sold by them a
portion of an ART Preferred Share with a Liquidation Value of $2.25.

During August and September 1997, the Financial Advisor evaluated the
revised structure of the transaction and recommended that the consideration to
be paid to LLPM and Greenspring in connection with the Block Purchase should be
reduced to 0.185 shares of ART Preferred Stock per EQK Share. This
recommendation was adopted and, as a result, the non-cash consideration per
share to other EQK Shareholders was increased from .0492 to 0.0616 of an ART
Preferred Share. The Financial Advisor evaluated the initial revised structure
and noted that the value of the consideration to be paid in the Block Purchase
(as derived by the Financial Advisor) exceeded the value of (i) the
consideration to be paid to the Public EQK Shareholders plus (ii) their retained
interest in the diluted EQK Shares (also as derived by the Financial Advisor).
The Financial Advisor then recommended that the consideration to be paid in the
Block Purchase be reduced to approximate the value of the consideration to be
paid to the Public EQK Shareholders plus their retained interest. Accordingly,
the terms of the Block Purchase were revised to provide that ART would purchase
all of the EQK shares held by LLPM and Greenspring (2,269,356 shares or
approximately 23.56% of the outstanding EQK Shares prior to the Merger) in
exchange for 0.185 ART Preferred Shares (having a Liquidation Value of $1.85 per
share) per each EQK Share for an aggregate of 419,831 ART Preferred Shares
(having an aggregate Liquidation Value of $4,198,309). Together with the EQK
Shares it proposed to acquire in connection with the merger, ART would own 49%
of the issued and outstanding EQK Shares.

As a further condition precedent to the Merger, ART agreed to offer to
enter into a Standstill Agreement with each 5% Holder of EQK Shares (other than
LLPM and Greenspring) whereby ART would pay $0.10 per existing EQK Share held by
the two remaining 5% Holders (paid on a maximum of 2,156,600 EQK Shares or a
maximum of $215,660 in cash) as compensation for such holder's agreement not to
sell any of its EQK Shares or acquire any additional EQK Shares for a period of
42 months after the consummation of the Merger.

On September 30, 1997, the Financial Advisor orally issued a revised
fairness opinion with respect to the proposed Merger.

On September 30, 1997 and November 13, 1997, the EQK Board and the ART
Board, respectively, approved the terms of the Original Merger Agreement.

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<PAGE> 47

On December 24, 1997, ART and EQK issued a joint press release to the
effect that the Original Merger Agreement had been signed.

On January 6, 1998, ART filed the Registration Statement with the
Commission.

On January 21, 1998, ART filed Amendment No. 1 to the Registration
Statement.

In January 1998, ART and EQK learned of the Halperin Purchase from a
Schedule 13D filing made by Halperin. During January and February of 1998,
Mssrs. Stuart and Brown had several discussions regarding the Halperin Purchase.
After consulting with its counsel, ART decided that it would make an offer to
Halperin to purchase his EQK Shares after the Registration Statement had been
declared effective by the Commission. Such offer would be made upon the same
terms and conditions as ART's offer to purchase the EQK Shares held by LLPM and
Greenspring. If Halperin declined such offer, ART would amend the Registration
Statement to reflect such fact, but the consideration to be paid to the Public
EQK Shareholders, LLPM and Greenspring pursuant to the Merger and the Block
Purchase would remain the same.

On February 20, 1998, ART received the Commission's comments to the
Registration Statement.

During March and April 1998, ART and EQK prepared their respective
responses to the Commission's comments to the Registration Statement.

On March 19, 1998, Prudential gave EQK notice of its intent to exercise the
Prudential Warrants. The Prudential Warrants were exercised on April 8, 1998 and
on May 7, 1998, 367,868 EQK Shares were issued to Prudential.

During May 1998, Mr. Brown informed Mr. Stuart that the EQK Board had
decided that it was in the best interests of the EQK Shareholders to terminate
the Original Merger Agreement and to sell the Center and distribute the net
liquid assets to the EQK Shareholders. Mr. Brown stated that the EQK Board was
concerned that the Original Merger Agreement would hinder EQK's ability to
consummate a sale of the Center by December 15, 1998, the date on which the
forbearance agreement relating to the Center's mortgage terminates.

During May through August of 1998, Mr. Brown and Messrs. Stuart and Rossi
held further discussions regarding a revised structure for the Merger in which
ART would permit EQK to sell the Center prior to the consummation of the Merger
and EQK would agree to purchase the Oak Tree Village from ART upon terms that
were mutually acceptable to EQK and ART. The parties agreed to reduce the
consideration to be paid by ART in connection with the Merger and the Block
Purchase since the EQK Shareholders (including LLPM, Greenspring and Halperin)
would receive the net proceeds from the sale of the Center. The parties agreed
that the consideration to be paid to LLPM, Greenspring and Halperin in
connection with the Block Purchase would be a portion of an ART Preferred Share
with a Liquidation Value of $0.328 per EQK Share purchased and the consideration
to be paid to the Public EQK Shareholders would be a portion of an ART Preferred
Share with a Liquidation Value of $0.157 per EQK Share, with the Public EQK
Shareholders retaining all of their EQK Shares subject to the dilution resulting
from the issuance of additional EQK Shares as the ART Merger Consideration.

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<PAGE> 48

In August 1998, Summit and Sutter each filed a Schedule 13G with the
Commission disclosing the Summit/Sutter Purchases. These purchases were from one
of the 5% Holders. During August 1998, Messrs.. Stuart and Brown had several
discussions regarding the impact of the Summit/Sutter Purchases. One effect of
the Summit/Sutter purchases was to reduce, as a result of tax considerations,
the number of shares that ART could purchase that were held by Public EQK
Shareholders. As a result, the parties determined that the terms of the
consideration for the Merger and the Block Purchases should be adjusted so that
the consideration to be paid to LLPM, Greenspring, Summit, Sutter and Halperin
in connection with the Block Purchase would be a portion of an ART Preferred
Share with a liquidation value of $0.30 per EQK Share purchased and the
consideration to be paid to the Public EQK Shareholders would be a portion of an
ART Preferred Share with a liquidation value of $0.14 per EQK Share, with the
Public EQK Shareholders retaining all of their EQK Shares subject to the
dilution resulting from the issuance of additional EQK Shares as the ART Merger
Consideration. Upon reaching a preliminary agreement as to the consideration for
the Merger and the Block Purchases, ART then offered to purchase from Summit and
Sutter all of their respective EQK Shares upon the same terms and conditions as
the LLPM and Greenspring purchases. Each of Summit and Sutter has accepted ART's
purchase offer. Additionally, on August 27, 1998, Summit and Sutter each
purchased one half of Greenspring's total EQK shares, thereby increasing the
number of shares to be acquired by ART from Summit and Sutter pursuant to the
Block Purchases.

On August 25, 1998, ART and EQK executed the Merger Agreement.

On September 3, 1998, ART filed Amendment No. 2 to the Registration
Statement.

GENERAL

The following description of the Merger and the Merger Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached as Appendix B to this
Prospectus/Proxy Statement and incorporated herein by reference. EQK
Shareholders are urged to read the Merger Agreement in its entirety.

EFFECTS OF THE MERGER

The Merger Agreement provides that, subject to the Requisite Shareholder
Approval of the Merger-Related Proposals and the satisfaction or waiver of the
other conditions to the Merger, ART Newco will be merged with and into EQK,
whereupon the separate existence of ART Newco will cease and EQK will be the
surviving corporation of the Merger. At the Effective Time, the payment of the
EQK Merger Consideration will be effected as described below. The Amended
Declaration of Trust and the Trustees' Regulations, as in effect at the
Effective Time, will continue to be the Declaration of Trust and Trustees'
Regulations of EQK after consummation of the Merger. Following completion of the
Merger, the New EQK Board (as defined herein under "The Board Election
Proposal") will be comprised of the individuals identified above in "The Board
Election Proposal."

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EFFECTIVE TIME OF THE MERGER

Following the adoption of the Merger Agreement by the EQK Shareholders and
subject to satisfaction or waiver of the terms and conditions thereof, the
Merger will become effective upon the filing of a Certificate of Merger filed
with the Secretary of the Commonwealth of Massachusetts at the Effective Time.

TERMS OF THE MERGER

At the Effective Time, ART will pay the EQK Merger Consideration to the EQK
Shareholders and EQK will pay the ART Merger Consideration to ART.

Following the Effective Time, American Stock Transfer and Trust Company,
which will act as Merger Agent (the "Merger Agent") in connection with the
Merger, shall distribute or shall cause the Dealer Manager, an affiliate of ART
and BCM, to distribute the EQK Merger Consideration to each EQK Shareholder of
record. In addition, following the Effective Time, EQK will distribute the ART
Merger Consideration to ART. No interest will be paid or accrued on the Merger
Consideration. No EQK Shareholder will be entitled to dividends or other rights
in respect of any fractional interests. See "--Cash in Lieu of Fractional Shares
of ART Preferred Shares."

ART or the Merger Agent shall be entitled to deduct and withhold from the
EQK Merger Consideration otherwise payable pursuant to the Merger Agreement to
any EQK Shareholder such amounts as ART or the Merger Agent is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by ART or the Merger Agent, such withheld amounts shall be
treated for all purposes as having been paid to the holder of the EQK Shares in
respect of which such deduction and withholding was made by ART or the Merger
Agent. See "The Proposed Merger and Related Matters -- Federal Income Tax
Consequences."

None of ART, ART Newco, EQK or the Merger Agent shall be liable to any
person in respect of any EQK Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.

The ART Preferred Shares to be issued to EQK Shareholders in connection
with the Merger will be freely transferable under the Securities Act, except for
shares issued to any person who may be deemed to be an "affiliate" of ART or EQK
within the meaning of Rule 145 under the Securities Act. It is expected that the
affiliates of ART and EQK will be able to sell such shares without registration
in accordance with the applicable limitations of Rule 145 under the Securities
Act.

CASH IN LIEU OF FRACTIONAL SHARES OF ART PREFERRED SHARES

No certificates representing fractional shares of ART Preferred Shares will
be issued pursuant to the Merger. In lieu thereof, each EQK Shareholder who
would otherwise be entitled to a fractional ART Preferred Share will receive, on
the date the EQK Merger Consideration is paid to such EQK Shareholder, cash in
an amount equal to such fraction (expressed as a decimal and rounded to the
nearest 0.01 of a share) multiplied by the Liquidation Value of an ART Preferred
Share.

AVAILABILITY OF APPRAISAL RIGHTS

The EQK Board has been advised that no statutory appraisal rights are
available to EQK Shareholders in connection with the Merger under Massachusetts
law. However, in at least one case, the Massachusetts Supreme Judicial Court
held that shareholders of a merging corporation were entitled to common law
appraisal rights. Neither ART nor EQK believes that the Merger would give rise
to such common law appraisal rights. However, any EQK Shareholder may, by
written notice prior to the EQK Annual Meeting, assert his or her entitlement to
common law dissenter's appraisal rights. EQK intends to oppose any such
assertion of such rights. In the event that holders of more than 3% of the
outstanding EQK Shares assert common law dissenter's appraisal rights, the
Merger Agreement may be terminated.

All written notices of an EQK Shareholder's assertion of common law
dissenter's appraisal rights with respect to the Merger, if any, should be
addressed to: EQK Realty Investors I, Inc., 5775 Peachtree Dunwoody Road, Suite
200D,

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<PAGE> 50

Atlanta, Georgia 30342, Attention: Secretary, and should be executed by, or with
the consent of, the holder of record. In the notice, the EQK Shareholder's name
should be stated as it appears on his or her stock certificates(s). If the EQK
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such notice should be executed by or for the fiduciary.
If the EQK Shares are owned of record by or for more than one person, as in a
joint tenancy or tenancy in common, such notice should be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the notice for an EQK Shareholder of record; however, the
agent should identify the record owner(s) and expressly disclose the fact that,
in sending the notice, he is acting as agent for the record owners.

CONDITIONS TO THE MERGER; TERMINATION; WAIVER AND AMENDMENT

In addition to the Requisite Shareholder Approval, the obligations of ART
Newco on the one hand and EQK on the other to consummate the Merger are subject
to the satisfaction or waiver of certain other conditions including, among
others: (i) the consummation of the Block Purchase, (ii) the Requisite
Shareholder Approval of the Merger-Related Proposals, (iii) the acquisition by
EQK from ART of the Oak Tree Village upon the terms and conditions described
herein under "--Sale of the Center and Acquisition of Oak Tree Village," (iv)
EQK's sale of the Center and distribution of the net liquid assets to the EQK
shareholders, (v) the execution by each 5% Holder (other than LLPM, Summit,
Sutter and Halperin) of a Standstill Agreement, (vi) the authorization of the
ART Preferred Shares for listing on the NYSE, subject to official notice of
issuance, (vii) no stop order suspending the effectiveness of the Registration
Statement having been issued and no proceedings for that purpose having been
initiated or threatened by the Commission, (viii) no order, injunction or decree
issued by any court or agency of competent jurisdiction or other legal restraint
or prohibition preventing the consummation of the Merger, (ix) the receipt by
ART and EQK of all required material governmental authorizations, permits,
consents, orders or approvals, (x) the receipt of all licenses, permits,
consents, approvals and authorizations from all third parties and governmental
bodies and agencies which are necessary in connection with consummation of the
Merger and the conduct of EQK's business after the Merger (xi) EQK operating in
all respects in its ordinary course of business without any material adverse
change in its business, properties or financial condition, (xii) the receipt by
ART of written resignations from all members of the current EQK Board, (xiii)
the number of outstanding EQK Shares immediately prior to the Merger being
9,632,212 and no additional EQK Shares or other equity interests or any option,
warrant, right or other security exercisable for, convertible into or
exchangeable for EQK Shares or other equity interests in EQK being issued since
September 30, 1998, and (xiv) the representations and warranties of EQK in the
Merger Agreement being true, complete and accurate in all material respects as
of the date when made and as of the date the Merger is consummated. EQK intends
to resolicit shareholder approval for the Merger if EQK desires to waive any
material condition specified above.

The obligations of ART to consummate the Merger are subject to the
satisfaction or waiver of certain other conditions including, among others: (i)
the continuing accuracy in all material respects of the representations and
warranties made by EQK in the Merger Agreement; (ii) the performance in all
material respects of all agreements and covenants to be performed by EQK or LLPM
under the Merger Agreement; (iii) the receipt of certain opinions of counsel;
(iv) the exercise in full, termination or cancellation of any options or
warrants (or other derivative or convertible interests in the equity securities
of EQK) for EQK Shares, and (v) there having been no change in EQK's business,
results of operations or financial condition which would have a material adverse
effect on EQK.

The obligations of EQK to consummate the Merger are subject to the
satisfaction or waiver of certain other conditions including, among others: (i)
the continuing accuracy in all material respects of the representations and
warranties made by ART in the Merger Agreement; (ii) the performance in all
material respects of all agreements and covenants to be performed by ART under
the Merger Agreement; and (iii) there having been no change in ART's business,
results of operations or financial condition had occurred which would have a
material adverse effect on ART.

The Merger Agreement may be terminated and the Merger abandoned prior to
the Effective Time, whether before or after the Requisite Shareholder Approval:
(i) by mutual written consent of ART, ART Newco and EQK; (ii) by ART Newco or
ART, on or after December 15, 1998, if any of the conditions precedent to ART or
ART Newco's obligations under the Merger Agreement have not been met or, to the
extent permitted by applicable law, have not been waived in writing by ART and
ART Newco prior to such date, (iii) by EQK on or after December 15, 1998, if any
of the conditions precedent to EQK's obligations under the Merger Agreement have
not been met or, to the extent permitted by applicable law, have not been waived
in writing by EQK prior to such date; (iv) by EQK if EQK accepts a proposal from
a party other the ART or ART's affiliates concerning a merger, sale of
substantial assets or similar transaction

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<PAGE> 51

involving EQK or the sale of any EQK Shares, (iv) by EQK upon a Negative
Determination, or (v) by EQK if the EQK Board determines that compliance with
the Merger Agreement is reasonably likely to materially impair or delay its
ability to sell the Center or result in a material reduction in the
consideration that would be received by EQK in connection with such sale.

ART and EQK may, by an appropriate instrument executed at any time prior to
the Effective Time, whether before or after the Requisite Shareholder Approval
is obtained, amend the Merger Agreement; provided that after the receipt of such
approvals, no amendment or modification may be made which alters the amount or
changes the form of the EQK Merger Consideration or ART Merger Consideration.

The parties to the Merger Agreement may also, at any time prior to the
Effective Time, by action taken by its Board of Directors or Trustees, as
applicable: (i) extend the time for the performance of any of the obligations or
other acts of the other party; (ii) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant thereto and (iii) subject to limitations on
amendment, waive compliance with any of the agreements or conditions contained
in the Merger Agreement to the extent permitted by law.

SOLICITATION PERMITTED; BOARD ACTION; FEES AND EXPENSES

The Merger Agreement provides that EQK and those acting on its behalf may
solicit, encourage, or initiate any discussions with, or provide any information
to, any person or entity concerning any merger, sale of substantial assets, or
similar transaction involving EQK, or any sale of any of the EQK Shares. EQK
must notify ART in writing of all of the relevant details relating to all
inquiries and proposals which it may receive relating to any of such matters. In
the event that EQK accepts such an offer or proposal from a party other than ART
or its affiliates and, as a result terminates the Merger Agreement, EQK must pay
ART a termination or "break-up" fee of $200,000, plus EQK's share of any
expenses related to the Merger in accordance with the terms of the Cost Sharing
Agreement.

CONDUCT OF EQK'S BUSINESSES PENDING COMPLETION OF THE MERGER

The Merger Agreement provides that, prior to the Effective Time or the
termination of the Merger Agreement pursuant to its terms, unless ART shall
otherwise consent in writing, EQK will conduct its operations according to its
ordinary and usual course of business and will not (i) enter into or agree to
any transaction outside the ordinary course of business, (ii) incur any
additional indebtedness for borrowed money except pursuant to existing lines of
credit and in the ordinary course of business and except in connection with the
acquisition of the Oak Tree Village from ART, (iii) pay dividends on or make
other distributions or payments in respect of its capital stock other than in
connection with the sale of the Center, (iv) issue any additional equity
securities or any option, warrant, right or other security exercisable for,
convertible into or exchangeable for any equity securities, (v) increase or
agree to increase the salary, compensation, bonus or benefits of any officer,
Trustee or employee of EQK other than in the ordinary course of business (except
for reasonable consideration to be granted to Trustees upon their retirement
from the EQK Board) or (vi) sell or otherwise dispose of any of its properties,
with the exception of the Center, other than in the ordinary course of business.

SALE OF THE CENTER AND ACQUISITION OF OAK TREE VILLAGE

Pursuant to the Merger Agreement, ART has consented to (i) the acquisition
by EQK of the Oak Tree Village upon the terms and conditions described below,
(ii) the sale of the Center by EQK upon such terms and conditions as EQK shall
determine, (iii) the retirement of the mortgage debt on the Center, (iv) the
payment of all other obligations of EQK (other than those associated with the
Oak Tree Village), (v) all actions that EQK determines are necessary and
appropriate to effectuate the foregoing actions, and (vi) the distribution of
the net proceeds from the sale of the Center to the EQK Shareholders.

Subject to Requisite Shareholder Approval of the Merger-Related Proposals,
EQK has agreed to acquire the Oak Tree Village from ART. Oak Tree Village is a
retail shopping center located in Lubbock, Texas. The municipal address of Oak
Tree Village is 3701 19th Street and 3702 20th Street, Lubbock, Lubbock County,
Texas. Although the Oak Tree Village is classified as a "retail shopping
center," its usage includes both retail and medical office applications. One
tenant, American Home Patient, occupies ten percent or more of the rentable
square footage of the Oak Tree Village and the principal nature of business of
such tenant is the sale of home health care equipment. The principal business

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carried on in or from the Oak Tree Village is the retail sale of goods and
professional services. ART acquired the Oak Tree Village for investment
purposes. ART currently has no plans to renovate, improve or further develop the
Oak Tree Village.

As of September 30, 1998, the Oak Tree Village was encumbered by a first
lien mortgage in the principal amount of $1,514,579 in favor of Midland Loan
Services (the "Lender"). In connection with the Merger, ART will sell the Oak
Tree Village to EQK pursuant to the terms of a real estate purchase and sale
agreement which will provide for, among other things, the purchase by EQK of the
Oak Tree Village for a total consideration of $2,780,046, consisting of an
assumption by EQK of $1,514,579 in existing debt (subject to Lender's approval)
and a non-recourse promissory note (the "Note") by EQK payable to ART in the
amount of $1,250,000 that shall bear interest at a rate of 12% per annum and
shall be payable quarterly in installments of interest only over a term of five
years with a final principal payment being due on December 15, 2003. If the
Lender approves the terms of the transaction, the Note will be secured by a
second lien mortgage on the Oak Tree Village in favor of ART.

Pursuant to the Real Estate Purchase and Sale Agreement, ART will agree to
indemnify and hold EQK harmless from and against any liabilities to which EQK
may become subject that cannot be satisfied by the disposition of the Oak Tree
Village.

Upon the sale of the Center and the acquisition of the Oak Tree Village by
EQK, the Oak Tree Village will be the sole real estate asset of EQK.

The principal tenants of the Oak Tree Village are American Home Patient,
Southwest Hematology Oncology and Uniform Today. The principal tenants of the
Oak Tree Village lease their space and the underlying land pursuant to leases
which are summarized below.

<TABLE>
<CAPTION>
Principal Tenant Area Minimum Expiration Renewal
---------------- (Sq. Ft.) Annual Rent Date Options
--------- ----------- ---- -------
<S> <C> <C> <C> <C>
American Home Patient 4,931 $29,900 3/31/99 No
Southwest Hematology 4,437 $28,841 11/30/98 No
Oncology
Uniform Today 3,973 $40,723 2/28/02 No
</TABLE>

The following table shows lease expiration information for the tenants of
the Oak Tree Village at September 30, 1998:

<TABLE>
<CAPTION>
% of
Gross 1997 Aggregate 1998
Number of Leased Minimum Minimum
Leases Area Annual Annual
Year Expiring (a) (Sq. Ft.) Rent Rent
---- ------------ --------- ------ -----
<S> <C> <C> <C> <C>
Month to Month -- -- $ -- --%
1998 3 7,973 54,971 16.12%
1999 6 9,769 77,165 22.63%
2000 7 13,198 119,043 34.91%
2001 2 4,925 36,431 10.68%
2002 2 5,922 53,392 15.66%
2003 -- -- -- --%
2004 -- -- -- --%
2005 -- -- -- --%
2006 and thereafter -- -- -- --%
---- -------------- -------------- --------
TOTAL 20 41,787 $ 341,002 100.00%
==== ============== ============== ========
</TABLE>

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<PAGE> 53

(a) Assumes no renewal options will be exercised in order to show the earliest
termination of the leases.

ART has received an appraisal (the "Brown Appraisal") from Brown &
Associates, an unaffiliated third-party appraiser ("Brown & Associates") with
respect to the market value of Oak Tree Village. Based upon the analysis set
forth in the Brown Appraisal, Brown & Associates estimated that the market value
of the leased fee estate in the Oak Tree Village in its as is condition as of
May 20, 1997 was $2,265,000. In arriving at such appraised value, Brown &
Associates considered relevant economic and market factors, including
population, employment and other demographic factors and the impact of
competition from other shopping centers in the Lubbock metropolitan
statitistical area ("MSA").

The Brown Appraisal indicates that considerable movement is occuring within
the Lubbock, Texas area as businesses relocate from center to center and because
certain businesses are relocating in anticipation of losing space in connection
with the construction of a new east/west freeway. As a result of the
construction of such new freeway, access to the Oak Tree Village and the
surrounding neighborhood will be greatly enhanced, according to the Brown
Appraisal. In addition, according to the Brown Appraisal, the average rent for
retail space in the Lubbock area increased $0.14 per square foot during the
period from January 1996 to June 1997 to an average rental rate of $9.18 per
square foot.

In addition, according to a survey of the Lubbock, Texas commercial real
estate market prepared by Blosser Appraisal, an unaffiliated third-party
appraiser ("Blosser") in February of 1998 (the "Blosser Survey"), retail vacancy
for multi-tenant shopping centers in the Lubbock, Texas MSA increased
approximately 1% to 14.87% since 1997 and the market appeared to be stabilizing
at a 14% to 15% vacancy level. The Blosser Survey indicated that rental rates
have been fairly stable during 1997 and there were few sales of retail centers
in the Lubbock, Texas MSA during 1997. Overall, the Lubbock retail sector is
doing fairly well, with several factors indicating a stabilizing picture for the
near term, according to the Blosser Survey.

In October 1997, ART refinanced, at maturity, the $1.4 million mortgage
debt secured by the Oak Tree Village for $1.5 million. ART received no net
financing proceeds after the payoff of the existing mortgage and the payment of
various closing costs associated with the refinancing. The new loan bears
interest at a rate of 8.48% per annum, requires monthly principal and interest
payments of $13,344 and matures in October 2007. If the new loan is voluntarily
prepaid, the related mortgage provides that the following prepayment
consideration will be payable to the lender:

Years 1-3: The greater of (i) three percent (3%) of the outstanding
principal balance of the mortgage note at the time of
prepayment or (ii) the Yield Maintenance Amount (as defined
below).

Year 4: The greater of (i) two percent (2%) of the outstanding
principal balance of the mortgage note at the time of
prepayment or (ii) the Yield Maintenance Amount.

Year 5-9: The greater of (i) one percent (1%) of the outstanding
principal balance of the mortgage note at the time of
prepayment or (ii) the Yield Maintenance Amount.
Year 10
through
maturity: No prepayment consideration is required.

The "Yield Maintenance Amount" is the present value, as of the date of
prepayment, of the remaining scheduled payments of principal and interest from
the date of prepayment through the maturity date of the loan(including any
balloon payment) determined by discounting such payments at the Discount Rate
(hereinafter defined), less the amount of principal being prepaid. The "Discount
Rate" is that rate which, when compounded monthly, is equal to the Treasury Rate
(hereinafter defined) when compounded semi-annually. The "Treasury Rate" is the
yield calculated by the linear

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<PAGE> 54

interpolation of the yields, as reported in Federal Reserve Statistical Release
H.15-Selected Interest Rates under the heading U.S. Government
Securities/Treasury Constant Maturities for the week ending prior to the date of
prepayment, of U.S. Treasury constant maturities with maturity dates (one longer
and one shorter) most nearly approximating the maturity date of the new loan.

Real estate taxes are levied against the Oak Tree Village for county and
township, and school tax purposes. The Oak Tree Village was assessed $53,770 in
real estate taxes in 1997. The 1997 millage rate was 2.42/100. ART estimates
that the Oak Tree Village will owe approximately $54,000 in real estate taxes in
1998. Real estate taxes are substantially reimbursed by the tenants through real
estate tax recovery billings.

As of December 31, 1997, for Federal income tax purposes, ART depreciates
the New Property under the MACES as follows:

<TABLE>
<S> <C>
Buildings:

Gross Federal Income Tax Basis $ 1,430,781
Accumulated Depreciation $ 40,241
Depreciation Method MACES - Straight Line ("SL")
Depreciable Life 40 years
Land Improvements:

Not Applicable.
Personal Property:

Not applicable.
</TABLE>

ART'S PURPOSES FOR THE MERGER

ART intends to acquire an aggregate of 5,050,032 EQK Shares pursuant to the
Merger and the Block Purchase primarily for the purpose of investment and in
order to achieve the listing of the ART Preferred Shares on the NYSE. The ART
Board believes that the issuance and the proposed listing of the ART Preferred
Shares on the NYSE in connection with the Merger would provide ART with greater
access to the public capital markets for future acquisition transactions. The
ART Board also considered the amount of EQK's NOLs which currently approximate
$94,000,000 and the resulting benefits to ART of acquiring an indirect interest
in such NOLs through EQK pursuant to the Merger. Assuming market conditions,
industry conditions and EQK's business and financial condition do not suffer
adversely in the interim, it is currently ART's intention (but not obligation)
to seek to acquire substantially all of the remaining outstanding EQK Shares at
some time after the third anniversary of the consummation of the Merger for
consideration of 0.0486 of an ART Preferred Share (with a Liquidation Value of
$0.486) per currently outstanding EQK Share. Notwithstanding the foregoing, ART
is not obligated to make any further acquisitions of EQK Shares and no assurance
can be given that ART will make any such acquisitions in the future. In
addition, any such acquisitions may be for a consideration per EQK Share which
is greater or less than the consideration offered in the Merger or set forth
above.

THE EQK BOARD RECOMMENDATION

The EQK Board believes that the Merger is fair to, and in the best
interests of, EQK and the holders of EQK Shares. By unanimous vote, the EQK
Board approved the Merger and the transactions contemplated thereby and
unanimously recommend that the EQK Shareholders approve the Merger.

In approving the Merger Agreement and determining to recommend that the EQK
Shareholders approve the Merger, the EQK Board considered certain information,
including primarily the following:

(i) The financial condition, results of operations, business and prospects
of EQK.

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<PAGE> 55

(ii) Certain publicly available information regarding the financial
condition, results of operations, business and properties of ART.

The following factors were deemed by the EQK Board to be reasons supporting
its recommendation that the EQK Shareholders approve the Merger.

(i) Based upon available information and taking into account that the
Center is expected to be sold and the remaining assets of EQK
distributed prior to the Merger, the Merger consideration appears to
represent, in the judgment of the EQK Board, the highest available
return to EQK Shareholders. The EQK Board recognized that, because
ART would be acquiring an interest in EQK at a time when EQK would
have no assets other than the NOLs which may not be available in the
future, it was difficult to value the transaction. The EQK Board
concluded that, given all the surrounding circumstances, including
that no other offers had been received for the entity without the
Center and that EQK retained the ability to terminate the Merger
Agreement if a better offer is received, the terms of the Merger
Agreement are fair to EQK.

(ii) ART has indicated its intention, without legal obligation, to
purchase all or substantially all of the remaining EQK Shares
approximately three years after the Merger for additional ART
Preferred Shares with a Liquidation Value of $0.486 per EQK Share.

(iii) The Merger-Related Proposals are subject to Requisite Shareholder
Approval (i.e., a 75% supermajority vote).

(iv) EQK has the right to solicit competing offers for the EQK Shares,
subject to the obligation to make specified termination payments to
ART in certain circumstances if a competing offer is accepted.

(v) EQK has the right to terminate the Merger Agreement if it determines
that compliance with the Merger Agreement is reasonably likely to
materially impair or delay its ability to dispose of the Mall, or
result in a material reduction in the consideration that would be
received by EQK or the EQK Shareholders in connection with such
disposition.

(vi) The Merger has been structured to preserve the availability of EQK's
accumulated NOLs, although the EQK Board recognizes that there is no
assurance that some or all of such availability will not be lost as a
result of future changes in the ownership of EQK Shares or otherwise.

(vii) The ART Preferred Shares received as the EQK Merger Consideration
will entitle the recipients thereof to quarterly dividend payments,
whereas the EQK Shares have not been paying dividends.

The following factors were deemed by the EQK Board to be reasons that would
weigh against recommending that the EQK Shareholders accept the Offer (see "Risk
Factors" for a further discussion of certain of these considerations):

(i) The ART Preferred Shares may not trade at or near their Liquidation
Value. Furthermore, the ART Preferred Shares will be subject to the
risks of ART's business, including those described under "Risk
Factors -- Risks Relating to ART's Business."

(ii) It is not practicable to obtain a fairness opinion with respect to
the EQK Merger Consideration and there is no readily ascertainable
market value for the EQK Shares after the sale of the Center.

(iii) There is no assurance that the EQK Shares will have any significant
value after the Merger.

(iv) ART and BCM, an affiliate of and advisor to ART, and certain of their
management personnel had relationships with Southmark Corporation,
which underwent bankruptcy proceedings beginning in July 1989 and was
the subject of various legal proceedings. For a further description
of such bankruptcy and certain related and other legal proceedings,
see the discussion under the caption "Description of ART." See "Risk
Factors -- Potential Risks Associated With Affiliate of Controlling
Shareholder of New Advisor."

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<PAGE> 56

(v) Certain conflicts of interest exist with regard to the approval of
the Merger-Related Transactions and the resulting control of EQK by
ART. See "Risk Factors -- Risks Relating to Merger -- Conflicts of
Interest Between LLPM and EQK" and "Risk Factors -- Risks Relating to
Merger -- Conflicts of Interest Between EQK and BCM" herein.

The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger
Agreement and the Merger, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of material Federal income tax consequences of
the Merger. This summary may not apply to certain classes of persons, including,
without limitation, foreign persons, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who
acquired EQK Shares pursuant to the exercise of employee stock options or rights
or otherwise as compensation and persons who hold EQK Shares as part of a
straddle or conversion transaction. This summary is based upon laws,
regulations, rulings and decisions, all of which are subject to change (possibly
with retroactive effect), and no ruling has been or will be requested from the
Internal Revenue Service on the tax consequences of the Merger.

In the opinion of Andrews & Kurth L.L.P., special tax counsel to ART, which
opinion is based upon certain assumptions made with the consent of ART, the
payment of the EQK Merger Consideration to the Public EQK Shareholders pursuant
to the Merger will be treated as a taxable transaction for Federal income tax
purposes.

The Federal income tax consequences set forth above are for general
information only. Each EQK Shareholder is urged to consult his own tax advisor
to determine the particular tax consequences to him or her of the Merger,
including the applicability and effect of state, local and other tax laws.

DIVIDEND PAYMENTS. A distribution made with respect to ART Common Shares or
ART Preferred Shares (other than a distribution in redemption of such stock or
in liquidation of ART) will be a dividend for federal income tax purposes to the
extent made out of the current or accumulated earnings and profits, as
determined for federal income tax purposes, of ART. If a distribution exceeds
the current or accumulated earnings and profits of ART, such distribution will
be treated first as a return of capital to the extent of the holder's adjusted
basis in the stock on which the distribution was made (the basis of such stock
would be reduced by the amount of the distribution) and will be treated second
as an amount received from the sale or exchange of the stock on which the
distribution was made.

A domestic corporation which holds ART Common Shares or ART Preferred
Shares will be entitled to the 70% dividends received deduction with respect to
dividends received thereon, subject however to generally applicable limitations
thereon which are discussed below. The special rule that the dividends received
deduction is 80% for a stockholder who owns 20% by vote and value of the stock
of ART is not discussed here. The dividends received deduction (taking into
account dividends received from ART and from other corporations) may not exceed
70% of the taxable income (adjusted as provided in Section 246(b) of the Code)
of the corporate stockholder. Moreover, the dividends received deduction is
completely disallowed if the stock with respect to which the dividend is paid is
not held for 46 days or more during the 90-day period beginning on the date
which is 45 days before the stock becomes ex-dividend (91 days or more during
the 180 day period beginning 90 days before the date on which the stock becomes
ex-dividend, if the dividends are with respect to ART Preferred Shares and are
attributable to a period or periods of 366 days or more) or the holder of such
stock is obligated to make related payments with respect to a position in
substantially similar or related property. The holding period of stock includes
the day of disposition of the stock but not the day of acquisition, does not
include any day which is more than 45 days (or 90 days in the case of ART
Preferred Shares) after

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<PAGE> 57

the date on which the stock becomes ex-dividend, and is determined without
regard to Section 1223(4) of the Code with respect to wash sales. A holder may
not count toward the required holding period any period during which it (a) has
an option to sell, is under a contractual obligation to sell, or has made (and
not closed) a short sale of substantially identical stock or securities, (b) is
the grantor of an option (other than a qualified covered call) to buy
substantially identical stock or securities, or (c) has diminished its risk of
loss by holding one or more other positions with respect to substantially
similar or related property (with respect to the meaning of which regulations
have recently been proposed). The dividends received deduction is reduced under
Section 246A of the Code to the extent that a holder incurs indebtedness
directly attributable to its investment in the stock with respect to which the
dividend is received. A corporate holder must reduce its basis, but not below
zero, in stock with respect to which an extraordinary dividend is received by
the amount of the extraordinary dividend which is not subject to tax by reason
of the dividends received deduction. An extraordinary dividend is, with an
exception that excludes qualified preferred dividends within the meaning of
Section 1059(e)(3) of the Code from classification thereas, a dividend with
respect to stock held for two years or less on the dividend announcement date
(i) exceeds 5% (10%, in the case of ART Common Shares) of the holder's basis in
the stock, treating all dividends having ex-dividend dates within an 85-day
period as one dividend or (ii) that exceed 20% of the holder's basis in the
stock, treating all dividends having ex-dividend dates within a 365-day period
as one dividend. Fair market value, if it can be established by the holder to
the satisfaction of the IRS, may be substituted for basis for purposes of the
preceding sentence. In addition, an amount treated as a dividend in the case of
a redemption that is either not pro rata as to all stockholders, an amount which
is a dividend and is part of a partial liquidation, and an amount which is a
dividend with respect to stock the issue price of which exceeds its liquidation
rights or its stated redemption price is an extraordinary dividend without
regard to the length of time that the stock has been held. A holder disposing of
stock with respect to which one or more extraordinary dividends has been paid
will recognize gain upon such disposition, in addition to the gain which would
otherwise be recognized upon such disposition, in an amount which is equal to
the untaxed portion of the extraordinary dividends, if any, which were in excess
of the basis in the stock at the time of the distribution.

Dividend income that is not subject to regular corporate taxation as a
consequence of the dividends received deduction may give rise to alternative
minimum tax liability. Holders of ART Preferred Shares or ART Common Shares may
be liable for state and local income taxes with respect to dividends or other
distributions paid on the ART Preferred Shares or ART Common Shares. Because a
state or locality may not allow, or may limit, a dividends received deduction,
each prospective purchaser of ART Preferred Shares or ART Common Shares is
advised to consult its own tax advisor concerning state and local taxes.

REDEMPTION, SALES AND EXCHANGES. Generally, any redemption of ART Common
Shares or ART Preferred Shares will be treated as a sale or exchange thereof if
the redemption (a) results in a complete termination of the holder's stock
interest in ART, (b) is substantially disproportionate with respect to the
holder or (c) is not essentially equivalent to a dividend with respect to the
holder, in each case within the meaning of Section 302(b) of the Code. In
determining whether any of these tests has been met, stock which is
constructively owned by reason of Section 318 of the Code (pursuant to which a
holder will be deemed to own stock owned (actually or constructively) by certain
related individuals and entities and to own stock subject to option), as well as
stock actually owned is taken into account. A distribution will generally be
treated as substantially disproportionate if the percentage of the voting stock
of ART which is owned immediately after the redemption is less than 80% of the
percentage of the voting stock of ART which is owned immediately before the
redemption and if the percentage of the ART Common Shares of ART which is owned
by such person is also so reduced. A distribution will be not essentially
equivalent to a dividend if it results in a "meaningful reduction" in a holder's
stock interest in ART. The IRS has stated in published rulings that a redemption
that results in a reduction in the actual and constructive stock interest of a
minority stockholder, whose relative actual and constructive stock interest is
minimal and who exercises no control over corporate affairs, will generally be
treated as not essentially equivalent to a dividend. If a redemption does not
satisfy any of the Section 302 tests, the amount received in the redemption will
be treated as a distribution which is made by ART with respect to the stock so
redeemed which is taxable as provided in "Dividend Payments" above, and the
adjusted tax basis of the stock so redeemed will be transferred to any retained
stock interest in ART.

The amount of gain or loss which is recognized upon the sale or exchange
(including a redemption which is treated as a sale or exchange) of ART Common
Shares or ART Preferred Shares is the difference between the amount realized and
the adjusted basis in the ART Common Shares or ART Preferred Shares so sold or
exchanged. Reductions in adjusted basis which are the result of distributions as
discussed above will increase the amount of gain recognized or

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<PAGE> 58

reduce the amount of loss recognized upon the sale thereof. Any gain or loss so
recognized upon such a disposition of ART Common Shares or ART Preferred Shares
will be a capital gain or loss if such stock is a capital asset.

ART PREFERRED SHARES; Conversion into ART Common Shares. No gain or loss
will be recognized upon the conversion of ART Preferred Shares into shares of
ART Common Shares except as noted below. As discussed below, special rules apply
to Foreign Holders. Any cash which is received in lieu of a fractional share
upon any such conversion will be treated under the current advance ruling policy
of the IRS as an amount received in exchange of the fractional share. Moreover,
if dividends on the ART Preferred Stock are in arrears at the time of conversion
into ART Common Shares, a portion of the ART Common Shares so received the value
of which is less than or equal to the amount of such arrearage may be includible
in income as a dividend (to the extent of ART's current or accumulated earnings
and profits).

The adjusted tax basis of the shares of ART Common Shares received upon
such a conversion (excluding any shares the receipt of which was taxable because
of dividend arrearages) will be equal to the adjusted tax basis of the ART
Preferred Shares converted (exclusive of any tax basis allocated to a fractional
share in lieu of which cash was received). The holding period of the shares of
ART Common Shares which are held with a carryover basis will include the holding
period of the ART Preferred Shares converted, if the ART Preferred Shares were
held as a capital asset at the time of the exchange. The holding period of any
shares the receipt of which was taxable because of dividend arrearages will
begin the day after the receipt thereof.

Redemption Premium. Under Section 305 of the Code and applicable
regulations, any excess of the redemption price of the ART Preferred Shares over
the issue price thereof is includible in income as a dividend (to the extent of
ART's current or accumulated earnings and profits) on a constant yield to
maturity base under current regulations (in accordance with the economic accrual
principles of Section 1272 of the Code under regulations which are to be
prescribed) even though no cash is received in respect thereof units if (i)
based on all of the facts and circumstances as of the issue date, the redemption
pursuant to ART's call right is more likely than not to occur and (ii) the
premium is not solely in the nature of a penalty for premature redemption.
Although the issue is not free from doubt, ART intends to take the position that
no such accrual will be required. A redemption premium for the ART Preferred
Shares is reasonable if it is in the nature of a penalty for premature
redemption and if it does not exceed the amount which ART would be required to
pay for such redemption right under market conditions existing at the time of
issuance of the ART Preferred Shares. ART believes that the redemption premium
on the ART Preferred Shares satisfies this standard.

Adjustment of Conversion Price. Under applicable Treasury regulations
certain adjustments to the conversion price of convertible preferred stock, such
as adjustments to reflect taxable distributions of cash or property on the
related common stock, will be treated as a constructive distribution of stock
and will be treated as a dividend to the holders of the preferred stock to the
extent of the current or accumulated earnings and profits of the corporation.
The formula for the conversion price of the ART Preferred Stock is not adjusted
to reflect such distributions, however, the actual conversion price may be
adjusted through changes in the value of the ART Common Stock as a result of
such distributions. Adjustments to reflect nontaxable stock splits or
distributions to the holders of ART Common Shares of stock, stock warrants or
stock rights will, however, generally not be so treated. The failure to adjust
fully the conversion price for the ART Preferred Shares to reflect distributions
of stock, stock warrants or stock rights with respect to the ART Common Shares
may result in a taxable dividend to holders of ART Common Shares or ART
Preferred Shares.

SPECIAL TAX RULES APPLICABLE TO FOREIGN HOLDERS. As used herein in the
discussion of U.S. federal income tax matters, a "Foreign Holder" is a person
who, for United States federal income tax purposes, is a foreign corporation, a
nonresident alien individual, a foreign estate, a foreign trust, or a foreign
partnership. Foreign Holders seeking benefits under applicable tax treaties or
an exemption from United States withholding tax for "effectively connected
income," as described below, will be required to comply with certain
certification and other requirements in order to establish their entitlement to
such benefits or exemption. Additional or different rules, not discussed herein,
may apply in light of the circumstances of a particular Foreign Holder.
Accordingly, each prospective Foreign Holder should discuss these matters with
its own tax advisors.

Dividends. Dividends on the ART Preferred Shares or the ART Common Shares
which are paid to a Foreign Holder and which are not effectively connected with
the conduct of a trade or business in the United States will be subject to
United States withholding tax at a rate of 30% (or such lower rate as may be
prescribed by an applicable tax treaty). If the dividends on the ART Preferred
Shares or the ART Common Shares are effectively connected with the conduct

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<PAGE> 59

of a trade or business carried on in the United States, such dividends will be
subject to tax at the rates and in the manner applicable to United States
persons and may also be subject to an additional "branch profits tax" at a 30%
rate (or such lower rate as may be specified by an applicable income tax
treaty).

Gain on Disposition of ART Preferred Shares or ART Common Shares. Foreign
Holders will not be subject to U.S. federal income tax on gain realized on a
disposition of the ART Preferred Shares or the ART Common Shares unless (a) the
gain is effectively connected with the conduct of a trade or business in the
United States in which case such gain will be subject to tax at the rates and in
the manner applicable to United States persons (the branch profits tax described
above may also apply if the holder is a foreign corporation), (b) in the case of
an individual Foreign Holder, such holder is present in the United States for at
least 183 days in the taxable year of the disposition and either the income from
the disposition is attributable to an office or other fixed place of business
maintained by the holder in the United States or the holder has a tax home, as
defined in Section 911(d)(3) of the Code, in the United States or (c) the gain
is subject to tax under Section 897 of the Code.

Gain realized by a Foreign Holder on a disposition of ART Preferred Shares
(including a disposition by conversion or redemption) will not be subject to tax
under Section 897 of the Code if the Foreign Holder, after taking into account
certain constructive ownership rules, does not own and has not owned within the
five-year period ending on the date of the disposition more than five percent of
the outstanding ART Preferred Shares assuming that the ART Preferred Shares are
regularly traded on an established securities market, within the meaning of
Section 897(c)(3) of the Code. Similarly, gain realized by a Foreign Holder on a
disposition of ART Common Shares will not be subject to tax under Section 897 of
the Code if the Foreign Holder after taking into account certain constructive
ownership rules has not owned within the five year period ending on the date of
the disposition more than five percent of the outstanding ART Common Shares
assuming that the ART Common Shares is regularly traded on an established
securities market, within the meaning of Section 897 of the Code. If the
exemption which is discussed in the two preceding sentences is not available,
then a Foreign Holder of ART Preferred Shares or of ART Common Shares should
discuss the effect of Section 897 of the Code with its tax advisors.

United States Federal Income Tax. Unless otherwise provided in an
applicable estate tax treaty, shares of ART Preferred Shares and ART Common
Shares will be considered property situated in the United States for federal
estate tax purposes and will be subject to U.S. federal estate tax.

BACK-UP WITHHOLDING. A noncorporate holder of ART Preferred Shares or ART
Common Shares may be subject to backup withholding at the rate of 31 percent
with respect to dividends paid on ART Preferred Shares or ART Common Shares or
the proceeds of a sale, exchange or redemption thereof if (i) the payee fails to
furnish a taxpayer identification number ("TIN") to the payor, (ii) the IRS
notifies the payor that the TIN furnished by the payee is incorrect, (iii) there
has been a notified payee under reporting with respect to interest, dividends or
original issue discount described in Section 3406(c) of the Code, or (iv) there
has been a failure of the payee to certify under penalty of perjury that the
payee is not subject to back-up withholding.

The payment of the proceeds of a sale of ART Preferred Shares or ART Common
Shares to or through the foreign office of a broker generally will not be
subject to back-up withholding. However, information reporting requirements will
apply to a payment of proceeds from the sale of shares of ART Preferred Shares
or ART Common Shares through a foreign office of a broker that is a United
States person or of certain foreign brokers unless the broker has documentary
evidence in its files that the owner is a non-United States holder and the
broker has no actual knowledge to the contrary.

Any amounts withheld under the back-up withholding rules from a payment to
a holder will be allowed as a refund or a credit against the holder's U.S.
federal income tax liability, provided that the required information is
furnished to the IRS.

EFFECT OF MERGER ON MARKET FOR EQK SHARES; REGISTRATION UNDER THE EXCHANGE ACT

The cumulative effect of the sale of the Center, the resulting distribution
of the net liquid assets to the EQK Shareholders, the Merger, the Block Purchase
and the Standstill Agreements will reduce the number of EQK Shareholders and the
number of EQK Shares that might otherwise trade publicly and, thus, the
liquidity and market value of the EQK Shares are likely to be adversely
affected. As a result of the distribution to EQK Shareholders and

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the acquisition of Oak Tree Village for a note in the full amount of the
purchase price, EQK is not expected to have any net worth after the Merger.

Prior to May 4, 1998, the EQK Shares were listed and traded on the NYSE. On
April 23, 1998, the NYSE announced that trading of the EQK Shares would be
suspended prior to the opening of the NYSE on May 4, 1998, as EQK had fallen
below the NYSE's continued listing criteria for net tangible assets available to
common stock (less than $12 million) and 3-year average net income (less than
$600,000). The EQK Shares are currently traded in the over-the-counter market.
The extent of the public market for such EQK Shares and the availability of
price quotations in respect thereof from time to time depends upon such factors
as the number of EQK Shareholders, the interest in maintaining a market in the
EQK Shares on the part of securities firms, the trading value of the EQK Shares,
the possible termination of registration of EQK Shares under the Exchange Act,
as described below, and other factors.

The EQK Shares are currently registered under the Exchange Act. Such
registration may be terminated by EQK upon application to the Commission if the
outstanding EQK Shares are not listed on a national securities exchange and if
there are fewer than 300 holders of record of EQK Shares. As of September 30,
1998, EQK had 234 holders of record. Although legally permissible, pursuant to
the Merger Agreement, EQK will agree not to affirmatively deregister the EQK
Shares. Termination of registration of the EQK Shares under the Exchange Act
would reduce the information required to be furnished by EQK to its shareholders
and to the Commission and would make certain provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section 16(b) and the
requirement of furnishing a proxy statement in connection with shareholders'
meetings pursuant to Section 14(a) and the related requirement of furnishing an
annual report to shareholders, no longer applicable with respect to the EQK
Shares. Furthermore, the ability of "affiliates" of EQK and persons holding
"restricted securities" of EQK to dispose of such securities pursuant to Rules
144 or 145 under the Securities Act may be impaired or eliminated if the EQK
Shares were deregistered under the Act.

FEES AND EXPENSES IN CONNECTION WITH THE MERGER

ART has retained Shareholder Communications Corporation to act as Proxy
Solicitor in connection with the Merger. The Proxy Solicitor may contact EQK
Shareholders by mail, telephone, telex, telegraph and personal interviews and
may request brokers, dealers and other nominee stockholders to forward the
Merger materials to beneficial owners of EQK Shares. The Proxy Solicitor will
receive a fee estimated not to exceed $9,500 for such services, plus
reimbursement of out-of-pocket expenses, and ART will indemnify the Proxy
Solicitor against certain liabilities and expenses in connection with the
Merger, including liabilities under federal securities laws.

ART will pay the Merger Agent and the Dealer Manager, an affiliate of ART
and BCM, reasonable and customary compensation for their respective services in
connection with the Merger, plus reimbursement for their out-of-pocket expenses,
and will indemnify each of them against certain liabilities and expenses in
connection therewith, including liabilities under the federal securities laws.
ART will not pay any fees or commissions to any broker or dealer or other person
(other than the Proxy Solicitor and the Dealer Manager) for soliciting proxies
in connection with the Merger. Brokers, dealers, commercial banks and trust
companies will be reimbursed by ART for customary mailing and handling expenses
incurred by them in forwarding material to their customers.

ART and EQK have entered into an expense sharing agreement (the "Expense
Sharing Agreement") whereby each of ART and EQK will share the costs and
expenses associated with the Merger. Under the terms of the Expense Sharing
Agreement, if EQK and ART enter into the Merger Agreement and proceed in good
faith to complete the Merger but are unsuccessful in such effort by reason of an
inadequate EQK Shareholder response to this Prospectus/Proxy Statement or
otherwise, EQK's liability under the Expense Sharing Agreement shall be limited
to the lesser of 50% of the actual transaction costs or $100,000, and ART shall
be responsible for all additional transaction costs. In addition, if the Merger
is consummated in accordance with the terms of the Merger Agreement, EQK's
liability shall be limited to the lesser of 50% of the actual transaction costs
or $150,000 and ART shall be responsible for all additional transaction costs.

ACCOUNTING TREATMENT

Since ART may be considered to have the ability to exercise significant
influence over the operating policies of EQK upon consummation of the Merger,
ART will account for its investment in EQK using the equity method.

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STOCK EXCHANGE LISTING

Application will be made to list the ART Preferred Shares to be issued
pursuant to the Merger on the NYSE. See "Risk Factors -- ART Preferred Shares --
Application for the Listing and Trading of ART Preferred Shares and Possible
Subsequent Delisting."

EQK LITIGATION

Each of EQK, the EQK Trustees and the Advisor have been named as defendants
in a purported class action complaint filed in Massachusetts state court which
seeks to enjoin the Merger. The complaint also seeks other relief including
unspecified damages.

THE DECLARATION AMENDMENT PROPOSAL

The following is a brief summary of proposed amendments to the Declaration
of Trust that will be reflected in the Amended Declaration of Trust. All of the
amendments contemplated by the Amended Declaration of Trust are subject to the
Requisite Shareholder Approval of the Merger-Related Proposals. The full text of
the Amended Declaration of Trust is attached hereto as Appendix D.

Extension of the Duration and Termination of the Trust. The Declaration of
Trust currently provides that the term of EQK will expire in March 1999. The
Amended Declaration of Trust will permit the existence of EQK to continue for an
additional 20 year period, unless sooner terminated as otherwise provided under
"The Business of EQK -- Summary of the Existing Declaration of Trust -- Duration
and Termination of the Trust".

Removal of Limitation of Number of Authorized EQK Shares. The Declaration
of Trust currently provides that the total number of authorized EQK Shares is
10,055,555. There will be no limitation on the number of authorized EQK Shares
under the Amended Declaration of Trust.

Reduction of the Number of EQK Shareholders Required to Vote on Certain
Matters. The Declaration of Trust currently provides that each of the following
amendments to the Declaration of Trust shall require the affirmative vote of the
holders of three-quarters of the outstanding EQK Shares: (i) increases in the
number of authorized EQK Shares, (ii) amendments to the investment policies of
EQK, (iii) any plan for the termination of EQK which contemplates the
distribution to the EQK Shareholders of securities or other property-in-kind
(other than the right promptly to receive cash), and (iv) any amendments which
would reduce the percentage vote required to approve any amendments to the
amendment provisions of the Declaration of Trust. The Amended Declaration of
Trust will remove restrictions on the number of authorized EQK Shares and will
allow the Trustees to amend EQK's investment policies without the approval of
the EQK Shareholders. In addition, the Amended Declaration of Trust will reduce
the number of affirmative votes of EQK Shareholders required to amend the
Amended Declaration of Trust in all other instances to a majority. See "The
Business of EQK -- Summary of the Existing Declaration of Trust -- Duration and
Termination of the Trust."

Removal of Prohibitions on the Issuance of EQK Shares and other Securities.
Under the Declaration of Trust, EQK is currently prohibited from issuing any
additional EQK Shares or any rights, warrants or options to subscribe to,
purchase or acquire any EQK Shares. The Amended Declaration of Trust will allow
EQK to issue additional EQK Shares and other types of securities from time to
time, including securities with preferential rights to the EQK Shares, provided
that any issuance of additional EQK Shares will require the affirmative vote of
holders of not less than a majority of the then outstanding EQK Shares entitled
to vote thereon.

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Removal of Borrowing Restrictions. The Declaration of Trust currently
restricts the aggregate amount of secured or unsecured borrowings that EQK may
incur to 75% of EQK's total assets (other than intangibles). The Amended
Declaration of Trust will eliminate such borrowing restrictions.

Revision of Trustee Provisions. The Declaration of Trust currently provides
that the number of Trustees must be no fewer than five and no more than twelve
and that a majority of the Trustees shall be unaffiliated with EQK and its
affiliates. The Amended Declaration of Trust will reduce the maximum number of
Trustees to seven, with at least one trustee being unaffiliated with EQK and/or
its affiliates. See "The Business of EQK -- Summary of the Existing Declaration
of Trust -- Trustees."

Ownership Limit. The Declaration of Trust currently contains provisions
which allow the Trustees to restrict ownership of EQK Shares in order to
maintain EQK's qualification as a REIT under the Code. The Amended Declaration
of Trust will specifically prohibit ownership of more than 4.9% of the
outstanding EQK Shares by any single shareholder, other than ART and duPont.
Under the Amended Declaration of Trust, the EQK Board may exempt a proposed
transferee from this restriction upon receipt of a ruling from the Internal
Revenue Service, an opinion of counsel or other evidence satisfactory to the EQK
Board that ownership of EQK by a proposed transferee will not adversely affect
EQK's qualification as a REIT under the Code, and upon such other conditions as
the EQK Board may direct.

Change the Name of EQK. The Amended Declaration of Trust will change the
name of EQK from "EQK Realty Investors I" to "ART Realty Investors I" to
eliminate any reference to EQK or LLPM or any of their affiliates.

Reduction of the Number of EQK Trustees Required to Vote on Certain
Matters. The Declaration of Trust currently requires the approval of two-thirds
of the EQK Board to amend the Declaration of Trust, without the vote or consent
of EQK Shareholders, in order to conform the Declaration of Trust to the
requirements of (a) the REIT provisions of the Code, (b) other applicable
Federal laws or regulations or (c) any state securities or "blue sky" laws or
requirements of administrative agencies thereunder in connection with the
initial public offering of EQK Shares. The Amended Declaration of Trust will
require only a majority vote of the New EQK Board (as defined herein under "The
Board Election Proposal") to approve amendments to the Declaration of Trust with
respect to the aforementioned conformity issues. The Declaration of Trust will
also be amended to require only a majority vote of the New EQK Board (as defined
herein under "The Board Election Proposal"), without EQK Shareholder approval,
to change the investment policies of EQK from time to time, in keeping with the
other provisions of the Declaration of Trust. See "The Business of EQK --
Summary of the Existing Declaration of Trust - Amendment of Declaration of
Trust; Merger."

Change in Organizational Structure of EQK. The Amended Declaration of Trust
will provide that, upon a vote of a majority of the New EQK Board (as defined
herein under "The Board Election Proposal"), and with the affirmative vote of
the holders of a majority of the outstanding EQK Shares, the New EQK Board shall
have the power to cause to be organized or to assist in organizing a corporation
or corporations under the laws of any jurisdiction or any other trust,
partnership, association, or other organization to take over the trust estate of
EQK or any part or parts thereof or to carry on any business in which EQK shall
directly or indirectly have any interest, and to sell, convey and transfer the
trust estate of EQK or any part or parts thereof to any such corporation, trust,
partnership, association, or organization in exchange for the EQK Shares or
securities issued by EQK or otherwise, and to lend money to, subscribe for the
EQK Shares or securities issued by EQK, and enter into any contracts with any
such corporation, trust, partnership, association, or organization, or any
corporation, trust partnership, association, or organization in which EQK holds
or is about to acquire shares or any other interest. The New EQK Board may also
cause a merger or consolidation between EQK or any successor thereto and any
such corporation if and to the extent permitted by law, provided that under the
law then in effect, the federal income tax benefits available to qualified real
estate investment trusts and their shareholders, or substantially similar
benefits, are also available to such corporation, trust, partnership,
association, or organization and its stockholders or members, and provided that
the resulting investment would be substantially equal in quality and
substantially the same in type as an investment in the EQK Shares.

The EQK Board believes that the Amended Declaration of Trust is fair to,
and in the best interests of, EQK and the holders of EQK Shares. By unanimous
vote, the EQK Board approved the Declaration Amendment Proposal and unanimously
recommends that the EQK Shareholders approve the Declaration Amendment Proposal.

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THE NEW ADVISORY AGREEMENT PROPOSAL

EQK has entered into an agreement with LLPM, a wholly owned subsidiary of
ERE, to act as its "Advisor." The Advisor makes recommendations to EQK
concerning investments, administration and day-to-day operations.

Under the terms of the Advisory Agreement, the Advisor receives a
management fee that is based upon the average daily per share price of EQK's
shares plus the average daily balance of outstanding mortgage indebtedness. Such
fee is calculated using a factor of 42.5 basis points (0.425%) and generally has
been payable monthly without subordination. Commencing with the December 1995
extension of debt and continuing with the December 1996 debt extension,
Prudential requested, and the Advisor agreed to, a partial deferral of payment
of its fee. Whereas the fee continues to be computed as described above,
payments to the Advisor are limited to $37,500 per quarter. Accrued but unpaid
amounts will be eligible for payment upon the repayment of the Mortgage Note (as
defined in "The Business of EQK -- General"). For the years ended December 31,
1997, 1996, and 1995, portfolio management fees were $242,000, $250,000, and
$403,000, respectively. The balance of deferred advisory fees at December 31,
1997 was $217,000. The deferred advisory fees will be paid to the Advisor upon
the consummation of the sale of the Center.

Upon consummation of the Merger and subject to Requisite Shareholder
Approval of the Merger-Related Proposals, LLPM will terminate its rights and
duties as Advisor under the Advisory Agreement and BCM, an affiliate of and
advisor to ART, will become the New Advisor to EQK under the New Advisory
Agreement.

The duties of the New Advisor under the New Advisory Agreement will
include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources for EQK. The New Advisor will also
serve as a consultant to EQK in connection with EQK's business plan and
investment policy decisions to be made by the New EQK Board.

The New Advisory Agreement provides that the New Advisor shall receive base
compensation at the rate of 0.0625% per month (0.75% on an annualized basis) of
EQK's gross asset value in the form of a gross asset fee. In addition to base
compensation, the New Advisory Agreement provides that the New Advisor, or an
affiliate of the New Advisor, shall be entitled to receive an acquisition fee
for locating, leasing or purchasing real estate for EQK; a net income fee for
the investment and management of EQK's assets; a loan arrangement fee; an
incentive fee equal to 10% of net income for the year in excess of a 10% return
on shareholders' equity, and 10% of the excess of net capital gains over net
capital losses, if any; and a mortgage placement fee, on mortgage loans
originated or purchased. The New Advisory Agreement further provides that the
New Advisor shall bear the cost of certain expenses of its employees not
directly identifiable to EQK's assets, liabilities, operations, business or
financial affairs; and miscellaneous administrative expenses relating to the
performance by the New Advisor of its duties under the New Advisory Agreement.

If and to the extent that EQK shall request the New Advisor, or any
director, officer, partner or employee of the New Advisor, to render services to
EQK other than those required to be rendered by the New Advisor under the New
Advisory Agreement, such additional services, if performed, will be compensated
separately on terms agreed upon between such party and EQK from time to time.

The New Advisory Agreement automatically renews from year to year unless
terminated in accordance with its terms.

The EQK Board believes that the New Advisory Agreement is fair to, and in
the best interests of, EQK and the holders of EQK Shares. By unanimous vote, the
EQK Board approved the New Advisory Agreement Proposal and unanimously recommend
that the EQK Shareholders approve the New Advisory Agreement Proposal.

THE BOARD ELECTION PROPOSAL

At the EQK Annual Meeting, the EQK Shareholders, voting together as a
class, will be asked to consider and vote upon the members of the EQK Board
pursuant to the Board Election Proposal. The Board Election Proposal will
require the affirmative vote of EQK Shareholders representing a majority of the
total votes authorized to be cast by EQK Shares then outstanding which are
present at the EQK Annual Meeting in person or by proxy and entitled to vote
thereon.

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The current members of the EQK Board are described below. The term of
office of each member of the EQK Board expires at the 1999 annual meeting of the
EQK Board or when the respective successor is elected and qualifies. Upon
majority approval of the Board Election Proposal by the EQK Shareholder, the
current members of the EQK Board shall be re-elected and shall serve until the
earlier of (i) the 1999 annual meeting of EQK, or (ii) the appointment of the
New EQK Board.

Sylvan M. Cohen, age 82, has been a Trustee since 1988. Mr. Cohen has
been Chairman, Chief Executive Officer, and Trustee of Pennsylvania Real
Estate Investment Trust, an American Stock Exchange-listed real estate
investment trust, since 1994 and was President and Trustee since its
inception in 1960. Mr. Cohen has been Of Counsel to the law firm Drinker
Biddle & Reath since 1995. For more than five years prior thereto, Mr.
Cohen was a partner in the Philadelphia law firm of Cohen, Shapiro,
Polisher, Shiekman and Cohen. Mr. Cohen is formerly a director of Fidelity
Bank, Philadelphia, Pennsylvania, and is currently a director of FPA
Corporation, an American Stock Exchange-listed real estate development
company. Mr. Cohen was a managing trustee of Arbor Property Trust, a
NYSE-listed real estate investment trust and successor in interest to EQK
Green Acres, L.P., until December 1997. He formerly served as President of
the National Association of Real Estate Investment Trusts and the
International Council of Shopping Centers.

Alton G. Marshall, age 75, has been a Trustee since the Trust's
inception in 1985. Mr. Marshall has been President of Alton G. Marshall
Associates, Inc. a New York City real estate investment firm since 1971. He
was formerly a Senior Fellow of the Nelson A. Rockefeller Institute of
Government in Albany, New York. He was also Chairman of the Board and Chief
Executive Officer of The Lincoln Savings Bank, FSB from March 1984 through
December 1990. From 1971 to 1981, he was President of the Rockefeller
Center, Inc., a real estate, manufacturing and entertainment company. Mr.
Marshall is currently a director of the Hudson River Trust and the New York
State Electric & Gas Corp., and was a managing trustee of Arbor Property
Trust until December 1997. He is an independent partner of Equitable
Capital and Equitable Capital Retirement Fund.

George R. Peacock, age 73, has been a Trustee since 1988. Mr. Peacock
has been sole-owner and President of Carluke, Inc., a real estate
investment consulting firm, since 1988. Mr. Peacock had retired from ERE, a
wholly-owned subsidiary of Equitable in August 1988 after serving as
Chairman and Chief Executive Officer. Mr. Peacock is a past member of
Equitable's Investment Policy Committee. Prior to his retirement, he was
also a Senior Vice President of Equitable for approximately twelve years.
He is also a former director of ERE and was a managing trustee of Arbor
Property Trust until December 1997.

Phillip E. Stephens, age 49, has been a Trustee since 1990. Mr.
Stephens is currently a consultant to ERE and Mr. Stephens was Chairman and
Chief Executive Officer of Compass, a subsidiary of ERE, from February 1996
to June 1997 and was President and Chief Executive Officer from January
1992 to January 1996. Mr. Stephens was Executive Vice President of Compass
from January 1990 to December 1991. He has also served as President of
LLPM, EQK's advisor and a wholly-owned subsidiary of ERE, from December
1989 to June 1997. Prior to that date and since October 1987, he was
President of EQK Partners, the predecessor in interest to LLPM. Prior to
that date and since its inception in September 1983, he was Senior Vice
President and subsequently President of EQK Partners. Mr. Stephens was also
a managing trustee of Arbor Property Trust until December 1997.

Robert C. Robb, Jr., age 51, has been a Trustee since 1991. Mr. Robb
has been President of and partner in the management and financial
consulting firm of Lewis, Eckert, Robb & Company since 1981. Mr. Robb is
currently a director of PNC Bank, N.A., Pittsburgh, Pennsylvania, Tamaqua
Cable Products Company, and Brynwood Partners, and is a former director of
Brinks, Inc. of Darien, Connecticut.

Robert Welanetz, age 45, currently serves as the Chief Executive and
Executive Vice President of Lend Lease Retail (f/k/a "Compass"). He is
responsible for strategic operations and day-to-day planning. Mr. Welanetz
also serves on Lend Lease's Executive and Senior Management committees. He
previously served as President of Yarmouth Group Property Management, Inc.
Prior to joining Yarmouth in 1991, Mr. Welanetz served as the Vice
President of Leasing and Operations for Pan Pacific Development, a Canadian
firm specializing in community center, power center and regional center
development and acquisitions. Prior to joining Pan Pacific Development, Mr.
Welanetz had twelve years of experience with The Hahn Company as

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an officer for that company's portfolio. He was responsible for partnership
relations and fee management activities.

Subject to Requisite Shareholder Approval of the Merger-Related Proposals,
upon completion of the Merger, pursuant to the Merger Agreement, all of the
members of the then current EQK Board will resign and the related vacancies
shall be filled with persons designated by ART (the "ART Designated Trustees"),
at least one of whom shall be unaffiliated with ART or its affiliates (the
"Independent Trustee"). The ART Designated Trustees shall constitute the new
board of EQK (the "New EQK Board"). ART currently intends to designate Thomas A.
Holland, A. Cal Rossi, Jr., Cooper B. Stuart, Karl L. Blaha and Al Gonzalez as
the ART Designated Trustees. To the extent that the current ART Designated
Trustees are unwilling or unable to continue to serve as Trustees of EQK, their
successors will generally be nominated by the remaining ART Designated Trustees.
See "The Declaration Amendment Proposal -- Revision of Trustee Provisions".

Set forth below are descriptions of the members of the proposed New EQK
Board.

Thomas A. Holland, age 56, has served ART as Executive Vice President
and Chief Financial Officer since August 1995, and Senior Vice President
and Chief Accounting Officer from July 1990 to August 1995. Mr. Holland has
also served BCM, Syntek Asset Management, Inc. ("SAMI"), CMET, IORI and TCI
as Executive Vice President and Chief Financial Officer since August 1995
and Senior Vice President and Chief Accounting Officer from July 1990 to
August 1995. He has been Secretary of CMET, IORI and TCI since February
1997. Mr. Holland was Senior Vice President and Chief Accounting Officer of
National Income Realty Trust ("NIRT") and Vinland Property Trust ("VPT")
from July 1990 to February 1994. His other previous positions include Vice
President and Controller from December 1986 to June 1990 of Southmark, Vice
President-Finance from January 1986 to December 1986 of Diamond Shamrock
Chemical Company, Assistant Controller from May 1976 to January 1986 of
Maxus Energy Corporation (formerly Diamond Shamrock Corporation), and
Trustee from August 1989 to June 1990 of Arlington Realty Investors. Mr.
Holland has been a Certified Public Accountant since 1970.

A. Cal Rossi, Jr., age 61, currently serves as Executive Vice
President and Director of Capital Markets at BCM. He joined BCM as a
permanent employee on March 1, 1996. Mr. Rossi is the President of the
Rossi Group of Companies and has created world-class hotels and resorts
throughout the United States.

Cooper B. Stuart, age 46, currently serves as Executive Vice
President at BCM, where he commenced employment in early 1994. Mr. Stuart
currently works in the Capital Markets area of BCM where he is principally
involved in both debt and equity transactions including public offerings.
Mr. Stuart was also Managing Director of InveQuest Realty Corporation. He
was also President of InveQuest Ventures, Inc., InveQuest Incorporated and
its subsidiary, InveQuest Properties, Inc., and a General Partner of
numerous real estate syndications involving land, office and apartment
development. Mr. Stuart served as Senior Vice President of First Financial
Equities Corporation from 1988 to 1989. Mr. Stuart is a licensed real
estate broker and worked for Moore Myers & Associates from 1980 to 1981. He
was employed by Xerox Corporation as a sales executive in the New York and
Connecticut areas from 1975 to 1979.

Karl L. Blaha, age 51 has served as a director of ART since June
1996. Mr. Blaha has served as President of ART since October 1993 and as
Executive Vice President and Director of Commercial Management of ART from
April 1992 to October 1993. Since July 1997, Mr. Blaha has served as
Executive Vice President - Commercial Asset Management of BCM, TCI, CMET,
IORI and SAMI, which is the general partner of NRLP and NOLP, and from
April 1992 to August 1995, Mr. Blaha served as an Executive Vice President
and Director of Commercial Management of BCM, TCI, CMET, IORI and SAMI.
Since November 1998, Mr. Blaha has served as the sole Director of SAMI.
From October 1992 to July 1997, Mr. Blaha served as Executive Vice
President of Carmel Realty, Inc., a company owned by First Equity
Properties, Inc. ("First Equity"), which is 50% owned by BCM. Since 1996,
Mr. Blaha has served as a Director and President of First Equity. From
April 1992 to February 1994, Mr. Blaha served as Executive Vice President
and Director of Commercial Management of NIRT and VPT. From August 1988 to
March 1992, Mr. Blaha was a Partner and Director of the National Real
Estate Operations of First Winthrop Corporation. From April 1984 to August
1988, Mr. Blaha served as a Corporate Vice President of Southmark
Corporation and from March 1986 to August 1988, was the President of
Southmark Commercial Management.

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Al Gonzalez, age 62, has been a director of ART since 1989 and has
served as President of AGE Refining, Inc. , a petroleum refining and
marketing firm, since March 1991. From January 1988 to March 1991, Mr.
Gonzalez served as President of Moody-Day Inc., a company that sells and
leases construction equipment and supplies; owner and President of Gulf-Tex
Construction Company; and owner and lessor of two restaurant sites in
Dallas, Texas. Mr. Gonzalez has served as a director of Avacelle, Inc.
("Avacelle") since April of 1990. From 1988 to 1992, Mr. Gonzalez served as
a director of Greenbriar Corp. From 1987 to 1989, Mr. Gonzalez served as a
member of the Dallas City Council. On March 18, 1992, Avacelle filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code
and an Order confirming its Plan of Reorganization was entered October 18,
1993 by the United States Bankruptcy Court, Northern Division of Oklahoma.
On April 21, 1997, Avacelle again filed a voluntary petition under Chapter
11 of the United States Bankruptcy Code.

Pursuant to the Amended Declaration of Trust, the unanimous consent of a
committee of the New EQK Board consisting of the Independent Trustee and at
lease two other ART Designated Trustees shall be required to approve (i)
transactions between EQK and ART and any of their respective affiliates and
other related persons (other than transactions between related parties pursuant
to the New Advisory Agreement), and (ii) any amendments to EQK's organizational
documents. The New EQK Board will not review the New Advisory Agreement because
the New Advisory Agreement is one of the three Merger-Related Proposals and
therefore voted on before the election of the New EQK Board under the Board
Election Proposal.

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DESCRIPTION OF ART

ART, a Georgia corporation, is the successor to a District of Columbia
business trust organized pursuant to a declaration of trust dated July 14, 1961.
The business trust merged into ART on June 24, 1988. ART invests in equity
interests in real estate (including equity securities of real estate-related
entities), leases, joint venture development projects and partnerships and
finances real estate and real estate activities through investments in mortgage
loans. ART has invested in private and open market purchases in the equity
securities of CMET, IORI, TCI and NRLP.

The ART Board has broad authority under ART's governing documents to make
all types of real estate investments, including mortgage loans and equity real
estate investments, as well as investments in the securities of other entities,
whether or not such entities are engaged in real estate-related activities.

Although the ART Board is directly responsible for managing the affairs of
ART and for setting the policies which guide it, the day-to-day operations of
ART are performed by BCM, an affiliate of and advisor to ART. BCM is a
contractual advisor under the supervision of the ART Board. The duties of BCM
include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources for ART. BCM also serves as a
consultant in connection with ART's business plan and investment policy
decisions made by the ART Board.

BCM, an affiliate of and advisor to ART, is a company owned by a trust for
the benefit of the children of Gene E. Phillips, the Chairman of the Board and a
Director of ART until November 16, 1992. Gene E. Phillips served as a director
of BCM until December 22, 1989 and as Chief Executive Officer of BCM until
September 1, 1992. Gene E. Phillips currently serves as a representative of the
trust that owns BCM for the benefit of his children and, in such capacity, Gene
E. Phillips has substantial contact with the management of BCM and input with
respect to BCM's performance of advisory services to ART. Ryan T. Phillips, the
son of Gene E. Phillips and a Director of ART until June 4, 1996, is also a
director of BCM and a trustee of the trust which owns BCM for the benefit of the
children of Gene E. Phillips. As of November 13, 1998, BCM owned 5,700,572 ART
Common Shares, representing approximately 53.0% of the ART Common Shares then
outstanding. BCM has been providing advisory services to ART since February 6,
1989. BCM also serves as advisor to CMET, IORI and TCI. Karl L. Blaha, Randall
M. Paulson, Bruce A. Endendyk, Steven K. Johnson and Thomas A. Holland,
executive officers of ART, are also executive officers of CMET, IORI and TCI.
Karl L. Blaha also serves as a Director of ART and as the sole director of SAMI,
the managing general partner of Syntek Asset Management, L.P. ("SAMLP"), the
general partner of NRLP and National Operating, L.P. ("NOLP"), the operating
partnership of NRLP. Gene E. Phillips is also a general partner of SAMLP and
served as a director and Chief Executive Officer of SAMI until May 15, 1996.
SAMI is a company owned by BCM. BCM performs certain administrative functions
for NRLP and NOLP on a cost reimbursement basis.

Gene E. Phillips is the former chairman of Southmark, a real estate
syndicator and parent of San Jacinto. As a result of a deadlock on Southmark's
Board of Directors, Mr. Phillips, among others, reached an agreement whereby he
resigned his positions with Southmark and certain of Southmark's subsidiaries
and affiliates in January 1989. Southmark filed a voluntary petition in
bankruptcy under Chapter 11 of the United States Bankruptcy Code in July 1989.
In November 1990, San Jacinto was placed under conservatorship of the RTC by
federal banking authorities. In December 1990, San Jacinto was converted into a
Federal Association and placed in receivership. Mr. Phillips has been named as a
defendant in a number of lawsuits brought by the RTC and private plaintiffs in
which the allegations made against Mr. Phillips included breach of fiduciary
duty and other misconduct, which allegations were denied by Mr.
Phillips. These actions have been dismissed or settled.

Since February 1, 1990, affiliates of BCM have provided property management
services to ART. Currently, Carmel Realty Services, Ltd. ("Carmel, Ltd.")
provides such property management services. Carmel, Ltd. subcontracts with other
entities for the provision of the property-level management services to ART at
various rates. The general partner of Carmel, Ltd. is BCM. The limited partners
of Carmel, Ltd. are (i) First Equity which is 50% owned by BCM, (ii) Gene E.
Phillips, and (iii) a trust for the benefit of the children of Gene E. Phillips.
Carmel, Ltd. subcontracts the property-level management of ART's hotels,
shopping centers, office buildings and the Denver Merchandise Mart to Carmel
Realty, Inc. ("Carmel Realty") which is a company owned by First Equity. Carmel
Realty is entitled to receive property and construction management fees and
leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd.

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<PAGE> 68

Affiliates of BCM are also entitled to receive real estate brokerage
commissions in accordance with the terms of the advisory agreement between ART
and BCM.

ART has no employees itself, but PWSI, a wholly-owned food service
subsidiary of ART has approximately 800 employees as of September 30, 1998.
Employees of BCM render services to ART.

ART's principal offices are located at 10670 North Central Expressway,
Suite 300, Dallas, Texas 75231. ART's telephone number is (214) 692-4700.

EXECUTIVE COMPENSATION OF ART

ART itself has no employees, payroll or employee benefit plans and pays no
compensation to executive officers of ART. The Directors and executive officers
of ART who are also officers or employees of BCM are compensated by BCM. Such
affiliated Directors and executive officers of ART perform a variety of services
for BCM and the amount of their compensation is determined solely by BCM. BCM
does not allocate the cash compensation of its officers among the various
entities for which it serves as advisor.

The only direct remuneration paid by ART is to those Directors who are not
officers or employees of BCM or its affiliated companies. Until April 1, 1998,
ART compensated such Independent Directors at a rate of $5,000 per year, plus
$500 per meeting attended and $300 per Committee meeting attended. During 1997,
$48,673 was paid to Independent Directors in total Directors' fees for all
meetings, as follows: Dale A. Crenwelge, $15,400; Al Gonzalez, $13,100; and
Cliff Harris, $5,333. Effective April 1, 1998, ART compensates Independent
Directors at the rate of $20,000 per year, plus $300 per Audit Committee meeting
attended. In addition, the Chairman of the Audit Committee receives an annual
fee of $500.

In September 1997, the ART Board, including all of the Independent
Directors, approved ART's 1997 Stock Option Plan (the "Plan"). The Plan was
approved by the ART stockholders at ART's annual meeting on January 19, 1998.
The Plan is intended principally as an incentive for and as a means of
encouraging ownership of ART Common Stock, by eligible persons, including
certain Directors and officers of ART. Options may be granted either as
incentive stock options (which qualify for certain favorable tax treatment), or
as non-qualified stock options. Incentive stock options cannot be granted to,
among others, persons who are not employees of ART, or of any parent or
subsidiary of ART, or to persons who fail to satisfy certain criteria concerning
ownership of less than 10% of the shares of ART. The Plan is administered by the
Stock Option Committee, which currently consists of the three Independent
Directors of ART. The exercise price per share of an option will not be less
than 100% of the fair market value per share on the date of grant thereof. ART
receives no consideration for the grant of an option. As of October 30, 1998,
there were 272,750 stock options outstanding under the Plan.

THE BUSINESS OF ART

GENERAL

ART, a Georgia corporation, is the successor to a District of Columbia
business trust. ART elected to be treated as a REIT under Sections 856 through
860 of the Code, during the period July 1, 1987 through December 31, 1990.
ART allowed its REIT tax status to lapse in 1991.

ART's primary business is investing in equity interests in real estate
(including equity securities of real estate- related entities), leases, joint
venture development projects and partnerships and financing real estate and real
estate activities through investments in mortgage loans, including first,
wraparound and junior mortgage loans. The ART Board has broad authority under
ART's governing documents to make all types of real estate investments,
including mortgage loans and equity real estate investments, as well as
investments in the securities of other entities, whether or not such entities
are engaged in real estate-related activities. ART does not have a policy
limiting the amount or percentage of assets that may be invested in any
particular property or type of property or in any geographic area. ART's
governing documents do not contain any limitation on the amount or percentage of
indebtedness ART may incur.

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<PAGE> 69

ART, through PWSI, also operates and franchises pizza parlors featuring
pizza delivery, carry-out and dine-in under the trademark "Me-N-Ed's" in
California and Texas. The first Me-N-Ed's pizza parlor opened in 1962. At
September 30, 1998, there were 57 Me-N-Ed's pizza parlors in operation,
consisting of 51 owned and six franchised pizza parlors, seven of the owned
pizza parlors were in Texas and the remainder in California.

ART's businesses are not seasonal. With regard to real estate investments,
ART is seeking both current income and capital appreciation. ART's plan of
operation is to continue, to the extent its liquidity permits, to make equity
investments in income producing real estate such as apartment complexes and
commercial properties or equity securities of real estate-related entities and
to continue to service and hold for investment its mortgage notes. ART also
intends to pursue higher risk, higher reward investments, such as developed,
partially developed and undeveloped land where it can obtain financing of
substantially all of a property's purchase price. ART intends to seek selected
dispositions of certain of its assets, in particular certain of its land
holdings, where the prices obtainable for such assets justify their disposition.
ART intends to continue to service and hold for investment its mortgage notes.
ART also intends to pursue its rights vigorously with respect to mortgage notes
receivable that are in default.

ART may purchase or lease properties for long-term investment, develop or
redevelop its properties or sell such properties, in whole or in part, when
circumstances warrant. ART currently participates and may continue to
participate with other entities in property ownership, through joint ventures or
other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness that have priority over ART's equity
interest.

ART may repurchase or otherwise reacquire ART Common Shares, Special Stock
(as defined under "Description of the Capital Stock of ART -- General") or other
securities and may also invest in securities of other entities engaged in real
estate activities or securities of other issuers. ART may invest in the
securities of other issuers in connection with acquisitions of indirect
interests in real estate (normally general or limited partnership interests in
special purpose partnerships owning one or more properties). ART may in the
future acquire all or substantially all of the securities or assets of real
estate investment trusts, management companies or similar entities where such
investments would be consistent with its investment policies. ART may also
invest in securities of other issuers from time to time for the purpose of
exercising control. It is not intended that ART's investments in securities will
require it to register as an "investment company" under the Investment Company
Act of 1940, as amended, and it is intended that ART would divest securities
before any such registration would be required.

The ART Board may devote available assets to particular investments or
types of investments, without restriction on the amount or percentage of ART's
assets that may be so devoted to a single investment or to any particular type
of investment, and without limit on the percentage of securities of any one
issuer that ART may acquire. ART's investment objectives and policies may be
changed at any time by the ART Board without the approval of ART's stockholders.
See "Risk Factors -- Risks Relating to ART's Business -- Changes in ART's
Policies Without Stockholder Approval."

To the extent that the ART Board determines to seek additional capital, ART
may raise such capital through additional equity offerings, debt financing or
retention of cash flow, or a combination of these methods. If the ART Board
determines to raise additional equity capital, it may, without stockholder
approval, issue additional shares of ART Common Stock or Special Stock up to the
amount of its authorized capital in any manner (and on such terms and for such
consideration) as it deems appropriate, including in exchange for property. Such
securities may be senior to the outstanding ART Common Shares and may include
additional series of Special Stock (which may be convertible into ART Common
Shares). Existing stockholders of ART will have no preemptive right to purchase
shares in any subsequent offering of securities by ART, and any such offering
could cause a dilution of a stockholder's investment in ART.

To the extent that the ART Board determines to obtain additional debt
financing, ART intends to do so generally through mortgages on properties. Such
mortgages may be recourse, non-recourse or cross-collateralized. ART does not
have a policy limiting the number or amount of mortgages that may be placed on
any particular property, but mortgage financing instruments usually limit
additional indebtedness on such properties. ART may also borrow funds through
bank borrowings, publicly and privately placed debt instruments, or purchase
money obligations to the sellers of properties, any of which indebtedness may be
unsecured or may be secured by any or all of the assets of ART or any existing
or new property-owning entity in which ART holds an interest and may have full
or limited recourse to all or any portion of the assets of ART, or any such
existing or new property-owning entity.

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<PAGE> 70

ART may seek to obtain unsecured or secured lines of credit or may
determine to issue debt securities (which may be convertible into capital stock
or be accompanied by warrants to purchase capital stock), or to sell or
securitize its receivables. The proceeds from any borrowings may be used to
finance acquisitions, to develop or redevelop properties, to refinance existing
indebtedness or for working capital or capital improvements. ART also may
determine to finance acquisitions through the exchange of properties or issuance
of additional ART Preferred Shares, ART Common Shares, Special Stock or other
securities.

ART has made and may in the future make loans to joint ventures or other
entities in which it participates. ART does not intend to engage in (i) trading,
underwriting or agency distribution or sale of securities of other issuers and
(ii) the active trade of loans and investments, other than in connection with
acquisitions of additional interests in CMET, IORI, TCI and NRLP.

Except as required under the Exchange Act, and the rules and regulations of
the NYSE, ART is not required to make annual or other reports to its
securityholders.

The specific composition of ART's real estate and mortgage notes receivable
portfolios from time to time depends largely on the judgment of ART's management
as to changing investment opportunities and the level of risk associated with
specific investments or types of investments. ART's management intends to
continue to maintain real estate and mortgage notes receivable portfolios
diversified by location and type of property. In addition to its equity
investments in real estate and mortgage notes, ART has also invested in private
and open market purchases of the equity securities of CMET, IORI, TCI and NRLP.

GEOGRAPHIC REGIONS

For purposes of its investments, ART has divided the continental United
States into the following six geographic regions.

Northeast region comprised of the states of Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont, and the District of Columbia. As of September 30,
1998, ART had no properties in this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. As of
September 30, 1998, ART had 32 apartment complexes and two hotels in this
region.

Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas. As of September 30, 1998, ART had two
apartment complexes and two commercial properties in this region.

Midwest region comprised of the states of Illinois, Indiana, Iowa, Kansas,
Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin. As of September 30, 1998, ART
had one commercial property and one hotel in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. As of September 30, 1998, ART had two commercial
properties and one hotel in this region.

Pacific region comprised of the states of California, Oregon and
Washington. As of September 30, 1998, ART had four hotels in this region.

Excluded from the above are a single family residence in Dallas, Texas and 47
parcels of developed, partially developed and undeveloped land as described
below.

REAL ESTATE

At September 30, 1998, approximately 90% of ART's assets were invested in
real estate and the equity securities of real estate entities. ART has invested
in real estate located throughout the continental United States, either on a

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leveraged or nonleveraged basis. ART's real estate portfolio consists of
properties held for investment, investments in partnerships, properties held for
sale and investments in equity securities of CMET, IORI, TCI and NRLP.

Types of Real Estate Investments. ART's real estate consists of apartments,
commercial properties (office buildings, shopping centers and a merchandise
mart), hotels and developed, partially developed and undeveloped land. In
selecting new real estate investments, the location, age and type of property,
gross rents, lease terms, financial and business standing of tenants, operating
expenses, fixed charges, land values and physical condition are among the
factors considered. ART may acquire properties subject to or assume existing
debt and may mortgage, pledge or otherwise obtain financing for its properties.
The ART Board may alter the types of and criteria for selecting new real estate
investments and for obtaining financing without a vote of ART's stockholders.

Although ART has typically invested in developed real estate, ART may also
invest in new construction or development either directly or in partnership with
nonaffiliated parties or affiliates (subject to approval by the ART Board). To
the extent that ART invests in construction and development projects, ART would
be subject to business risks, such as cost overruns and construction delays,
associated with such higher risk projects.

At September 30, 1998, ART had completed construction on One Hickory
Center, a 102,615 square foot office building in Farmers Branch, Texas. ART
expended approximately $4.1 million in 1998 to complete such construction and
expects to expend an additional $750,000 for tenant improvements.

In the opinion of ART's management, the properties owned by ART are
adequately covered by insurance.

The following table sets forth the percentages, by property type and
geographic region, of ART's owned real estate (excluding the 52 parcels of
developed, partially developed and undeveloped land, and a single family
residence, described below) at September 30, 1998.

<TABLE>
<CAPTION>
Region Apartments Commercial Properties Hotels
------ ---------- --------------------- ------
<S> <C> <C> <C>
Midwest --% 9% 14%
Mountain -- 82 11
Pacific -- -- 46
Southwest 6 9 --
Southeast 94 -- 29
---- ----- ----
Total 100% 100% 100%
</TABLE>

The foregoing table is based solely on the number of apartment units,
commercial square footage and hotel rooms owned by ART, as applicable, and does
not reflect the value of ART's investment in each region. Excluded from the
above table are a single family residence in Dallas, Texas and 52 parcels of
developed, partially developed and undeveloped land consisting of: one developed
residential lot in a residential subdivision in Fort Worth, Texas, 3.6 acres of
undeveloped land in downtown Atlanta, Georgia; 46.1 acres of partially developed
land in Las Colinas, Texas; 420.0 acres of undeveloped land in Duchense, Utah;
329.4 acres of partially developed land in Denver, Colorado; five parcels of
partially developed land in Dallas County, Texas, totaling 434.9 acres; 82.4
acres undeveloped land in Oceanside, California; 160.0 acres of undeveloped land
in Lewisville, Texas; three parcels of undeveloped land in Irving, Texas,
totaling 344.7 acres; four parcels of undeveloped land in Tarrant County, Texas,
totaling 1688.0 acres; two parcels of undeveloped land in Harris County, Texas,
totaling 456.4 acres; eight parcels of undeveloped land in Collin County, Texas,
totaling 616.8 acres; eight parcels of undeveloped land in Farmers Branch,
Texas, totaling 101.2 acres; two parcels of undeveloped land in Plano, Texas,
totaling 180.6 acres; 1448.0 acres of undeveloped land in Austin, Texas; 7.7
acres of undeveloped land in Carrollton, Texas; three parcels of undeveloped
land in Palm Desert, California, totaling 946.8 acres; 19.5 acres of undeveloped
land in Santa Clarita, California; and six additional parcels of land totaling
113.5 acres.

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A summary of the activity in ART's owned real estate portfolio during 1997
and through September 30, 1998 is as follows:

<TABLE>
<S> <C>
Owned properties in real estate portfolio at January 1, 1997.. 26*
Properties purchased.......................................... 78

Property obtained through foreclosure......................... 1
Properties sold............................................... (5)

Owned properties in real estate portfolio at September 30,
1998......................................................... 100*
</TABLE>

- ---------------------
* Includes one residential subdivision with 22 developed residential lots at
January 1, 1997, and one developed residential lot at September 30, 1998.

Properties Held for Investment. Set forth below are ART's properties
held for investment and the average annual rental rate per square foot for
commercial properties, the average daily room rate and total room revenue
divided by total available rooms for hotels and occupancy at December 31, 1997,
1996, 1995, 1994 and 1993 for commercial properties and average occupancy during
such periods for hotels:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Average Annual Rental Per Square Foot
or Average Room Rate
-------------------------------------
Square
Property Location Footage/Rooms 1997 1996 1995 1994 1993
-------- -------- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Office Building:
Rosedale Towers Minneapolis, MN 84,798 Sq. Ft. $15.03 $14.88 $13.16 $14.46 $14.00
- --------------------------------------------------------------------------------------------------------------------------------
Shopping Centers:
Collection Denver, CO 267,812 Sq. Ft. 9.46 * * * *
Oak Tree Village Lubbock, TX 45,623 Sq. Ft. 8.17 7.98 7.34 * *
Preston Square Dallas, TX 35,508 Sq. Ft. 15.26 * * * *
- --------------------------------------------------------------------------------------------------------------------------------
Merchandise Mart:
Denver Mart Denver, CO 509,008 Sq. Ft. 14.75 15.33 14.53 14.18 *
- --------------------------------------------------------------------------------------------------------------------------------
Hotels:
Best Western Virginia Beach, VA 110 Rooms 90.44 41.11 * * *
Oceanside
Inn at the Mart Denver, CO 161 Rooms 53.15 46.66 44.69 42.38 *
Kansas City
Holiday Inn Kansas City, MO 196 Rooms 70.73 66.46 61.66 52.47 *
Piccadilly Airport Fresno, CA 185 Rooms 62.98 * * * *
Piccadilly Chateau Fresno, CA 78 Rooms 50.86 * * * *
Piccadilly Shaw Fresno, CA 194 Rooms 64.07 * * * *
Piccadilly University Fresno, CA 190 Rooms 62.22 * * * *
Williamsburg
Hospitality House Williamsburg, VA 296 Rooms 81.87 * * * *
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Property was acquired in 1995, 1996 or 1997.

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<PAGE> 73

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Total Room Revenues Divided
by Total Available Rooms
---------------------------
Square
Property Location Footage/Rooms 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hotels:
Best Western Virginia Beach, VA 110 Rooms 54.03 71.69** * * *
Oceanside
Inn at the Mart Denver, CO 161 Rooms 28.02 16.80 17.79 17.73** *
Kansas City
Holiday Inn Kansas City, MO 196 Rooms 54.13 52.63 46.31 39.27** *
Piccadilly Airport Fresno, CA 185 Rooms 35.94** * * * *
Piccadilly Chateau Fresno, CA 78 Rooms 27.74** * * * *
Piccadilly Shaw Fresno, CA 194 Rooms 41.17** * * * *
Piccadilly University Fresno, CA 190 Rooms 35.65** * * * *
Williamsburg
Hospitality House Williamsburg, VA 296 Rooms 55.30** * * * *
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Property was acquired in 1995, 1996 or 1997
** For only that portion of the year owned by ART

- ---------------------------------------------------------------------------------------------------------------------------------
Occupancy
- ---------------------------------------------------------------------------------------------------------------------------------
Property 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office Building:
Rosedale Towers 93% 91% 90% 94% 92%
- ---------------------------------------------------------------------------------------------------------------------------------
Shopping Centers:
Collection 82% * * * *
Oak Tree Village 90% 89% 91% * *
Preston Square 92% * * * *
- ---------------------------------------------------------------------------------------------------------------------------------
Merchandise Mart:
Denver Mart 93% 95% 96% 97% *
- ---------------------------------------------------------------------------------------------------------------------------------
Hotels:
Best Western 60% 42% * * *
Oceanside
Inn at the Mart 53% 36% 40% 42% *
Kansas City
Holiday Inn 77% 79% 75% 75% *
Piccadilly Airport 50% * * * *
Piccadilly Chateau 49% * * * *
Piccadilly Shaw 62% * * * *
Piccadilly University 49% * * * *
Williamsburg
Hospitality House 60% * * * *
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Property was acquired in 1995, 1996 or 1997.

Occupancy presented above is without reference to whether leases in effect are
at, below or above market rates.

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As of September 30, 1998, none of ART's properties had a book value
which exceeded 10% of ART's total assets. For the quarter and nine months ended
September 30, 1998, the revenues of the Denver Merchandise Mart exceeded 10% of
ART's total revenues.

Denver Merchandise Mart. The Denver Merchandise Mart is a wholesale trade
mart located in Denver, Colorado. No tenant occupies ten percent or more of the
rentable square footage of the Denver Merchandise Mart. The principal business
carried on in or from the Denver Merchandise Mart is wholesale sales of goods.

The following table shows lease expiration information for the tenants of
the Denver Merchandise Mart at September 30, 1998:

<TABLE>
<CAPTION>
Number of Gross Leased % of Aggregate
Lease Area 1998 Minimum 1998 Minimum
Year Expiring (a) (Sq. Ft.) Annual Rent Annual Rent
---- ------------ --------- --------------- -----------
<S> <C> <C> <C> <C>
Month to Month 5 3,479 $ 58,632 1.1%
1998 79 53,686 815,064 14.5%
1999 153 91,417 1,534,992 27.4%
2000 121 97,586 1,666,584 29.7%
2001 145 97,836 1,530,552 27.3%
2002 -- -- -- --%
2003 -- -- -- --%
2004 -- -- -- --%
2005 -- -- -- --%
2006 1 2,278 -- --%
------- --------- --------------- --------
TOTAL 504 346,282 $ 5,605,824 100.0%
======= ========= =============== ========
</TABLE>

(a) Assumes no renewal options will be exercised in order to show the earliest
termination of the leases.

In October 1997, ART refinanced the mortgage debt secured by the Denver
Merchandise Mart for $25.0 million. The new loan is secured by a mortgage
against the Denver Merchandise Mart. ART received net refinancing proceeds of
$10.2 million after the payoff of $14.8 million in existing mortgage debt that
was scheduled to mature in October 1997. The new loan bears interest at 8.3% per
annum, requires monthly principal and interest payments of $198,000 and matures
in October 2012. The principal balance of the mortgage debt as of September 30,
1998 was $24.7 million. ART substantially completed a renovation and expansion
of the Denver Merchandise Mart in December 1997.

In October 1997, ART contributed the Denver Merchandise Mart to a limited
partnership in exchange for $6.0 million in cash, a 1% managing general partner
interest in the partnership, all of the Class B limited partner units in the
partnership and the partnership's assumption of the mortgage debt secured by
such property. The existing general and limited partners converted their general
and limited partner interests into Class A limited partner units in the
partnership. The Class A units have an agreed value of $1.00 per unit and are
entitled to a fixed preferred return of 10% per annum, paid quarterly. The Class
A units may be converted into a total of 529,000 ART Preferred Shares at any
time after the first but not later than the sixth anniversary of the closing, on
the basis of one ART Preferred Share for each ten Class A units.

Real estate taxes are levied against the Denver Merchandise Mart for county
and township, and school tax purposes. Denver Merchandise Mart paid $305,746 in
real estate taxes in 1997. The 1997 millage rate was 8.4042/100. ART estimates
that Denver Merchandise Mart will owe approximately $312,175 in real estate
taxes in 1998. Real estate taxes are substantially reimbursed by the tenants
through real estate tax recovery billings.

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As of September 30, 1998, for Federal income tax purposes, ART depreciates
the Denver Merchandise Mart under the Modified Accelerated Cost Recovery System
("MACRS") as follows:

Buildings:

Gross Federal Income Tax Basis $17,597,893
Accumulated Depreciation $ 9,388,193
Depreciation Method MACRS - Straight Line ("SL")
Depreciable Life Various

Land Improvements:

Gross Federal Income Tax Basis $ 226,112
Accumulated Depreciation $ 28,616
Depreciation Method MACRS - 150% Declining Balance ("DB")
Depreciable Life 15 years

Personal Property:

Gross Federal Income Tax Basis $ 914,149
Accumulated Depreciation $ 674,323
Depreciation Method MACRS - 200% DB
Depreciable Life Various

In September 1997, ART foreclosed on its $8.9 million junior mortgage note
receivable secured by the Williamsburg Hospitality House, a 297 room hotel in
Williamsburg, Virginia. ART acquired the property at foreclosure subject to a
first lien mortgage of $12.0 million.

In September 1997, ART purchased The Collection, a 267,812 square foot
retail and commercial center in Denver, Colorado, for $19.5 million. ART paid
$791,000 in cash and assumed existing mortgages totaling $14.7 million, and
issued 400,000 ART Preferred Shares (having a total value of $4.0 million). A
first lien mortgage in the amount of $14.2 million bears interest at 8.64% per
annum, requires monthly principal and interest payments of $116,000 and matures
in May 2017. A second lien mortgage in the amount of $580,000 bears interest at
7% per annum until April 2001, 7.5% per annum from May 2001 to April 2006, and
8% per annum from May 2006 to May 2010, requires monthly principal and interest
payments of $3,000 and matures in May 2010.

In October 1997, ART purchased, in a single transaction, four hotels in
Fresno, California, for $33.0 million, consisting of (i) Piccadilly Inn Shaw
(194 rooms), (ii) Piccadilly Inn University (190 rooms), (iii) Piccadilly Inn
Airport (185 rooms) and (iv) Chateau Inn (78 rooms). ART issued 1.6 million ART
Preferred Shares (having a total value of $16.0 million) and obtained new
mortgage financing of $19.8 million. ART received net financing proceeds of $2.2
million after the payment of various closing costs associated with the
financing. The mortgage bears interest at 8.4% per annum, requires monthly
principal and interest payments of $158,000 and matures in October 2013.

Also in October 1997, ART refinanced the Oak Tree Village in Lubbock,
Texas, for $1.5 million. ART received no net financing proceeds after the payoff
of $1.4 million in existing mortgage debt and the payment of various closing
costs associated with the financing. The mortgage bears interest of 8.48% per
annum, requires monthly payments of principal and interest of $18,000 and
matures in November 2007.

In December 1997, ART exchanged a 43.0 acre tract of Valley Ranch land for
Preston Square, a 35,508 square foot shopping center in Dallas, Texas. In
accordance with the provisions of the term loan secured by the Valley Ranch
land, ART paid $2.8 million to the lender in exchange for the lender's release
of its collateral interest in such land . Simultaneously, ART obtained new
mortgage financing of $2.5 million secured by the shopping center. The mortgage
bears interest at 8.2% per annum, requires monthly payments of interest only and
matures in December 1999. ART recognized no gain or loss on the exchange.

Also in December 1997, ART refinanced the Inn at the Mart in Denver,
Colorado, for $4.0 million. ART received net financing proceeds of $1.4 million,
after the payoff of $2.0 million in existing mortgage debt and the payment of

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various closing costs associated with the financing. The mortgage bears interest
at 7.85% per annum, requires monthly payments of principal and interest of
$30,000 and matures in January 2013.

In November 1994, ART and an affiliate of BCM, sold five apartment
complexes to a newly formed limited partnership in exchange for $3.2 million in
cash, a 27% limited partner interest in the partnership and two mortgage notes
receivable, secured by one of the properties sold. ART had the option to
reacquire the properties at any time after September 1997 for their original
sales prices, after the buyer having received a 12% return on its investment.
Accordingly, ART recorded a deferred gain of $5.6 million which was offset
against ART's investment in the partnership. In February 1998, ART reacquired
three of the properties for $7.7 million. ART paid $4.0 million in cash and
assumed the existing mortgages of $3.7 million. Simultaneously ART refinanced
the three properties for a total of $7.8 million, ART receiving net financing
proceeds of $3.9 million after paying off of $3.7 million in existing mortgage
debt and the payment of various costs associated with the financing. The new
mortgages bear interest at 9.5% per annum, require monthly principal and
interest payments of a total of $66,000 and mature in February 2008. In June
1998, ART reacquired the remaining two properties for $8.7 million. ART paid
$2.1 million in cash and assumed the existing mortgages of $6.6 million. The
mortgages bear interest at 8.73% per annum, require monthly principal and
interest payments of a total of $57,000 and mature in January 2019.

In May 1998, but effective April 1, 1998, ART completed the purchase, in a
single transaction, twenty-nine apartment complexes (collectively, the "IGI
Properties") totaling 2,441 units in Florida and Georgia for $55.8 million. ART
acquired the properties through three newly-formed Texas limited partnerships.
The partnerships paid a total of $6.1 million in cash, assumed $43.4 million in
existing mortgage debt and issued a total of $6.6 million in Class A Limited
Partner units in the acquiring entities, having ART as the Class B Limited
Partner and a newly-formed wholly-owned subsidiary of ART, as the Managing
General Partner. The Class A Limited Partners are entitled to an annual
preferred return of $.08 per unit in 1998, $.09 per unit in 1999 and $.10 per
unit in 2000 and thereafter. The units are exchangeable at anytime after April
1, 1999 into ART Preferred Shares on the basis of ten units for one ART
Preferred Share. The mortgages bear interest at rates ranging between 7.86% and
11.22% per annum, require monthly principal and interest payments totaling
$384,000 and mature between July 1, 2000 and September 1, 2017.

Properties Held for Sale. Set forth below are ART's properties held for
sale, at December 31, 1997, primarily undeveloped, partially developed and
undeveloped land:

<TABLE>
<CAPTION>
Property Location Acres/Lots
-------- -------- ----------

<S> <C> <C>
Atlanta Atlanta, GA 3.5 Acres
Bad Lands Duchense, Utah 420.0 Acres
BP Las Colinas Las Colinas, TX 10.6 Acres
Chase Oaks Plano, TX 60.5 Acres
Dalho Farmers Branch, TX 3.4 Acres
Dowdy Collin County, TX 165.0 Acres
Hollywood Casino Farmers Branch, TX 51.7 Acres
Jeffries Ranch Oceanside, CA 82.4 Acres
Kamperman Collin County, TX 29.9 Acres
Katy Road Harris County, TX 130.6 Acres
Keller Tarrant County, TX 811.8 Acres
Lacy Longhorn Farmers Branch, TX 17.1 Acres
Las Colinas I Las Colinas, TX 48.6 Acres
LBJ Dallas County, TX 10.4 Acres
Lewisville Lewisville, TX 78.5 Acres
McKinney Corners I Collin County, TX 30.4 Acres
McKinney Corners II Collin County, TX 173.9 Acres
McKinney Corners III Collin County, TX 15.5 Acres
McKinney Corners IV Collin County, TX 31.3 Acres
McKinney Corners V Collin County, TX 9.7 Acres
Palm Desert Palm Desert, CA 315.2 Acres
Pantex Collin County, TX 182.5 Acres
Parkfield Denver, CO 410.7 Acres
</TABLE>

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<TABLE>
<S> <C> <C>
Pioneer Crossings Austin, TX 1,448.0 Acres
Rasor Plano, TX 291.7 Acres
Santa Clarita Santa Clarita, CA 20.6 Acres
Scout Tarrant County, TX 546.0 Acres
Stagliano Farmers Branch, TX 3.2 Acres
Thompson Farmers Branch, TX 4.0 Acres
Tomlin Farmers Branch, TX 9.2 Acres
Valley Ranch Irving, TX 335.2 Acres
Valley Ranch III Irving, TX 12.5 Acres
Valwood Dallas, TX 280.0 Acres
Vineyards Grapevine, TX 15.8 Acres
Other (8 properties) Various 114.5 Acres
</TABLE>

In January 1997, ART sold a 3.0 acre tract of the Las Colinas I land parcel
in Las Colinas, Texas, for $1.2 million in cash. ART recognized a gain of
$676,000 on the sale.

Also in January 1997, ART purchased the Scout land, a 546 acre parcel of
undeveloped land in Tarrant County, Texas, for $2.2 million. ART paid $725,000
in cash and obtained new mortgage financing for the remaining $1.5 million of
the purchase price. The mortgage bears interest at 16% per annum, requires
quarterly payments of interest only and matures in January 2000.

In February 1996, ART entered into a contract to sell a 72.5 acre tract of
the 92.6 acre parcel of BP Las Colinas land in Las Colinas, Texas, for $12.9
million. The contract called for the sale to close in two phases. In July 1996,
ART completed the first sale. In February 1997, ART completed the second sale of
40.2 acres for $8.0 million, of which $7.2 million was paid in cash. Of the net
cash proceeds of $6.9 million, $1.5 million was used to payoff the debt secured
by the BP Las Colinas land parcel, pay a $500,000 maturity fee to the lender,
make a $1.5 million principal paydown on the loan with the same lender, secured
by the Parkfield land in Denver, Colorado and $1.0 million was applied as a
principal paydown on the term loan secured by the Las Colinas I land. In
conjunction with the sale ART provided $800,000 in purchase money financing in
the form of a six month unsecured loan. The loan bore interest at 12% per annum,
with all accrued but unpaid interest and principal due at maturity in August
1997. ART recognized a gain of $3.4 million on such sale, deferring an
additional $800,000 of gain until the unsecured loan was paid in full. The loan
was collected in full in August 1997 and the additional $800,000 gain was
recognized.

In March 1997, ART purchased the Katy Road land, a 130.6 acre parcel of
undeveloped land in Harris County, Texas, for $5.6 million. ART 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 payments of interest only and matures in March 2000.

In April 1997, ART purchased the McKinney Corners I land, a 30.4 acre
parcel of undeveloped land in Collin County, Texas, for $3.5 million. ART paid
$1.0 million in cash and obtained new mortgage financing of $2.5 million. The
mortgage bears interest at 14% per annum, requires monthly payments of interest
only and matures in April 1998.

Also in April 1997, ART purchased the McKinney Corners II land, a 173.9
acre parcel of undeveloped land in Collin County, Texas, for $5.9 million. ART
paid $900,000 in cash and obtained new mortgage financing of $5.0 million as an
advance under the term loan from the Las Colinas I lender. The McKinney Corners
II land was added as additional collateral on the term loan.

Further in April 1997, ART sold a 3.1 acre parcel of the Las Colinas I land
for $1.3 million in cash. ART 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 certificate of deposit was released to the Valley Ranch lender in
December 1997 in connection with the payoff of the land loan. ART recognized a
gain of $668,000 on the sale.

In May 1997, ART purchased the McKinney Corners III land, a 15.5 acre
parcel of undeveloped land in Collin County, Texas, for $896,000 in cash.

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Also in May 1997, ART purchased the Lacy Longhorn land, a 17.1 acre parcel
of undeveloped land in Farmers Branch, Texas, for $1.8 million. ART paid
$200,000 in cash and obtained seller financing of the remaining $1.6 million of
the purchase price. The loan bore interest at 10% per annum, required monthly
principal and interest payments of $400,000 and matured in October 1997. The
loan was paid off at maturity.

Further in May 1997, ART purchased the Chase Oaks land, a 60.5 acre parcel
of undeveloped land in Plano, Texas, for $4.2 million. ART paid $200,000 in cash
and obtained seller financing of the remaining $4.0 million of the purchase
price. The related mortgage note bears interest at 18% per annum, requires
monthly payments of interest only and matures in May 2000.

In May 1997, ART purchased the Pioneer Crossing land, a 1,448 acre parcel
of undeveloped land in Austin, Texas, for $21.5 million. ART paid $5.4 million
in cash and obtained seller financing of the remaining $16.1 million of the
purchase price. The financing bears interest at 9.5% per annum, requires monthly
payments of interest only and matures in May 2001.

Also in May 1997, ART financed the unencumbered 10.6 acre tract of the BP
Las Colinas land for $3.1 million. The mortgage bears interest at 9.5% per
annum, requires monthly payments of interest only and matures in December 1999.

Further in May 1997, ART obtained a second lien mortgage of $3.0 million
secured by the Pin Oak land, from the limited partner in Nanook Partners, L.P.,
a limited partnership that owns approximately 15.6% of the outstanding shares of
the Common Stock of ART (the "Nanook Limited Partner"). The mortgage bears
interest at 12.5% per annum compounded monthly, and matures in February 1999. In
January 1998, the Palm Desert land was substituted for the Pin Oak land as
collateral for the mortgage.

In June 1997, ART purchased the Kamperman land, a 129.6 acre parcel of
undeveloped land in Collin County, Texas, for $5.0 million in cash. ART
simultaneously sold a 99.7 acre tract for $4.5 million in cash. ART recognized a
gain of $215,000 on the sale.

Also in June 1997, ART purchased the Keller land, a 811.8 acre parcel of
undeveloped land in Tarrant County, Texas, for $6.3 million. ART paid $2.3
million in cash and obtained new mortgage financing of $4.0 million. The
mortgage bears interest at 12.95% per annum, requires monthly payments of
interest only and matures in June 1998.

Further in June 1997, ART purchased the McKinney Corners IV land, a 31.3
acre parcel of undeveloped land in Collin County, Texas, for $2.4 million. ART
paid $400,000 in cash and obtained new mortgage financing of $2.0 million, as an
advance under the term loan from the Las Colinas I lender. The McKinney Corners
IV land was added as additional collateral on the term loan.

In June 1997, ART purchased the Pantex land, a 182.5 acre parcel of
undeveloped land in Collin County, Texas, for $5.4 million. ART paid $900,000 in
cash and obtained seller financing of the remaining $4.5 million of the purchase
price. The financing bears interest at 10.5% per annum, requires semiannual
payments of interest only and matures in December 2000.

Also in June 1997, ART obtained a second lien mortgage of $3.0 million
secured by the Lewisville land, from the Nanook Limited Partner. The mortgage
bears interest at 12.5% per annum, compounded monthly and matures in February
1999.

Further in June 1997, ART refinanced the Valwood land for $15.8 million.
The mortgage bears interest at the prime rate plus 4.5%, currently 13% per
annum, requires monthly payments of interest only and matures in December 1998.
ART received net financing proceeds of $4.9 million, after the payoff of $6.2
million in existing mortgage debt secured by the property, an additional $3.0
million being applied to payoff the Jefferies land loan and $1.4 million being
applied to pay down the Las Colinas I land term loan.

In July 1997, ART sold a 3.9 acre tract of the Las Colinas I land in Las
Colinas, Texas, for $1.6 million in cash. In accordance with the provisions of
the term loan secured by such parcel, ART applied the net sales proceeds of $1.4

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million, to paydown the term loan in exchange for that lender's release of its
collateral interest in such land. ART recognized a gain of $771,000 on the sale.

Also in July 1997, ART purchased the Dowdy and McKinney Corners V land, a
total of 174.7 acres of undeveloped land in Collin County, Texas, for $2.9
million. ART obtained new mortgage financing of $3.3 million as an advance under
the term loan from the Las Colinas I lender. The Dowdy land, McKinney Corners V
land and McKinney Corners III land were added as additional collateral on the
term loan.

Further in July 1997, ART purchased the Perkins land, a 645.4 acre parcel
of undeveloped land in Collin County, Texas, for $5.8 million. ART paid $3.3
million in cash and assumed the existing mortgage of $2.5 million. The mortgage
bears interest at 8.5% per annum, requires quarterly payments of interest only
and matures in March 2002.

In July 1997, ART purchased the LBJ land, a 10.4 acre parcel of undeveloped
land in Dallas County, Texas, for $2.3 million. ART paid $300,000 in cash and
obtained seller financing of the remaining $2.0 million of the purchase price.
The mortgage bears interest at 18% per annum, requires quarterly payments of
interest only and matures in September 1998.

Also in July 1997, ART obtained a third lien mortgage of $2.0 million
secured by the Pin Oak land, from the Nanook Limited Partner. The mortgage bore
interest at 12.5% per annum, compounded monthly and matured in February 1998.
The mortgage was paid in full in January 1998.

In September 1997, ART sold the Mopac Building in St. Louis, Missouri, for
$1.0 million in cash. In accordance with the provisions of the Las Colinas I
term loan, ART applied $350,000 of the sales proceeds to paydown the term loan
in exchange for the lender's release of its collateral interest in such
property. ART recognized a gain of $481,000 on the sale.

Also in September 1997, ART sold a 2.6 acre tract of the Las Colinas I land
parcel in Las Colinas, Texas, for $1.2 million in cash. In accordance with the
provisions of the term loan secured by such parcel, ART applied the net sales
proceeds of $1.0 million, to paydown the term loan in exchange for the lender's
release of its collateral interest in such land. ART recognized a gain of
$578,000 on the sale.

Further in September 1997, ART sold three tracts of the Valley Ranch land
totaling 24.0 acres for $1.6 million in cash. The net cash proceeds of $1.2
million were deposited in a certificate of deposit for the benefit of the
lender, in accordance with the term loan secured by such land. The certificate
of deposit was released to the lender in December 1997, in conjunction with the
payoff of the loan. ART recognized a gain of $567,000 on the sale.

In September 1997, ART refinanced the Las Colinas I land Double O tract for
$7.3 million. ART received net refinancing proceeds of $2.1 million, after the
payoff of the existing mortgage debt of $5.0 million and the payment of various
closing costs associated with the financing. The new mortgage bears interest at
the prime rate plus 4.5%, currently 13% per annum, requires monthly payments of
interest only and matures in October 1998.

In October 1997, ART contributed its Pioneer Crossing land in Austin, Texas
to a limited partnership in exchange for $3.4 million in cash, a 1% managing
general partner interest in the partnership and all of the Class B limited
partner units in the partnership and the partnership's assumption of the $16.1
million mortgage debt secured by such property. The existing general and limited
partners converted their general and limited partner interests into Class A
limited partner units in the partnership. The Class A units have an agreed value
of $1.00 per unit and are entitled to a fixed preferred return of 10% per annum,
paid quarterly. The Class A units may be converted into a total of 360,000 ART
Preferred Shares at any time after the first but no later than the sixth
anniversary of the closing, on the basis of one ART Preferred Share for each ten
Class A units.

Also in October 1997, ART purchased the Palm Desert land, a 315.2 acre
parcel of undeveloped land in Palm Desert, California, for $11.2 million. ART
paid $3.8 million in cash and assumed the existing mortgage of $7.4 million. The
mortgage bears interest at 9% per annum, requires monthly principal and interest
payments of $76,000 and matures in February 2002.

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Further in October 1997, ART purchased the Thompson land, a 4.0 acre parcel
of undeveloped land in Dallas County, Texas, for $869,000 in cash.

In October 1997, ART purchased the Santa Clarita land, a 20.6 acre parcel
of undeveloped land, in Santa Clarita, California, for $1.3 million. ART
obtained new mortgage financing of $1.3 million as an advance under the term
loan from the Las Colinas I lender. The Santa Clarita land was added as
additional collateral on the term loan.

Also in October 1997, ART purchased the Tomlin land, a 9.2 acre parcel of
undeveloped land in Dallas County, Texas, for $1.7 million in cash.

Further in October 1997, ART purchased the Rasor land, a 378.2 acre parcel
of undeveloped land in Plano, Texas, for $14.4 million. ART paid $5.1 million in
cash, obtained new mortgage financing of $3.5 million as an advance under the
term loan from the Las Colinas I lender, and exchanged its Perkins land, a 645.4
acre parcel of undeveloped land in Collin County, Texas, for the remainder of
the purchase price. ART simultaneously sold an 86.5 acre tract of Rasor land for
$3.8 million in cash, ART received net cash of $3.5 million after the payment of
various closing costs associated with the sale. The Rasor land was added as
additional collateral on the term loan. ART recognized a gain of $212,000 on the
sale of the 86.5 acre tract.

In October 1997, a newly formed partnership, of which ART is the 1% general
partner and Class B limited partner, purchased Vineyards land, a 15.8 acre
parcel of undeveloped land in Tarrant County, Texas, for $4.5 million. The
partnership paid $800,000 in cash, assumed $2.5 million of existing mortgage
debt and issued to the seller 1.1 million Class A limited partner units with an
agreed value of $1.00 per unit. The Class A limited partner is entitled to a
fixed annual preferred return of 10% per annum paid quarterly. The Class A units
may be exchanged for either shares of ART's Series G Cumulative Convertible
Preferred Stock on or after the second anniversary of the closing date at a rate
of one share of Series G Preferred Stock for each 100 Class A units exchanged or
for ART Common Shares only on or after the third anniversary of the closing
date. The Class A units are exchangeable for ART Common Shares at a rate of
$1.00 per unit plus any outstanding preferred return divided by 0.9 times the
simple average of the daily closing price of the ART Common Shares for the 20
business days preceding the date of conversion. The assumed mortgage bore
interest at 12.95% per annum, required quarterly payments of interest only and
was scheduled to mature in June 1998. In February 1998, ART refinanced the
Vineyards land in the amount of $3.4 million. ART received net refinancing
proceeds of $2.9 million after the payoff of the then existing mortgage debt of
$540,000. The new mortgage bears interest at 9.0% per annum, requires monthly
payments of interest only and matures in February 2000.

Also in October 1997, ART purchased the Dalho land, a 3.4 acre parcel of
undeveloped land in Farmers Branch, Texas, for $300,000 in cash.

Further in October 1997, ART sold an 11.6 acre tract of the Valley Ranch
land for $1.2 million in cash. The net cash proceeds of $990,000, after the
payment of various closing costs associated with the sale, were deposited in a
certificate of deposit for the benefit of the lender, in accordance with the
term loan secured by such land. The certificate of deposit was released to
lender in December 1997, in conjunction with the payoff of the loan. ART
recognized a gain of $629,000 on the sale.

In November 1997, ART sold two tracts of the Valley Ranch land, totaling 8
acres, for $577,000 in cash. The net cash proceeds of $451,000, after the
payment of various closing costs associated with the sale, were deposited in a
certificate of deposit for the benefit of the lender, in accordance with the
term loan secured by such land. The certificate of deposit was released to
lender in December 1997, in conjunction with the payoff of the loan. ART
recognized a gain of $216,000 on the sale.

Also in November 1997, ART purchased the Hollywood Casino land, a 51.7 acre
parcel of undeveloped land in Farmers Branch, Texas, for $11.1 million. ART paid
$3.6 million in cash and obtained new mortgage financing of $7.5 million. The
mortgage bears interest at 9.25% per annum, requires monthly payments of
interest only and matures in December 1999.

Further in November 1997, ART obtained mortgage financing of $5.4 million
secured by 33.9 acres of previously unencumbered Valwood land, Lacy Longhorn
land, Thompson land, and Tomlin land. ART received net financing proceeds of
$4.8 million after the payment of various closing costs associated with the
financing. The mortgage bears interest at 13.5% per annum, requires monthly
payments of principal and interest and matures in November 2007.

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In December 1997, ART sold a 5.1 acre tract of the Valley Ranch land, for
$430,000 in cash. The net cash proceeds of $353,000, after the payment of
various closing costs associated with the sale, were deposited in a certificate
of deposit for the benefit of the lender, in accordance with the term loan
secured by such land. The certificate of deposit was released to lender in
December 1997, in conjunction with the payoff of the loan. ART recognized a gain
of $203,000 on the sale.

Also in December 1997, ART purchased the Valley Ranch III land, a 12.5 acre
parcel of undeveloped land in Irving, Texas, for $2.1 million. ART paid $527,000
in cash and obtained seller financing of the remaining $1.6 million of the
purchase price. The financing bears interest at 10.0% per annum, requires the
payment of principal and interest at maturity and matures in December 1998.

Further in December 1997, ART purchased the Stagliano land, a 3.2 acre
parcel of undeveloped land in Farmers Branch, Texas, for $500,000 in cash.

In December 1997, ART sold a 32.0 acre tract of the Parkfield land in
Denver, Colorado, for $1.2 million in cash. In accordance with the provisions of
the term loan secured by such parcel, ART applied the net cash proceeds of $1.1
million, to paydown the term loan in exchange for the lender's release of its
collateral interest in such land. ART recognized a gain of $372,000 on the sale.

Also in December 1997, ART sold two parcels of the Valley Ranch land,
totaling 25.1 acres, for $3.3 million. ART received net cash proceeds of $2.1
million and provided an additional $891,000 in purchase money financing. The
purchase money financing bore interest at 10.0% per annum and matured in January
1998. ART received a $624,000 paydown on the purchase money financing in January
1998 with the remainder being deferred until a zoning issue is resolved. In
accordance with the provisions of the term loan secured by such parcel, ART
applied the net cash proceeds of $2.1 million to payoff the term loan secured by
such parcel, the lender releasing its collateral interest in the remaining
Valley Ranch land. ART recognized a gain of $1.8 million on the sale, and
deferred an additional $267,000 until the zoning issue is resolved.

Further in December 1997, ART sold Park Plaza, a 105,507 square foot
shopping center in Manitowoc, Wisconsin, for $4.9 million in cash. ART received
net cash of $1.6 million, after the payoff of $3.1 million in existing mortgage
debt and the payment of various closing costs associated with the sale. ART
recognized a gain of $105,000 on the sale.

In December 1997, ART sold the Pin Oak land, a 567.6 acre parcel of
undeveloped land in Houston, Texas, for $11.4 million. ART received net cash
proceeds of $3.5 million, and provided an additional $6.9 million in short term
seller financing that was paid in full in January 1998. On the payoff of the
seller financing ART received net cash of $1.5 million after the payoff of $5.2
million in underlying mortgage debt and the payment of various closing costs
associated with the sale. ART recognized a gain of $3.7 million on the sale.

In 1991, ART 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. During 1997, 9 additional lots
were sold for an aggregate gain of $17,000. At December 31, 1997, one lot
remained to be sold.

In November 1991, ART transferred the Porticos Apartments to IORI, an
equity investee, in satisfaction of ART's then $3.6 million obligation to IORI.
ART recorded a deferred gain of $3.0 million on the transfer. In June 1997, IORI
sold the property, and accordingly ART recognized such previously deferred gain.

In January 1998, ART purchased the El Dorado Parkway land, an 8.5 acre
parcel of undeveloped land in McKinney, Texas, for $952,000. ART paid $307,000
in cash and assumed the existing mortgage of $164,000, and obtained seller
financing of the remaining $481,000 of the purchase price. The mortgage bears
interest at 10% per annum, requires semiannual payments of principal and
interest of $18,000 and matures in May 2005. The seller financing bears interest
at 8% per annum, requires semiannual principal and interest payments of $67,000
and matures in January 2002.

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Also in January 1998, ART purchased the Valley Ranch IV land, a 12.3 acre
parcel of undeveloped land in Irving, Texas, for $2.0 million. ART paid $500,000
in cash and obtained seller financing of the remaining $1.5 million of the
purchase price. The financing bears interest at 10% per annum, requires
quarterly payments of interest only and matures in December 2000.

Further in January 1998, ART purchased the JHL Connell land, a 7.7 acre
parcel of undeveloped land in Carrollton, Texas, for $1.3 million in cash.

In February 1998, ART purchased the Scoggins land, a 314.5 acre parcel of
undeveloped land in Tarrant County, Texas, for $3.0 million. ART paid $1.5
million in cash and obtained new mortgage financing of $1.5 million. The
mortgage bears interest at 14% per annum, requires quarterly payments of
interest only, required a principal paydown of $300,000 in May 1998, which was
paid, and matures in February 1999.

Also in February 1998, ART purchased the Bonneau land, a 8.4 acre parcel of
undeveloped land in Dallas County, Texas, for $1.0 million. ART obtained new
mortgage financing of $1.0 million. The mortgage bears interest at 18.5% per
annum with principal and interest due at the maturity in February 1999. ART's
JHL Connell land is pledged as additional collateral for this loan.

Further in February 1998, ART financed the unencumbered Kamperman land for
$1.6 million. ART received net financing proceeds of $1.5 million after the
payment of various closing costs associated with the financing. The mortgage
bears interest at 9.0% per annum, requires monthly payments of interest only and
matures in February 2000.

In February 1998, ART financed its unencumbered Valley Ranch land for $4.3
million. ART received net financing proceeds of $4.1 million after the payment
of various closing costs. The mortgage bears interest at 9.0% per annum,
requires monthly payments of interest only and matures in February 2000.

Also in February 1998, ART refinanced the Vineyards land in the amount of
$3.4 million. ART received net cash of $2.9 million, after paying off existing
mortgage debt of $540,000. The new mortgage bears interest at 9.0% per annum,
requires monthly payments of interest only and matures in February 2000.

In March 1998, ART financed its unencumbered Stagliano and Dalho land in
the amount of $800,000 with the lender on the Bonneau land, described above. ART
received net cash of $790,000 after the payment of various closing costs. The
mortgage bears interest at 18.5% per annum with principal and interest due at
maturity in February 1999. ART's JHL Connell land is also pledged as additional
collateral for this loan.

Also in March 1998, ART purchased the Desert Wells land, a 420 acre parcel
of undeveloped land in Palm Desert, California, for $12.0 million. ART paid
$400,000 in cash, obtained new mortgage financing of $10.0 million and obtained
seller financing of the remaining $1.6 million of the purchase price. The
mortgage bears interest at 4.5% above the prime rate, currently 13% per annum,
requires monthly payments of interest only and matures in March 1999. The seller
financing bore interest at 10% per annum, required monthly payments of interest
only and matured in July 1998. The seller financing was paid off at maturity in
July 1998.

Further in March 1998, ART refinanced the mortgage debt secured by the
McKinney Corners and Dowdy land in the amount of $20.7 million. ART received net
cash of $5.9 million after the payoff of $2.5 million in existing mortgage debt,
the paydown of $10.2 million on the Las Colinas I term loan and the payment of
various closing costs. ART also pledged 800,000 ART Shares as additional
security for the loan. The new mortgage bears interest at 12% per annum,
requires monthly payments of interest only and matures in March 1999.

In April 1998, ART purchased the Yorktown land, a 325.8 acre parcel of
undeveloped land in Harris County, Texas, for $7.4 million. ART paid $3.0
million in cash and obtained seller financing of the remaining $4.4 million of
the purchase price. The financing bear interest at 8.5% per annum, requires
monthly payments of interest only and matures in November 1998.

Also in April 1998, ART sold a 77.7 acre tract of the Lewisville land
parcel, for $6.8 million in cash. ART received net cash of $358,000 after the
payoff of first and second lien mortgages totaling $5.9 million and the payment
of various closing costs. ART recognized a gain of $2.0 million on the sale.

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Further in April 1998, ART obtained a second lien mortgage of $2.0 million
secured by the BP Las Colinas land from the Nanook Limited Partner. The mortgage
bears interest at 12% per annum, with principal and interest due at maturity in
October 1998.

In April 1998, ART refinanced the mortgage debt secured by the Parkfield
land in the amount of $7.3 million. ART received net cash of $1.2 million after
the payoff of $5.0 million in existing mortgage debt and the payment of various
closing costs. The new mortgage bears interest at 9.5% per annum, requires
monthly payments of interest only and matures in April 2000.

In May 1998, ART sold a 15.4 acre tract of the Valley Ranch land parcel,
for $1.2 million in cash. ART received net cash of $41,000 after paying down by
$1.1 million the mortgage secured by such land parcel and the payment of various
closing costs. ART recognized a gain of $663,000 on the sale.

Also in May 1998, ART purchased the FRWM Cummings land, a 6.4 acre parcel
of undeveloped land in Farmers Branch, Texas, for $1.2 million in cash.

Further in May 1998, ART sold a 21.3 acre tract of the Parkfield land
parcel, for $1.3 million in cash. ART received net cash of $40,000 after paying
down by $1.1 million the mortgage secured by such land parcel and the payment of
various closing costs. ART recognized a gain of $670,000 on the sale.

In May 1998, ART refinanced the mortgage debt secured by its Scout and
Scoggins land in the amount of $10.4 million under the Las Colinas I term loan.
ART received net cash of $6.6 million after paying off $1.4 million in mortgage
debt on the Scout land and $1.5 million in mortgage debt on the Scoggins land, a
pay down of $250,000 on the Keller land mortgage, and the payment of various
closing costs. ART also pledged 250,000 shares of its Common Stock and BCM, an
affiliate of and advisor to ART, pledged 177,000 shares of ART's Common Stock as
additional security on the mortgage.

In June 1998, ART sold a 21.6 acre tract of the Chase Oaks land, for $3.3
million in cash. ART received net cash of $517,000 after paying down by $2.0
million the mortgage secured by such land parcel and the payment of various
closing costs. ART recognized a gain of $848,000 on the sale.

Also in June 1998, ART sold a 150.0 acre tract of the Rasor land, for $6.8
million in cash. ART received net cash of $1.6 million after paying down by $5.0
million the mortgage secured by such land parcel and the payment of various
closing costs. ART recognized a gain of $789,000 on the sale.

Further in June 1998, ART sold its entire 315.2 acre Palm Desert land
parcel, for $17.2 million in cash. ART received net cash of $9.2 million after
paying off the $7.2 million mortgage secured by such land parcel and the payment
of various closing costs. ART recognized a gain of $3.9 million on the sale.

In July 1998, ART purchased the Thompson II land, a 3.5 acre parcel of
undeveloped land in Dallas County, Texas, for $471,000 in cash.

Also in July 1998, ART purchased, through a newly formed partnership, the
Katrina land, a 454.8 acre parcel of undeveloped land in Palm Desert,
California, for $38.2 million. The partnership issued $23.2 million of Class A
Limited Partner units and obtained new mortgage financing of $15.0 million. The
Class A Limited Partners are entitled to an annual preferred return of $.07 per
unit in 1998, $.08 per unit in 1999, $.09 per unit in 2000 and $.10 per unit in
2001 and thereafter, the Class A units may be converted into shares of ART's
Series H Preferred Stock anytime after twelve months from closing on the basis
of 100 Class A units for each share of Series H Preferred Stock. The Series H
Preferred Stock may be converted into ART Common Stock using a 90% factor
starting in December 2000.

Further, in July 1998, ART purchased the Walker land, a 132.6 acre parcel
of undeveloped land in Dallas County, Texas, for $12.5 million in cash. Also in
July, ART obtained mortgage financing of $13.3 million. ART received net cash of
$12.8 million after the payment of various closing costs. The mortgage bears
interest at 15.5% per annum, requires monthly payments of interest only and
matures in July 1999. The mortgage is also secured by the FRWM Cummings land.

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In July 1998, ART sold a 2.5 acre tract of the Las Colinas I land parcel,
for $1.6 million in cash. ART received net cash of $721,000 after paying down by
$750,000 the Las Colinas I term loan secured by such land parcel and the payment
of various closing costs. ART recognized a gain of $869,000 on the sale.

In August 1998, ART financed its unencumbered Keller land in the amount of
$5.0 million under the Las Colinas I term loan. ART received net financing
proceeds of $4.9 million after the payment of various closing costs.

In September 1998, a newly formed limited partnership, in which ART has a
combined 95% general and limited partnership interest, purchased the Messick
land, a 72.0 acre parcel of undeveloped land in Palm Springs, California, for
$3.5 million. ART paid $1.0 million in cash and obtained seller financing of the
remaining $2.5 million of the purchase price. The seller financing bears
interest at 8.5% per annum, requires quarterly payments of interest only,
principal payments of $300,000 in July 1999 and July 2000, and matures in July
2001.

Also in September 1998, ART sold a 60.0 acre tract of its Parkfield land
parcel, for $1.5 million in cash. ART received net cash of $21,000 after the
payoff of the $1.4 million mortgage secured by such land parcel and the payment
of various closing costs. ART recognized a gain of $43,000 on the sale.

Further in September 1998, ART purchased the HSM land, a 6.2 acre parcel of
undeveloped land in Farmers Branch, Texas, for $2.2 million in cash.

In September 1998, ART sold the remaining 10.5 acres of its BP Las Colinas
land for $4.7 million in cash. ART received net cash of $1.8 million after
paying off $2.7 million in mortgage debt and the payment of various closing
costs. ART recognized a gain of $3.4 million on the sale.

Also in September 1998, ART purchased the Vista Ridge land, a 160 acre
parcel of undeveloped land in Lewisville, Texas, for $15.6 million. ART paid
$3.1 million in cash and obtained new mortgage financing of $12.5 million. The
mortgage bears interest at 15.5% per annum, requires monthly interest only
payments at a rate of 12.5% per annum and matures in July 1999.

Further in September 1998, ART sold its entire 30.0 acre Kamperman land
parcel for $2.4 million in cash. ART received net cash of $584,000 after paying
down by $1.6 million the Las Colinas I term loan secured by such parcel and the
payment of various closing costs. ART recognized a gain of $969,000 on the sale.

In September 1998, ART sold a 1.1 acre tract of its Santa Clarita land
parcel for $543,000 in cash. ART received net cash of $146,000 after paying down
by $350,000 the Las Colinas I term loan secured by such tract and the payment of
various closing costs. ART recognized a gain of $409,000 on the sale.

Also in September 1998, ART purchased the Marine Creek land, a 54.2 acre
parcel of undeveloped land in Fort Worth, Texas, for $2.2 million in cash.

Further in September 1998, ART obtained second lien financing of $5.0
million secured by its Katy land from the limited partner in a partnership that
owns approximately 15.6% of the outstanding shares of ART's Common Stock. The
second lien mortgage bears interest at 12.5% per annum, compounded monthly, with
principal and interest due at maturity in January 1999.

In October 1998, ART purchased the Vista Business Park land, a 41.8 acre
parcel of undeveloped land in Travis County, Texas, for $3.0 million. ART paid
$730,000 in cash and obtained mortgage financing of $2.3 million. The mortgage
bears interest at 8.9% per annum, requires monthly payments of interest only and
matures in September 2000.

Also in October 1998, ART purchased the Stone Meadows land, a 13.5 acre
parcel of undeveloped land in Houston, Texas, for $1.6 million. ART paid
$491,000 in cash and obtained seller financing for the remaining $1.1 million of
the purchase price. The seller financing bears interest at 10% per annum,
requires quarterly principal and interest payments of $100,000 and matures in
October 1999.

Further in October 1998, ART financed its unencumbered Rasor land in the
amount of $15.0 million, ART receiving net cash of the $13.5 million after the
payment of various closing costs. Portions of ART's Las Colinas and

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Valwood land parcels are included as additional collateral. ART used the
proceeds from this loan along with an additional $1.8 million to payoff the
$15.8 million in mortgage debt secured by its Las Colinas and Valwood land
parcels. 200.3 acres of ART's Valwood land parcel are currently unencumbered.

Competition. Identifying, completing and realizing on real estate
investments has from time to time been highly competitive, and involves a high
degree of uncertainty. ART competes for investments with many public and private
real estate investment vehicles, including financial institutions (such as
mortgage banks, pension funds and real estate investment trusts) and other
institutional investors, as well as individuals. Many of those with whom ART
competes for investments and its services are far larger than ART, may have
greater financial resources than ART and may have management personnel with more
experience than the officers of ART.

MORTGAGE LOANS

In addition to real estate, a portion of ART's assets have been and are
expected to continue to be invested in mortgage notes receivable, principally
those secured by income-producing real estate. ART's mortgage notes receivable
consist of first, wraparound, and junior mortgage loans.

Types of Mortgage Activity. In addition to originating its own mortgage
loans, ART has acquired existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. BCM, an affiliate of and advisor to ART,
services ART's mortgage notes receivable in its capacity as a mortgage servicer.

Types of Properties Subject to Mortgages. The types of properties securing
ART's mortgage notes receivable portfolio at September 30, 1998 consisted of an
office building, single-family residences and developed land. The ART Board may
alter the types of properties subject to mortgages in which ART invests without
a vote of ART's stockholders.

At September 30, 1998, the obligors on $381,000 or 37% of ART's mortgage
notes receivable portfolio were affiliates of ART. Also at that date, $499,000
or 49% of ART's mortgage notes receivable portfolio was in default.

A summary of the activity in ART's mortgage notes receivable portfolio
during 1997 and through September 30, 1998 is as follows:

<TABLE>
<S> <C>
Loans in mortgage notes receivable portfolio
at January 1, 1997.................... 13*
Loans funded........................... 1
Loans paid in full..................... (5)
Loans sold............................. (2)
Loan foreclosed........................ (1)
---
Loans in mortgage notes receivable portfolio
at September 30, 1998.............. 6*
</TABLE>

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

* Includes a mortgage note receivable collateralized by two condominium
mortgage loans at January 1, 1997 and one condominium mortgage loan at
September 30, 1998.

During 1997, ART collected $2.6 million in interest and $4.5 million in
principal on its mortgage notes receivable and sold two mortgage notes
receivable for a total of $17.0 million. During the first six months of 1998,
ART collected $381,000 in interest and $7.7 million in principal on its mortgage
notes receivable. ART plans, for the foreseeable future, to hold, to the extent
its liquidity permits, rather than to sell in the secondary market, the
remainder of the mortgage notes in its portfolio.

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First Mortgage Loans. ART may invest in first mortgage loans, with either
short-, medium- or long-term maturities. First mortgage loans generally provide
for level periodic payments of principal and interest sufficient to
substantially repay the loan prior to maturity, but may involve interest-only
payments or moderate or negative amortization of principal and a "balloon"
principal payment at maturity. With respect to first mortgage loans, it is ART's
general policy to require that the borrower provide a mortgagee's title policy
or an acceptable legal opinion of title as to the validity and the priority of
the mortgage lien over all other obligations, except liens arising from unpaid
property taxes and other exceptions normally allowed by first mortgage lenders
in the relevant area. ART may grant to other lenders participations in first
mortgage loans originated by ART.

The following discussion briefly describes the events that affected
previously funded first mortgage loans during 1997 and through September 30,
1998.

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. ART
instituted foreclosure proceedings and was awarded summary judgment in January
1994. During 1994 and 1995, the borrower paid ART a total of $270,000 in
nonrefundable fees to delay foreclosure of the property until April 24, 1995. On
April 21, 1995, the borrower filed for bankruptcy protection. On August 24,
1996, the bankruptcy court's stay was lifted allowing ART to proceed with
foreclosure. The note had a principal balance of $1.6 million at December 31,
1996. On February 21, 1997, ART sold its note for $1.8 million in cash. ART
recognized a gain of $171,000 on the sale.

Wraparound Mortgage Loans. ART may invest in wraparound mortgage loans,
sometimes called all-inclusive loans, made on real estate subject to prior
mortgage indebtedness. A wraparound mortgage note is a mortgage note having an
original principal amount equal to the outstanding balance under the prior
existing mortgage loan plus the amount actually advanced under the wraparound
mortgage loan. Wraparound mortgage loans may provide for full, partial or no
amortization of principal. ART's policy is to make wraparound mortgage loans in
amounts and on properties as to which it would otherwise make a first mortgage
loan.

The following discussion briefly describes events that affected previously
funded wraparound mortgage loans during 1997 and through September 30, 1998.

In September 1997, ART sold its $16.3 million wraparound mortgage note
receivable secured by the Las Vegas Plaza Shopping Center in Las Vegas, Nevada,
for $15.0 million. ART received net cash of $5.5 million after the payoff of
$9.2 million in debt and the payment of various closing costs associated with
the sale. ART incurred no loss on the sale in excess of the reserve previously
established.

In December 1997, ART sold the Pin Oak Land, a 567.6 acre parcel of
undeveloped land in Houston, Texas, for $11.4 million. In connection with such
sale, ART provided $6.9 million in short term purchase money financing that was
paid in full in January 1998.

In August 1990, ART obtained the Continental Hotel and Casino in Las Vegas,
Nevada, through foreclosure subject to first and second lien mortgages totaling
$10.0 million. In June 1992, ART sold the hotel and casino for among other
consideration, a $22.0 million wraparound mortgage note receivable. In March
1997, the wraparound note was modified and extended in exchange for, among other
things, the borrower's commitment to invest $2.0 million in improvements to the
hotel and casino within four months of the March 1997 modification and an
additional $2.0 million prior to December 1997. The borrower stopped making the
required mortgage payments in April 1997 and did not make the required
improvements. In December 1997, the borrower filed for bankruptcy protection. In
February 1998, a hearing was held to allow ART to foreclose on the hotel and
casino. At the hearing, the court allowed the borrower 90 days to submit a
reorganization plan and beginning March 2, 1998 and required the borrower to
make monthly payments of $175,000 to ART. ART received the first such payment on
March 2, 1998. ART's wraparound mortgage note receivable had a principal balance
of $22.7 million at March 31, 1998. In April 1998, the bankruptcy court allowed
ART to foreclose on the hotel and casino. ART did not incur a loss on
foreclosure as the fair value of the property exceeded the carrying value of
ART's mortgage note receivable.

Junior Mortgage Loans. ART may invest in junior mortgage loans. Such notes
are secured by mortgages that are subordinate to one or more prior liens either
on the fee or a leasehold interest in real estate. Recourse on such notes
ordinarily includes the real estate which secures the note, other collateral and
personal guarantees of the borrower.

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The following discussion briefly describes the junior mortgage loans funded
in 1997 and the events that affected previously funded junior mortgage notes
during 1997 and the first six months of 1998.

At December 31, 1996, ART held a junior mortgage note receivable secured by
the Williamsburg Hospitality House in Williamsburg, Virginia, that is subject to
a first lien mortgage of $12.0 million. In September 1997, ART foreclosed on its
$8.9 million junior mortgage note receivable. ART obtained the property at
foreclosure subject to the first lien mortgage of $12.0 million. ART incurred no
loss on foreclosure as the fair value of the property exceeded the carrying
value of its mortgage note receivable and assumed mortgage debt.

In May 1997, the $3.7 million mortgage note receivable secured by an
apartment complex in Merrillville, Indiana, owned by a subsidiary of Davister
Corp. ("Davister"), a general partner in a partnership that owns approximately
15.6% of ART's outstanding shares of Common Stock, was paid in full.

In November 1994, ART and an affiliate of BCM, sold five apartment
complexes to a newly formed limited partnership in exchange for, among other
consideration, two mortgage notes receivable secured by one of the properties
sold. ART had the option to reacquire the properties at any time after September
1997 for their original sales prices. In February 1998, ART reacquired three of
the properties, one of which was subject to the two mortgage notes receivable,
which were discharged upon ART's reacquisition of the property.

In December 1997, ART sold two parcels of Valley Ranch land, totaling 25.1
acres, for $3.3 million. In conjunction with the sale, ART provided $891,000 in
purchase money financing. The purchase money financing bore interest at 10.0%
per annum and matured in January 1998. ART received $624,000 paydown on the
purchase money financing in January, with the remainder being deferred until a
zoning issue is resolved.

INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS AND REAL ESTATE PARTNERSHIPS

ART's investment in real estate entities at September 30, 1998 includes (1)
equity securities of three publicly traded real estate investment trusts
(collectively the "Affiliated REITs"), CMET, IORI and TCI, (2) units of limited
partner interest of NRLP, (3) a general partner interest in NRLP and NOLP,
through its 96% limited partner interest in SAMLP, the general partner of NRLP
and NOLP, (4) a general partner interest in Gardon Capital, L.P. ("GCLP"), and
(5) interests in real estate joint venture partnerships. Gene E. Phillips,
Chairman of the Board and a Director of ART until November 16, 1992, served
until May 15, 1996 as a director and Chief Executive Officer of SAMI, a company
owned by BCM, an affiliate of and advisor to ART, that serves as SAMLP's
managing general partner. Karl L, Blaha, President of ART, serves as the sole
director and as Executive Vice President of SAMI. Gene E. Phillips is also a
general partner of SAMLP. BCM, an affiliate of and advisor to ART also, serves
as advisor to the Affiliated REITs, and performs certain administrative and
management functions for NRLP and NOLP on behalf of SAMLP.

Effective August 1998, a wholly-owned subsidiary of ART acquired the 0.7%
managing general partner interest of Garden Capital, Incorporated in GCLP and
the 1% managing general partner interest of Garden Capital, Incorporated in 50
single asset limited partnerships in which GCLP is the 99% limited partner. NOLP
owns a 99.3% limited partner interest in GCLP. GCLP was formed in November 1992,
to facilitate the refinancing of 52 of NOLP's apartment complexes. ART issued
250,000 ART Preferred Shares in exchange for the partnership interests.

Since acquiring its initial investments in the equity securities of the
Affiliated REITs and NRLP in 1989, ART has made additional investments in the
equity securities of these entities through private and open market purchases.
ART's cost with respect to shares of the Affiliated REITs at September 30, 1998
totaled $20.8 million, and its cost with respect to units of limited partner
interest in NRLP totaled $23.3 million. The aggregate carrying value (cost plus
or minus equity in income or losses and less distributions received) of such
equity securities of the Affiliated REITs and NRLP was $53.0 million at
September 30, 1998 and the aggregate market value of such equity securities was
$115.9 million. The aggregate investee book value of the equity securities of
the Affiliated REITs based upon the September 30, 1998 financial statements of
each such entity was $71.8 million and ART's share of NRLP's revaluation equity
at September 30, 1998 was $198.9 million.

The ART Board has authorized the expenditure by ART of up to an aggregate
of $35.0 million to acquire, in open market purchases, units of NRLP and shares
of the Affiliated REITs, excluding private purchase transactions which were
separately authorized. As of September 30, 1998, ART had expended $4.0 million
to acquire units of NRLP and an aggregate of $6.0 million to acquire shares of
the Affiliated REITs, in open market purchases, in accordance with these
authorizations. ART expects to make additional investments in the equity
securities of the Affiliated REITs and NRLP.

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At September 30, 1998, SAMLP, the general partner of NRLP and NOLP, owned
26,475 shares of TCI. ART owns a 96% limited partnership interest in SAMLP which
ART consolidates for financial statement purposes.

The purchases of the equity securities of the Affiliated REITs and NRLP
were made for the purpose of investment and were based principally on the
opinion of ART's management that the equity securities of each were and are
currently undervalued. The determination by ART to purchase additional equity
securities of the Affiliated REITs and NRLP is made on an entity-by-entity basis
and depends on the market price of each entity's equity securities relative to
the value of its assets, the availability of sufficient funds and the judgment
of ART's management regarding the relative attractiveness of alternative
investment opportunities. Substantially all of the equity securities of the
Affiliated REITs and NRLP owned by ART are pledged as collateral for borrowings.
Pertinent information regarding ART's investment in the equity securities of the
Affiliated REITs and NRLP, at September 30, 1998, is summarized below (dollars
in thousands):

<TABLE>
<CAPTION>
Percentage Carrying Equivalent
of ART's Value of Investee Market Value
Ownership at Investment at Book Value at of Investment at
Investee September 30, 1998 September 30, 1998 September 30, 1998 September 30, 1998
-------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NRLP....... 54.4% $ 23,239 $ * $ 70,114
CMET....... 41.0 15,875 35,713 26,285
IORI....... 30.2 3,261 7,239 3,744
TCI........ 31.2 10,590 28,849 15,765
-------- ---------
52,965 $ 115,908
=========
General partner interest in
NRLP, NOLP and GCLP 7,676
Other 5,456
--------
$ 66,097
========
</TABLE>

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

* At September 30, 1998, NRLP reported a deficit partners' capital. ART's
share of NRLP's revaluation equity at December 31, 1997, was $198.9
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, 1997.

Each of the Affiliated REITs and NRLP own a considerable amount of real
estate, much of which, particularly in the case of NRLP, has been held for many
years. Because of depreciation, these entities may earn substantial amounts in
periods in which they sell real estate and will probably incur losses in periods
in which they do not. ART's reported income or loss attributable to these
entities will differ materially from its cash flow attributable to them. ART
does not have a controlling equity interest in any of the Affiliated REITs and
therefore it cannot, acting by itself, determine either the individual
investments or the overall investment policies of such investees. However, due
to ART's equity investments in, and the existence of common officers with, each
of the Affiliated REITs, and that the Affiliated REITs have the same advisor as
ART and that Mr. Randall M. Paulson, an Executive Vice President of ART, is also
the President of the Affiliated REITs and BCM, an affiliate of and advisor to
ART, and is the President of SAMI, a company owned by BCM, that is the managing
general partner of SAMLP, ART may be considered to have the ability to exercise
significant influence over the operating and investing policies of these
entities. ART accounts for its investment in these entities using the equity
method. Under the equity method, ART recognizes its proportionate share of the
income or loss from the operations of these entities currently, rather than when
realized through dividends or on sale. ART continues to account for its
investment in NRLP under the equity method due to the pending resignation of
SAMLP as general partner of NRLP and NOLP, as more fully discussed in "NRLP"
below. The carrying value of ART's investment in these entities, as set forth in
the table above, is the original cost of each such investment adjusted for ART's
proportionate share of each entity's income or loss and distributions received.

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

ART's management continues to believe that the market value of each of the
Affiliated REITs and NRLP undervalues their assets and ART may, therefore,
continue to increase its ownership in these entities in 1998.

The following is a summary description of each of NRLP and the Affiliated
REITs, based upon information publicly reported by such entities.

NRLP. NRLP is a publicly traded master limited partnership which was formed
under the Delaware Uniform Limited Partnership Act on January 29, 1987. It
commenced operations on September 18, 1987 when, through NOLP, it acquired all
of the assets, and assumed all of the liabilities, of 35 public and private
limited partnerships. NRLP is the sole limited partner of NOLP and owns 99% of
the beneficial interest in NOLP. NRLP and NOLP operate as an economic unit and,
unless the context otherwise requires, all references herein to the Partnership
shall constitute references to NRLP and NOLP as a unit. The general partner and
owner of 1% of the beneficial interest in each of NRLP and NOLP is SAMLP, a
Delaware limited partnership.

SAMI, a company owned by BCM, is the managing general partner of SAMLP. In
November 1992, NOLP transferred 52 apartment complexes and a wraparound mortgage
note receivable to GCLP, a Delaware limited partnership in which NOLP owns a
99.3% limited partner interest. Concurrent with such transfer, GCLP refinanced
all of the mortgage debt associated with the transferred properties and the
wraparound mortgage note under a new first mortgage in the then principal amount
of $223.0 million.

In July 1998, GCLP commenced a three-phase refinancing whereby GCLP is
refinancing the mortgage debt secured by 50 of the properties then held by it.
Phase I consisted of 18 of the properties, located in Arizona, Florida,
Illinois, Indiana, Kansas, Missouri, Oklahoma and Texas, which were refinanced
in the total amount of $150.0 million. Phase II consisted of a bridge financing
of 29 of the properties, located in Arizona, Arkansas, California, Colorado,
Florida, Georgia, Kansas, Louisiana, Michigan, Missouri, Nebraska, Ohio,
Oklahoma, Tennessee, Texas and Virginia, which were refinanced in the total
amount of $86.2 million. Three additional properties are unencumbered.

In September 1998, GCLP completed Phase III of the refinancing by
refinancing the properties secured by the Phase II bridge loan. The mortgage
debt secured by sixteen of the properties, in Arizona, California, Colorado,
Florida, Georgia, Kansas, Michigan, Missouri, Nebraska, Tennessee, Texas and
Virginia was refinanced in the total amount of $90.7 million. Twelve (12) Phase
II properties were unencumbered after the payoff of the bridge loan.

ART is a limited partner in SAMLP, holding a 96% limited partner interest
therein, which ART consolidates for financial statement purposes.

SAMI, as the managing general partner of SAMLP, has discretion in
determining methods of obtaining funds for the Partnership's operations, and the
acquisition and disposition of its assets. The Partnership's governing documents
place no limitation on the amount of leverage that the Partnership may incur
either in the aggregate or with respect to any particular property or other
investment. At December 31, 1997, the aggregate loan-to-value ratio of the
Partnership's real estate portfolio was 43.4% computed on the basis of the ratio
of total property-related debt to aggregate appraised values. As of December 31,
1997 NRLP owned 79 properties located in 22 states. These properties consisted
of 66 apartment complexes comprising 16,538 units, five office buildings with an
aggregate of 367,271 square feet and eight shopping centers with an aggregate of
1.1 million square feet.

For the year ended December 31, 1997, the Partnership reported net income
of $8.7 million compared to a net loss of $375,000 for the year ended December
31, 1996. The Partnership had income from operations, prior to gains on sale of
real estate, of $362,000 for the year ended December 31, 1997 compared to a loss
of $436,000 for the year ended December 31, 1996. The improvement in the
Partnership's 1997 income from operations is due to an average 3.0% increase in
average rental rates at the Partnership's apartment complexes and an average
1.0% increase in rental rates at the Partnership's commercial properties coupled
with an average 1.0% increase in occupancy at the Partnership's apartment
complexes and an average 3.0% increase in occupancy at the Partnership's
commercial properties.

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For the nine months ended September 30, 1998, the Partnership reported net
income of $26.3 million compared to $5.3 million for the nine months ended
September 30, 1997. The Partnership's net income for the nine months ended
September 30, 1998, includes gains on the sale of real estate of $34.2 million
compared to $5.7 million for the nine months ended September 30, 1997.

The Partnership has paid quarterly distributions to unitholders since the
fourth quarter of 1993. In 1997, ART received a total of $1.4 million in
distributions from the Partnership and accrued an additional $5.5 million that
was received in January 1998.

The Partnership, SAMLP and Gene E. Phillips, were among the defendants in a
class action lawsuit arising out of the formation of the Partnership. An
agreement settling such lawsuit as to the above named defendants, (the "Moorman
Settlement Agreement"), became effective on July 5, 1990. The Moorman Settlement
Agreement provided for, among other things, the appointment of an oversight
committee for the Partnership (the "NRLP Oversight Committee"); the
establishment of specified annually increasing targets for a five-year period
relating to the price of NRLP units of limited partner interest.

The Moorman 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 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 the Partnership 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. SAMI, the managing
general partner of SAMLP, has calculated the fair value of such Redeemable
General Partner Interest to be $49.6 million at September 30, 1998 before
reduction for the principal balance ($4.2 million at September 30, 1998) and
accrued interest ($8.1 million at September 30, 1998) on the note receivable
from SAMLP for its original capital contribution to the Partnership.

On December 15, 1997, NRLP, SAMLP, the NRLP Oversight Committee, Joseph B.
Moorman, Invenex and the Counsel for the plaintiff class members executed an
Agreement for Establishment of Class Distribution Fund and Election of Successor
General Partner (the "Resolution Agreement") which provided for the nomination
of an entity affiliated with SAMLP to be the successor general partner of the
Partnership, for the establishment of a fund for the benefit of the plaintiff
class members consisting of cash and properties owned by the Partnership and for
the resolution of all related matters under the Moorman Settlement Agreement.

The Resolution Agreement was submitted to the Judge appointed to supervise
the class action settlement (the "Supervising Judge") and on February 11, 1998,
the Supervising Judge entered an order granting preliminary approval of the
Resolution Agreement. On July 15, 1998, NRLP, SAMLP and the NRLP Oversight
Committee executed an Agreement for Cash Distribution and Election of Successor
General Partner (the "Cash Distribution Agreement") which provides for the
nomination of an entity affiliated with SAMLP to be the successor general
partner of NRLP, for the distribution of $11.4 million to the plaintiff class
members and for the resolution of all related matters under the Moorman
Settlement Agreement. The Cash Distribution Agreement was submitted to the
Supervising Judge on July 23, 1998 as an alternative to the Resolution
Agreement. On July 27, 1998, Invenex withdrew the proposal for approval of the
Resolution Agreement. On August 4, 1998, the Supervising Judge entered an order
granting preliminary approval of the Cash Distribution Agreement. On September
9, 1998, a notice was mailed to the plaintiff class members describing the Cash
Distribution Agreement. On October 23, 1998, the Supervising Judge entered an
order granting final approval of the Cash Distribution Agreement. The
Supervising Judge also entered orders requiring NRLP to pay $404,000 in
attorney's fees to Joseph B. Moorman's legal counsel, $30,000 to Joseph B.
Moorman and $404,000 in attorney's fee to Robert A. McNeil's legal counsel.

Pursuant to the order, NRLP deposited $11.4 million with the Clerk of Court
on November 12, 1998. The actual distribution of the cash to the plaintiff class
members will occur following the election and taking office of the successor
general partner. The distribution of the cash shall be made to the plaintiff
class members pro rata based upon the formation of NRLP in 1987. The
distribution of cash will be under the control of an independent settlement
administrator.

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The proposal to elect the successor general partner will be submitted to
the unitholders of NRLP for a vote. All units of NRLP owned by affiliates of
SAMLP (approximately 61.5% of the outstanding limited partner units of NRLP as
of October 30, 1998) will be voted pro rata with the vote of the other limited
partners.

Upon approval by the NRLP 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 fourth quarter of 1998. Upon the
election and taking office of the successor general partner and the distribution
of the cash to the plaintiff class members, the Moorman Settlement Agreement and
the NRLP Oversight Committee shall be terminated.

Under the Cash Distribution Agreement, SAMLP has agreed to waive its right
under the Moorman Settlement Agreement to receive any payment from NRLP for its
Redeemable General Partner Interest upon its resignation and the election of a
successor general partner. In addition, pursuant to the Cash Distribution
Agreement, the NRLP partnership agreement will be amended to provide that, upon
voluntary resignation of the general partner, the resigning general partner
shall not be entitled to the repurchase of its general partner interest under
Paragraph 17.9 of the NRLP partnership agreement.

Under the Cash Distribution Agreement, the successor general partner will
assume liability for the note receivable from SAMLP for its capital contribution
to NRLP. In addition, the successor general partner will assume liability for a
note which will require the repayment to NRLP of the $11.4 million paid by NRLP
under the Cash Distribution Agreement plus the $808,000 in court ordered
attorney's fees and the $30,000 paid to Joseph B. Moorman. This note will
require repayment over a ten-year period, bear interest and be guaranteed by
ART, which (as of September 30, 1998) is the owner of the 96% limited partner
interest in SAMLP and approximately 54.4% of the outstanding units of NRLP.

NRLP Management Corp., a wholly-owned subsidiary of ART, is to be nominated
as successor general partner. If elected, in addition to assuming the above
liabilities, it will incur a charge against its earnings for the monies paid by
NRLP under the Supervising Judge's orders. As the units of NRLP owned by
affiliates of SAMLP will be voted pro rata with the vote of the unaffiliated
limited partners there is no assurance that NRLP Management Corp. will be
elected the successor general partner. In the event that the Cash Distribution
Agreement does not become effective pursuant to the provisions thereof, then the
parties shall be restated to their respective positions as of December 14, 1997,
all of the provisions of the Cash Distribution Agreement shall be void, and the
Moorman Settlement Agreement shall remain in full force and effect.

In August 1996, ART consolidated its existing NRLP margin debt held by
various brokerage firms into a single margin loan. ART has pledged 3,349,169 of
its NRLP units as security for such margin loan which had a principal balance of
$10.6 million at September 30, 1998. The margin loan is currently due and
payable. Subsequent to September 30, 1998, ART has paid down such loan by $5.0
million. The lender has not made a demand for payment of the remaining $5.6
million, nor has it declared an event of default.

CMET. CMET is a California business trust which was organized on August 27,
1980 and commenced operations on December 3, 1980. CMET's primary business is
investing in real estate through direct equity investments and partnerships and
financing real estate and real estate-related activities through investments in
mortgage notes. CMET holds equity investments in apartment complexes and
commercial properties (office buildings, industrial warehouses and shopping
centers) throughout the continental United States. CMET's apartment complexes
and commercial properties are concentrated in the Southeast, Southwest and
Midwest regions of the continental United States. At December 31, 1997, CMET
owned 57 income producing properties located in 14 states consisting of 34
apartment complexes comprising of 6,173 units, ten office buildings with an
aggregate of 1.2 million square feet, 11 industrial warehouses with an aggregate
of 1.6 million square feet and two shopping centers with an aggregate of 247,196
square feet. CMET also holds mortgage notes receivable secured by real estate
located in the Southeast, Southwest and Midwest regions of the continental
United States, with a concentration in the Southeast and Southwest regions.

For the year ended December 31, 1997, CMET reported net income of $4.2
million compared to $8.7 million for the year ended December 31, 1996. CMET's
1997 net income includes gains on the sale of real estate of $8.2 million,
whereas its 1996 net income included gains on the sale of real estate and
marketable equity securities of $10.1 million and an extraordinary gain of
$812,000. At December 31, 1997, CMET had total assets of $299.4 million, which

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consisted of $250.1 million of real estate held for investment, $11.6 million of
real estate held for sale, $3.6 million of notes and interest receivable, $31.0
million of investments in partnerships and other assets and $3.1 million in cash
and cash equivalents.

For the nine months ended September 30, 1998, CMET reported net income of
$667,000 compared to $3.5 million for the nine months ended September 30, 1997.
CMET's net income for the nine months ended September 30 1998, includes gains on
the sale of real estate of $5.9 million compared to $6.6 million of the nine
months ended September 30, 1997.

CMET has paid quarterly distributions since the first quarter of 1993. ART
received a total of $885,000 in distributions from CMET in 1997.

IORI. IORI is a Nevada corporation which was originally organized on
December 14, 1984 as a California business trust and commenced operations on
April 10, 1985. Like CMET, IORI's primary business is investing in real estate
through direct equity investments and partnerships and financing real estate and
real estate-related activities through investments in mortgage notes. IORI holds
equity investments in apartment complexes and commercial properties (office
buildings) in the Pacific, Southeast, Southwest, and Midwest regions of the
continental United States. IORI holds one mortgage note receivable which is
secured by a shopping center in the Midwest region. At December 31, 1997, IORI
owned 14 income producing properties located in five states. These properties
consisted of four apartment complexes comprising 654 units and ten office
buildings with an aggregate of 611,009 square feet.

For the year ended December 31, 1997, IORI reported net income of $3.3
million as compared with a net loss of $568,000 for the year ended December 31,
1996. IORI's net income in 1997, is attributable to $4.0 million of gains on
sale of real estate. At December 31, 1997, IORI had total assets of $90.3
million, which consisted of $81.9 million in real estate held for investment,
$2.0 million in notes and interest receivable, $5.3 million in investments in
partnerships and other assets and $1.1 million in cash and cash equivalents.

For the nine months ended September 30, 1998, IORI reported a net loss of
$513,000 compared to net income of $2.9 million for the nine months ended
September 30, 1997. IORI's net income for the nine months ended September 30,
1997 included gains on the sale of real estate of $3.3 million.

IORI has paid quarterly dividends since the first quarter of 1993. ART
received a total of $184,000 in dividends from IORI in 1997.

TCI. TCI is a Nevada corporation which was originally organized on
September 6, 1983, as a California business trust, and commenced operations on
January 31, 1984. TCI also has investment policies similar to those of CMET and
IORI. TCI holds equity investments in a hotel, apartment complexes and
commercial properties (office buildings, industrial warehouses and shopping
centers) throughout the continental United States with a concentration in the
Northeast, Southeast and Southwest regions. At December 31, 1997, TCI owned 56
income producing properties located in 14 states. These properties consisted of
28 apartment complexes comprising 5,174 units, 14 office buildings with an
aggregate of 1.3 million square feet, 7 industrial warehouses with an aggregate
of 1.7 million square feet, 6 shopping centers with an aggregate of 857,750
square feet and one hotel with 60 rooms. TCI also holds mortgage notes
receivable secured by real estate located in the Northeast, Midwest, Southeast
and Southwest regions of the continental United States, with a concentration in
the Northeast and Southeast regions.

For the year ended December 31, 1997, TCI reported net income of $12.6
million as compared with a net loss of $7.8 million for the year ended December
31, 1996. TCI's net income for 1997 includes gains on the sale of real estate of
$21.4 million whereas its net loss for 1996 included gains on the sale of real
estate of $1.6 million and extraordinary gains of $256,000. At December 31,
1997, TCI had total assets of $319.5 million, which consisted of $270.2 million
in real estate held for investment, $5.0 million in real estate held for sale,
$15.6 million in investments in real estate entities, $4.0 million in notes and
interest receivable and other assets and $24.7 million in cash and cash
equivalents. At December 31, 1997, TCI owned 341,500 shares of IORI's common
stock, approximately 22.5% of IORI's shares then outstanding.

For the nine months ended September 30, 1998, TCI reported net income of
$8.0 million compared to a net loss of $3.3 million for the nine months ended
September 30, 1997. TCI's net income for the nine months ended September 30,
1998 includes gains on the sale of real estate of $12.0 million compared to $1.5
million for the nine months ended September 30, 1997.

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TCI has paid quarterly dividends since the fourth quarter of 1995. ART
received $333,000 in dividends from TCI in 1997 and accrued an additional $1.2
million in dividends that was received in January 1998.

SAMLP. As discussed in more detail under "Real Estate" above, ART owns a
96% limited partner interest in SAMLP. ART consolidates SAMLP for financial
statement purposes. As a limited partner, ART has no role in the management of
the business affairs of SAMLP. Rather, SAMI, the managing general partner of
SAMLP, has full and complete authority to manage SAMLP.

River Trails II. In January 1992, ART entered into a partnership agreement
with an entity affiliated with the Nanook Limited Partner, to acquire 287
developed residential lots adjacent to ART's other residential lots in Fort
Worth, Texas. The partnership agreement designates ART 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,
1997, 214 residential lots had been sold. In the first six months of 1998, an
additional 12 lots were sold. At [JUNE 30], 1998, 61 lots remained to be sold.
In 1998, the partnership recorded a gain of $101,000 on such lot sales. During
1997, each partner received $21,000 in return of capital distributions from the
partnership and $12,000 in profit distributions. No such distributions have been
received in 1998.

R. G. Bond, Ltd. In June 1995, ART purchased the corporate general partner
of a limited partnership which owned apartment complexes in Illinois, Florida
and Minnesota, with a total of 900 units. In August 1998, in conjunction with
the sale of the apartment complexes, ART sold its general partner interest for
$903,000 in cash. ART recognized a gain of $270,000 on the sale.

Campbell Center Associates, Ltd. In April 1996, ART purchased a 28% general
partner interest in Campbell Center Associates, Ltd. ("Campbell Associates")
which in turn has a 56.25% interest in Campbell Centre Joint Venture, which
owned at the time a 413,175 square foot office building in Dallas, Texas. The
purchase price of the general partner interest was $550,000 in cash and a
$500,000 note, which bears interest at 8% per annum, requires monthly interest
only payments and matures April 2000. In January 1997, ART exercised its option
to purchase an additional 28% general partner interest in Campbell Associates.
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 and matures in
April 2000. In July 1997, ART purchased an additional 9% general partner
interest in Campbell Associates for $868,000 in cash. In March 1998,
Consolidated Equity Properties, Inc. acquired a 30% limited partner interest in
Campbell Associates for $500,000 in cash. In June 1998, ART purchased the
remaining 5% general partner interest in Campbell Associates for $1.1 million in
cash. Also in June 1998, Campbell Centre Joint Venture sold the office building
for $32.1 million in cash. Campbell Associates, as a partner, received net cash
of $13.2 million from the sales proceeds and escrowed an additional $190,000 for
pending parking lot issues. Campbell Associates recognized a gain of $8.2
million on the sale.

Highway 380/Preston Partners, Ltd. In June 1996, a newly formed limited
partnership, of which ART is 1% general partner, purchased 580 acres of
undeveloped land in Collin County, Texas for $5.7 million in cash. ART
contributed $100,000 in cash to the partnership with the remaining $5.6 million
being contributed by the limited partner. The partnership agreement designates
ART as the managing general partner. In September 1996, the partnership obtained
financing of $2.8 million secured by the 580 acres of land and personal
guarantees of the limited partner. The loan bore interest at a variable rate,
required monthly payments of interest only and matured in September 1998. The
partnership agreement also provides that the limited partner receive a 12%
preferred cumulative return on his investment before any sharing of partnership
profits occurs. In April 1997, the partnership sold a 35.0 acre tract for $1.3
million in cash. The net sales proceeds of $1.2 million were distributed to the
limited partner in accordance with the partnership agreement. The partnership
recognized a gain of $884,000 on the sale. In July 1997, the partnership sold a
24.6 acre tract for $800,000 in cash. In accordance with the terms of the term
loan secured by such property, $197,000 of the net sales proceeds were used to
paydown such term loan. The remaining $545,000 was distributed to the limited
partner in accordance with the partnership agreement. The partnership recognized
a gain of $497,000 on the sale. In September 1997, the partnership sold a 77.2
acre tract for $1.5 million in cash. In accordance with the terms of the term
loan secured by such property, the net sales proceeds were used to paydown such
loan. The partnership recognized a gain of $704,000 on the sale. In October
1997, the partnership sold a 96.5 acre tract for $1.7 million in cash. In
accordance with the terms of the term loan secured by such property $548,000 of
the net sales proceeds were used to payoff such loan. The remaining $1.1 million
was distributed to the limited partner in accordance with the partnership
agreement.

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<PAGE> 94

The partnership recognized a gain of $691,000 on the sale. In December 1997, the
partnership sold a 94.4 acre tract for $2.5 million in cash. Of the net sales
proceeds, $1.8 million was distributed to the limited partner and $572,000 was
distributed to ART as general partner in accordance with the partnership
agreement. The partnership recognized a gain of $1.4 million on the sale. In
January 1998, the partnership sold a 155.4 acre tract for $2.9 million. The
partnership received $721,000 in cash and provided financing of an additional
$2.2 million. Of the net sales proceeds, $300,000 was distributed to the limited
partner and $300,000 was distributed to ART as general partner in accordance
with the partnership agreement. The seller financing bore interest at 12% per
annum, required monthly payments of interest only and matured in July 1998. The
seller financing was paid off at maturity, with the net proceeds being
distributed $1.1 million to the limited partner and $1.1 million to the ART as
general partner. The partnership recognized a gain of $1.2 million on the sale.

Elm Fork Branch Partners, Ltd. In September 1997, a newly formed limited
partnership of which ART is a 1% general partner and 21.5% limited partner,
purchased a 422.4 acre parcel of undeveloped land in Denton County, Texas, for
$16.0 million in cash. ART contributed $3.6 million in cash to the partnership
with the remaining $12.4 million being contributed by the other limited
partners. The partnership agreement designates ART as the managing general
partner. In September 1997, the partnership obtained mortgage financing of $6.5
million secured by the 422.4 acres of land. The mortgage bears interest at 10%
per annum, requires monthly payments of interest only and matures in September
2001. The net financing proceeds were distributed to the partners, ART receiving
repayment of $2.9 million of its initial investment. The partnership agreement
also provides that the limited partners receive a 12% preferred cumulative
return on their investment before any sharing of partnership profits occurs. The
Nanook Limited Partner is also a limited partner in the partnership.

[Remainder of Page Intentionally Left Blank]

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<PAGE> 95

SELECTED FINANCIAL DATA OF ART
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------ -----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenue......................... $ 49,971 $ 26,979 $ 22,952 $ 23,070 $ 13,427
Expense......................... 83,355 38,577 28,314 26,490 18,128
------------- ------------- ------------- ------------ -----------
(Loss) from operations.......... (33,384) (11,598) (5,362) (3,420) (4,701)
Equity in income (losses)
of investees.............. 10,660 2,004 (851) 292 (4,014)
Gain on sale of real estate..... 20,296 3,659 2,594 379 481
------------- ------------- ------------- ------------ -----------
(Loss) before extraordinary
gain...................... (2,428) (5,935) (3,619) (2,749) (8,234)
Extraordinary gain.............. -- 381 783 323 3,807
------------- ------------- ------------- ------------ -----------
Net (loss)...................... (2,428) (5,554) (2,836) (2,426) (4,427)
Preferred Dividend
Requirement............... (206) (113) -- -- --
Redeemable Common Stock,
accretion of discount..... -- -- -- -- (129)
------------- ------------- ------------- ------------ -----------
(Loss) applicable to
Common Shares............. $ (2,634) $ (5,667) $ (2,836) $ (2,426) $ (4,556)
============= ============= ============= ============ ===========
PER SHARE DATA
(Loss) before extraordinary
gain................... $ (.22) $ (.46) $ (.31) $ (.23) $ (.68)
Extraordinary Gain.............. -- .03 .07 .03 .31
------------- ------------- ------------- ------------ -----------
Net (loss) (.22) (.43) (.24) (.20) (.37)
Redeemable Common Stock,
accretion of discount..... -- -- -- -- (.01)
------------- ------------- ------------- ------------ -----------
(Loss) applicable to
Common shares............. $ (.22) $ (.43) $ (.24) $ (.20) $ (.38)
============= ============== ============== ============= ===========
Dividends per share............. $ .20 $ .15 $ -- $ -- $ --
Weighted average shares
outstanding............... 11,710,013 12,765,082 11,716,656 12,208,876 12,101,100
============= ============= ============= ============ ===========
</TABLE>

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<PAGE> 96

<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable, net............... $ 25,526 $ 48,485 $ 49,741 $ 45,664 $ 51,769
Real estate, net................ 302,453 119,035 59,424 47,526 52,437
Total assets.................... 433,799 235,037 162,033 137,362 139,861
Notes and interest
payable....................... 261,896 127,863 61,163 45,695 53,693
Margin borrowings............... 53,376 40,044 34,017 26,391 16,147
Stockholders'
equity........................ 63,453 47,786 53,058 55,894 56,120
Book value per
share......................... $ 3.86 $ 3.41 $ 4.53 $ 4.77 $ 5.56
</TABLE>

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

Shares and per share data have been adjusted for the 2 for 1 forward Common
Stock splits effected January 2, 1996 and February 17, 1997.

<TABLE>
<CAPTION>
For the Nine For the Nine
------------ ------------
Months Ended Months Ended
------------ ------------
September 30, 1998 September 30, 1997
------------------ ------------------
EARNINGS DATA (dollars in thousands, except per share)
<S> <C> <C>
Revenues......................... $ 66,157 $ 32,205
Expenses......................... 106,177 52,051
------------- -----------
(Loss) from operations........... (40,020) (19,846)
Equity in income
of investees................ 27,429 5,106
Gains on sale of real estate..... 14,692 11,354
------------- -----------
Net income (loss)................ 2,101 (3,386)
Preferred dividend
requirement................. (595) (151)
------------- ------------
Net income (loss) applicable
to Common shares................. $ 1,506 $ (3,537)
============= ============
PER SHARE DATA

Net income (loss)................ $ .14 $ (.29)
============= ============

Dividends per share.............. $ .15 $ .15

Weighted average Common
shares used in computing
earnings per share............... 10,741,137 12,041,252
============= ============
</TABLE>

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<PAGE> 97

<TABLE>
<CAPTION>
September 30, 1998
---------------------------------------
BALANCE SHEET DATA (dollars in thousands, except per share)
<S> <C>
Notes and interest receivable, net.... $ 298
Real Estate, net...................... 471,977
Total Assets.......................... 596,412
Notes and interest payable............ 384,096
Margin Borrowings..................... 42,212
Stockholder's equity.................. 64,553
Book Value per share.................. $ 2.88
</TABLE>

ART MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ART

INTRODUCTION

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

LIQUIDITY AND CAPITAL RESOURCES

General. Cash and cash equivalents at September 30, 1998 aggregated $2.0
million, compared with $5.3 million at December 31, 1997. Although ART
anticipates that during the remainder of 1998 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 ART's debt obligations as they mature. ART
will therefore continue to rely on externally generated funds, including
borrowings against its investments in various real estate entities, the sale or
refinancing of properties and, to the extent available or necessary, borrowings
from BCM an affiliate of and advisor to ART, which totaled $38.2 million at
September 30, 1998, to meet its debt service obligations, pay taxes, interest
and other non-property related expenses. In the fourth quarter of 1998, ART's
advisor has advanced an additional $15.0 million.

At December 31, 1997, notes payable totaling $89.0 million had either
scheduled maturities or required principal reduction payments during 1998. ART
had the option of extending the maturity dates of $18.3 million of that amount,
but in April 1998, ART paid off $5.0 million of this amount, refinanced the
remaining $13.3 million with the same lender, increased the loan's principal
balance by $1.7 million and established a new maturity date of April 2000. On an
additional $19.5 million the lender has extended the loan's maturity date to
February 2000. In March 1998, ART made a $10.2 million paydown on this loan.
Through September 30, 1998 ART has paid down or paid off a total of $29.5
million of the remainder of such maturing debt. The lender on a loan with a
principal balance of $20.7 million at September 30, 1998, has declared events of
non-monetary default to have accrued and demanded repayment of the amounts owned
to it. Also, a margin loan with a current principal balance of $5.6 million is
due, although the lender has not demanded payment. ART intends to extend the
maturity dates or obtain alternate financing for these and the remaining $11.5
million of debt that matures during the fourth quarter of 1998. There can be no
assurance, however, that these efforts to obtain alternative financing or
complete land sales will be successful.

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<PAGE> 98

ART expects an increase in cash flow from property operations during the
remainder of 1998. Such increase is expected to be derived from operations of
the Inn at the Mart, Piccadilly Hotels, Williamsburg Hospitality House and the
34 apartment complexes acquired by ART in May 1998.

In December 1997, ART sold its Pin Oak land, a 567.6 acre parcel of
undeveloped land in Houston, Texas, for $11.4 million. ART received net cash of
$3.5 million, and provided an additional $6.9 million in short term seller
financing, that was paid in full in January 1998. On the payoff of the seller
financing ART received net cash of $1.5 million after paying off $5.2 million in
underlying mortgage debt and the payment of various closing costs.

In January 1998, ART purchased the El Dorado Parkway land, a 8.5 acre
parcel of undeveloped land in McKinney, Texas, for $952,000. ART paid $307,000
in cash, assumed the existing mortgage of $164,000 and obtained seller financing
of the remaining $481,000 of the purchase price.

Further in January 1998, ART purchased the JHL Connell land, a 7.7 acre
parcel of undeveloped land in Carrollton, Texas, for $1.3 million in cash.

Also in February 1998, ART purchased the Bonneau land, a 8.4 acre parcel of
undeveloped land in Dallas County, Texas, for $1.0 million. ART obtained new
mortgage financing of $1.0 million.

In November 1994, ART and an affiliate of BCM, sold five apartment
complexes to a newly formed limited partnership in exchange for $3.2 million in
cash, a 27% limited partner interest in the partnership and two mortgage notes
receivable, secured by one of the properties sold. ART had the option to
reacquire the properties at any time after September 1997 for their original
sales prices. In February 1998, ART reacquired three of the properties, one of
which was secured by the mortgage notes, for $7.7 million. ART paid $4.0 million
in cash and assumed the existing mortgages of $3.7 million. Simultaneously ART
refinanced the three properties for a total of $7.8 million, ART receiving net
financing proceeds of $3.9 million after paying off the $3.7 million in existing
mortgage debt and the payment of various costs associated with the financing. In
June 1998, ART reacquired the remaining two properties for $8.7 million. ART
paid $2.1 million in cash and assumed the existing mortgages of $6.6 million.

Also in April 1998, ART sold a 77.7 acre tract of the Lewisville land
parcel for $6.8 million in cash. ART received net cash of $358,000 after paying
off first and second lien mortgages totaling $5.9 million.

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of $175,000 to ART. ART received the first such payment on March 2, 1998. In
April 1998, the bankruptcy court allowed ART to foreclose on the hotel and
casino. ART did not incur a loss on foreclosure as the fair value of the
property exceeded the carrying value of ART's note receivable. Not having a
Nevada gaming license, ART has hired a licensed operator to run the hotel and
casino. The property has yet to break even.

In May 1998, ART purchased, in a single transaction, 29 apartment complexes
totaling 2,441 units in Florida and Georgia for $55.8 million. ART acquired the
properties through three newly-formed Texas limited partnerships. The
partnerships paid a total of $6.1 million in cash, assumed $43.4 million in
existing mortgage debt and issued a total of $6.6 million in Class A Limited
Partner units in the acquiring entities, having ART as the Class B Limited
Partner and a newly-formed wholly-owned subsidiary of ART, as the Managing
General Partner. The Class A Limited Partners are entitled to a preferred return
of $.08 per unit in 1998, $.09 per unit in 1999 and $.10 per unit in 2000 and
thereafter.

Also in May 1998, ART sold a 15.4 acre tract of the Valley Ranch land
parcel, for $1.2 million in cash. ART received net cash of $41,000 after paying
down $1.1 million on the mortgage secured by such land parcel and the payment of
various closing costs.

Further, in May 1998, ART purchased the FRWM Cummings land, a 6.4 acre
parcel of undeveloped land in Farmers Branch, Texas, for $1.2 million in cash.

In May 1998, ART sold a 21.3 acre tract of the Parkfield land parcel, for
$1.3 million in cash. ART received net cash of $40,000 after paying down $1.1
million on the mortgage secured by such land parcel and the payment of various
costs.

In June 1998, ART sold a 21.6 acre tract of the Chase Oaks land parcel, for
$3.3 million in cash. ART received net cash of $517,000 after paying down $2.0
million on the mortgage secured by such land parcel and the payment of various
closing costs.

Also in June 1998, ART sold a 150.0 acre tract of the Rasor land parcel,
for $6.8 million in cash. ART received net cash of $1.6 million after paying
down $5.0 million on the mortgage secured by such land parcel and the payment of
various closing costs.

Further in June 1998, ART sold the entire 315.2 acre Palm Desert land
parcel, for $17.2 million in cash. ART received net cash of $9.2 million after
paying off $7.2 million in mortgage debt and the payment of various closing
costs.

In July 1998, ART purchased the Thompson II land, a 3.5 acre parcel of
undeveloped land in Dallas County, Texas, for $471,000 in cash.

Also in July 1998, ART through a newly formed partnership, of which a
wholly-owned subsidiary of ART is the general partner and Class B limited
partner, purchased the Katrina land, a 454.8 acre parcel of undeveloped land in
Palm Desert, California, for $38.2 million. The partnership issued $23.2 million
Class A limited partnership units and obtained new mortgage financing of $15.0
million. The Class A limited partners are entitled to an annual preferred return
of $.07 per unit in 1998, $.08 per unit in 1999, $.09 per unit in 2000 and $.10
per unit in 2001 and thereafter.

Further, in July 1998, ART purchased the Walker land, a 71.1 acre parcel of
undeveloped land in Dallas County, Texas, for $10.9 million in cash. Also in
July, ART obtained mortgage financing of $13.3 million. ART received net cash of
$12.8 million after the payment of various closing costs associated with the
financing. The mortgage is also secured by the FRWM Cummings land.

In July 1998, ART sold a 2.5 acre tract of its Las Colinas I land, for $1.6
million in cash. ART received net cash of $721,000 after paying down by $750,000
the Las Colinas I term loan secured by such land parcel and the payment of
various closing costs.

In September 1998, a newly formed limited partnership in which ART has a
combined 95% general and limited partnership interest, purchased the Messick
land, a 72.0 acre parcel of undeveloped land in Palm Springs, California, for
$3.5 million. ART paid $1.0 million in cash and obtained seller financing of the
remaining $2.5 million of the purchase price.

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Also in September 1998, ART sold a 60.0 acre tract of its Parkfield land
parcel, for $1.5 million in cash. ART received net cash of $21,000 after paying
off the $1.4 million mortgage secured by such land parcel and the payment of
various closing costs.

Further in September 1998, ART purchased the HSM land, a 6.2 acre parcel of
undeveloped land in Farmers Branch, Texas, for $2.2 million in cash.

Further in September 1998, ART sold its entire 30.0 acre Kamperman land
parcel for $2.4 million in cash. ART received net cash of $584,000 after paying
down by $1.6 million the Las Colinas I term loan secured by such land parcel and
the payment of various closing costs.

In September 1998, ART sold a 1.1 acre tract of its Santa Clarita land for
$543,000 in cash. ART received net cash of $146,000 after paying down by
$350,000 the Las Colinas I term loan secured by such parcel and the payment of
various closing costs.

Also in September 1998, ART purchased the Marine Creek land, a 54.2 acre
parcel of undeveloped land in Fort Worth, Texas, for $2.2 million in cash.

Further in September 1998, ART obtained second lien financing of $5.0
million secured by its Katy land from the limited partner in a partnership that
owns approximately 15.6% of the outstanding shares of ART's Common Stock. The
second lien financing bears interest at 12.5% per annum, compounded monthly,
with principal and interest due at maturity in January 1999.

Loans Payable. In February 1998, ART financed its unencumbered Kamperman
land in the amount of $1.6 million. ART received net cash of $1.5 million after
the payment of various closing costs.

Also in February 1998, ART refinanced its Vineyards land in the amount of
$3.4 million. ART received net cash of $2.9 million, after the payoff of
$540,000 in mortgage debt.

Further in February 1998, ART financed its unencumbered Valley Ranch land
in the amount of $4.3 million. ART received net cash of $4.1 million after the
payment of various closing costs.

In March 1998, ART financed its unencumbered Stagliano and Dalho land in
the amount of $800,000 with the lender on the Bonneau land. ART received net
cash of $790,000 after the payment of various closing costs.

Also in March 1998, ART refinanced the mortgage debt secured by the
McKinney Corners and Dowdy land in the amount of $20.7 million. ART received net
cash of $5.9 million after paying off $2.5 million in mortgage debt, paying down
$10.2 million on the Las Colinas I term loan and the payment of various closing
costs associated with the financing. ART also pledged 800,000 shares of Series F
Cumulative Convertible Preferred Stock as additional security for the loan. BCM
has also guaranteed repayment of the loan.

In April 1998, ART obtained second lien financing of $2.0 million secured
by its BP Las Colinas land from the limited partner in a partnership that owns
approximately 15.6% of the outstanding shares of ART's Common Stock. The loan
was paid at maturity in October 1998.

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Also in April 1998, ART refinanced the mortgage debt secured by the
Parkfield land in the amount of $7.3 million. ART received net cash of $1.2
million after paying off $5.0 million in mortgage debt and the payment of
various closing costs.

Also in May 1998, ART refinanced the mortgage debt secured by its Scout and
Scoggins land in the amount of $10.4 million under the Las Colinas I term loan.
ART received net cash of $6.6 million after paying off $1.4 million in mortgage
debt on the Scout land and $1.5 million in mortgage debt on the Scoggins land, a
pay down of $250,000 on the Keller land mortgage, and the payment of various
closing costs associated with the financing. ART also pledged 250,000 shares of
its Common Stock, and ART's advisor, BCM, pledged 177,000 shares of ART's Common
Stock as additional security for the loan.

In August 1998, ART financed its unencumbered Keller land for $5.0 million
with the Las Colinas I lender. ART received net cash proceeds of $4.9 million
after the payment of various closing costs.

In August 1996, ART consolidated its existing NRLP margin debt held by
various brokerage firms into a single margin loan. ART has pledged 3,349,169 of
its NRLP units as security for such margin loan which had a principal balance of
$10.6 million at September 30, 1998. The margin loan is due and payable.
Subsequent to September 30, 1998, ART has paid down such loan by $5.0 million.
The lender has not made a demand for payment of the remaining $5.6 million, nor
has it declared an event of default.

Equity Investments. During the fourth quarter of 1988, ART began purchasing
shares of various real estate investment trusts having the same advisor as ART,
and units of limited partner interest in NRLP. It is anticipated that additional
equity securities of NRLP and the Affiliated REITs will be acquired in the
future through open-market and negotiated transactions to the extent ART's
liquidity permits.

Equity securities of the Affiliated REITs and NRLP held by ART may be
deemed to be "restricted securities" under Rule 144 of the Securities Act.
Accordingly, ART 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 one year after they are acquired. Such restrictions may reduce
ART's ability to realize the full fair market value of such investments if ART
attempted to dispose of such securities in a short period of time.

ART's cash flow from these investments is dependent on the ability of each
of the entities to make distributions. CMET and IORI have paid regular quarterly
distributions since the first quarter of 1993, NRLP since the fourth quarter of
1993 and TCI since the fourth quarter of 1995. ART received distributions
totaling $9.2 million in the first nine months of 1998 from the REITs and NRLP,
including $6.7 million in distributions that were accrued at December 31, 1997.

ART has margin arrangements with various brokerage firms which provide for
borrowing up to 50% of the market value of ART's marketable equity securities.
The borrowings under such margin arrangements are secured by equity securities
of the Affiliated REITs, NRLP and ART's trading portfolio and bear interest
rates ranging from 7.0% to 11.0%. Margin borrowing totaled $42.2 million at
September 30, 1998.

ART's management reviews the carrying values of ART's properties and
mortgage notes 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 mortgage note receivable review
includes an evaluation of the collateral property securing such note. The
property review generally includes selective property inspections and
discussions with the manager of the property and visits to selected properties
in the surrounding area and a review of the following: (1) the property's
current rents compared to market rents; (2) the property's expenses; (3) the
property's maintenance requirements; and, (4) the property's cash flow.

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COMMITMENTS AND CONTINGENCIES

ART owns a 96% limited partner interest in SAMLP. SAMLP is the general
partner of NRLP and NOLP, the operating partnership of NRLP. Gene E. Phillips, a
Director and Chairman of the Board of ART until November 16, 1992, is also a
general partner of SAMLP. At September 30, 1998, ART owned approximately 54% of
the outstanding limited partner units of NRLP.

NRLP, SAMLP and Mr. Phillips were among the defendants in a class action
lawsuit arising from the formation of NRLP. The Moorman Settlement Agreement, an
agreement settling such lawsuit for the above mentioned defendants, became
effective on July 5, 1990. The Moorman Settlement Agreement provided for, among
other things, the appointment of an NRLP Oversight Committee and the
establishment of specified annually increasing targets for five years relating
to the price of NRLP's units of limited partner interest.

The Moorman 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. SAMI, the managing general partner of SAMLP, has
calculated the fair value of such Redeemable General Partner Interest to be
$49.6 million at September 30, 1998, before reduction for the principal balance
($4.2 million at September 30, 1998) and accrued interest ($8.2 million at
September 30, 1998) on the note receivable from SAMLP for its original capital
contribution to the partnership.

On December 15, 1997, NRLP, SAMLP, the NRLP Oversight Committee, Joseph B.
Moorman, Invenex and the Counsel for the plaintiff class members executed the
Resolution Agreement which provided for the nomination of an entity affiliated
with SAMLP to be the successor general partner of NRLP and NOLP, for the
establishment of a fund for the benefit of the plaintiff class members
consisting of cash and properties owned by NOLP and for the resolution of all
related matters under the Moorman Settlement Agreement.

The Resolution Agreement was submitted to the Supervising Judge and on
February 11, 1998, the Supervising Judge entered an order granting preliminary
approval of the Resolution Agreement. On July 15, 1998, NRLP, SAMLP and the NRLP
Oversight Committee executed the Cash Distribution Agreement which provides for
the nomination of an entity affiliated with SAMLP to be the successor general
partner of NRLP, for the distribution of $11.4 million to the plaintiff class
members and for the resolution of all related matters under the Moorman
Settlement Agreement. The Cash Distribution Agreement was submitted to the
Supervising Judge on July 23, 1998 as an alternative to the Resolution
Agreement. On July 27, 1998, Invenex withdrew the proposal for approval of the
Resolution Agreement. On August 4, 1998, the Supervising Judge entered an order
granting preliminary approval of the Cash Distribution Agreement and directed
that a notice be prepared to be mailed to the plaintiff class members describing
the Cash Distribution Agreement. The Supervising Judge also entered orders
requiring NRLP to pay $404,000 in attorney's fees to Joseph B. Moorman's legal
counsel, $30,000 to Joseph B. Moorman, and $404,000 in attorney's fees to Robert
A. McNeil's legal counsel.

Pursuant to the order, $11.4 million has been deposited by NRLP into an
escrow account with the Clerk of Court. The actual distribution of the cash to
the plaintiff class members will occur following the election and taking office
of the successor general partner. The distribution of the cash shall be made to
the NRLP plaintiff class members pro rata based upon the formation of NRLP in
1987. The distribution of cash will be under the control of an independent
settlement administrator.

The proposal to elect the successor general partner will be submitted to
the unitholders of NRLP for a vote. All units of NRLP owned by affiliates of
SAMLP (approximately 61.5% of the outstanding units of NRLP as of October 30,
1998) will be voted pro rata with the vote of the other limited partners.

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Upon approval by the NRLP 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 last quarter of 1998. Upon the
election and taking office of the successor general partner and the distribution
of the cash to the plaintiff class members, the Settlement Agreement and the
NRLP Oversight Committee shall be terminated.

Under the Cash Distribution Agreement, SAMLP has agreed to waive its right
under the Settlement Agreement to receive any payment from NRLP for its
Redeemable General Partner Interest upon its resignation and the election of a
successor general partner. In addition, pursuant to the Cash Distribution
Agreement, the NRLP partnership agreement will be amended to provide that, upon
voluntary resignation of the general partner, the resigning general partner
shall not be entitled to the repurchase of its general partner interest under
Paragraph 17.9 of the NRLP partnership agreement.

Under the Cash Distribution Agreement, the successor general partner will
assume liability for the note receivable from SAMLP for its capital contribution
to NRLP. In addition, the successor general partner will assume liability for a
note receivable which will require the repayment to NRLP of the $11.4 million
paid by NRLP under the Cash Distribution Agreement, plus the $808,000 in court
ordered attorney's fees and the $30,000 paid to Joseph B. Moorman. This note
will require repayment over a ten-year period, bear interest and be guaranteed
by ART, which (as of September 30, 1998) is the owner of a 96% limited partner
interest in SAMLP and approximately 54.4% of the outstanding units of NRLP.

NRLP Management Corp., a wholly-owned subsidiary of ART, is to be nominated
as successor general partner. If elected, in addition to assuming the above
liabilities it will incur a charge against its earnings for the monies paid by
NRLP under the Supervising Judge's orders. As the units of NRLP owned by
affiliates of SAMLP will be voted pro rata with the vote of the unaffiliated
limited partners there is no assurance that NRLP Management Corp. will be
elected the successor general partner. In the event that the Cash Distribution
Agreement does not become effective, then the parties shall be restored to their
positions of December 14, 1997, and the Settlement Agreement shall remain in
full force and effect.

RESULTS OF OPERATIONS

The Three and Nine Months Ended September 30, 1998. For the three months
ended September 30, 1998, ART reported a net loss of $3.6 million, compared to a
net loss of $6.2 million for the three months ended September 30, 1997. For the
nine months ended September 30, 1998, ART reported net income of $2.1 million
compared with a net loss of $3.4 million for the nine months ended September 30,
1997. The primary factors contributing to ART's operating results are discussed
in the following paragraphs.

Sales and cost of sales were $7.3 million and $6.3 million for the three
months ended September 30, 1998, compared to $8.6 million and $7.0 million for
the three months ended September 30, 1997. Sales and cost of sales for the nine
months ended September 30, 1998 were $21.3 million and $18.3 million compared to
$10.8 million and $8.7 million for the same period in 1997. These items of
revenue and cost relate to PWSI, which became a wholly-owned consolidated
subsidiary in May 1997. PWSI adopted a standard 13 week quarter in the fourth
quarter of 1997, as a result, the three months ended September 30, 1997,
included two additional weeks. Excluding the effects of the two additional
weeks, sales would have been $6.5 million and cost of sales $6.3 million. On a
comparable basis, sales increased $800,000 due to an increase in sales generated
by PWSI's Greater San Joaquin Valley stores which achieved a same store sales
growth of 8.45%.

Rents increased from $7.8 million and $18.7 million for the three and nine
months ended September 30, 1997 to $15.5 million and $45.1 million for the three
and nine months ended September 30, 1998. These increases are principally due to
the acquisition in 1997, of the four Piccadilly Hotels, the Collection Retail
Center and Preston Square Shopping Center and obtaining the Williamsburg
Hospitality House through foreclosure in 1997 and the acquisition of 34
apartment complexes in 1998. Rents are expected to continue to increase as ART
benefits from a full year of operations of the properties it acquired in late
1997 and 1998.

Interest income of $15,000 and $169,000 for the three and nine months ended
September 30, 1998, decreased from the $471,000 and $2.7 million for the three
and six months ended September 30, 1997. These decreases are attributable to the
foreclosure of the $22.7 million note receivable secured by the Continental
Hotel and Casino in April 1998. The note had been performing in 1997. Interest
income is not expected to be significant in the future.

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Other income improved from a loss of $1.9 million and $117,000 for the
three and nine months ended September 30, 1997, to income of $486,000 and loss
of $454,000 for the three and nine months ended September 30, 1998. The
improvement is primarily due to realized income of $1.1 million and a decrease
of $2.6 million in unrealized losses for the three and nine months ended
September 30, 1998, on ART's trading portfolio securities.

Property operating expense increased from $5.0 million and $13.5 million
for the three and nine months ended September 30, 1997, to $12.0 million and
$34.2 million for the three and nine months ended September 30, 1998. The
increases are principally due to the acquisition in 1997 of the four Piccadilly
Hotels, the Collection Retail Center and the Preston Square Shopping Center and
obtaining the Williamsburg Hospitality House through foreclosure in 1997 and the
acquisition of 34 apartment complexes in 1998.

Interest expense increased from $8.4 million and $20.4 million for the
three and nine months ended September 30, 1997, to $12.4 million and $35.7
million for the three and nine months ended September 30, 1998. The increases
are primarily attributable to the debt incurred related to 34 parcels of land,
five hotels, 34 apartment complexes and two commercial property purchased or
obtained through foreclosure subsequent to September 30, 1997. Interest expense
for the remainder of 1998, is expected to increase as ART continued to acquire
properties on a leveraged basis in the fourth quarter.

Advisory and mortgage servicing fees increased from $630,000 and $1.6
million for the three and nine months ended September 30, 1997, to $1.1 million
and $2.8 million in the three and nine months ended September 30, 1998. The
increase is primarily attributable to ART's increase in gross assets, the basis
for such fees. Such fees are expected to continue to increase as ART's gross
assets increase.

Depreciation and amortization increased from $755,000 and $1.9 million for
the three and nine months ended September 30, 1997, to the $1.5 million and $4.7
million for the three and nine months ended September 30, 1998. Such increases
were attributable to the 41 income producing properties acquired by ART
subsequent to September 30, 1997.

General and administrative expenses decreased from $2.3 million for the
three months ended September 30, 1997, to $1.7 million in the three months ended
September 30, 1998, due to a decrease in legal costs relating to the foreclosure
of Continental Hotel in 1997. General and administrative expenses increased from
$4.7 million for the nine months ended September 30, 1997 to $5.9 million for
the nine months ended September 30, 1998. The nine month increase is primarily
attributable to $217,000 in legal fees incurred in 1998 relating to pending
acquisitions and refinancings, a $87,000 increase in advisor cost reimbursements
and $790,000 from consolidation of the operations of PWSI.

During the third quarter of 1998, ART recorded a provision for loss of $3.0
million to write down its Valley Ranch land to its estimated realizable value
less estimated costs of sale. Such write down was necessitated by an increase in
the acreage designated as flood plain.

Minority interest expense increased from $243,000 and $959,000 for the
three and nine months ended September 30, 1997, to $658,000 and $1.6 million for
the three and nine months ended September 30, 1998. The increase for the three
and nine months is primarily due to the payment of preferred returns to the IGI
properties limited partners.

Incentive compensation for the nine months ended September 30, 1997, was
$299,000 and relates to the sale of Porticos Apartments. No incentive
compensation was earned in 1998.

Equity in income of investees improved from a loss of $145,000 and income
of $5.1 million for the three and nine months ended September 30, 1997, to
income of $6.1 million and $27.4 million for the three and nine months ended
September 30, 1998. The increases in equity income are attributable to ART's
equity share of equity investees' gain on the sale of real estate of $6.3
million and $32.4 million for three and nine months ended September 30, 1998,
compared to $1.1 million and $7.0 million for the three and nine months ended
September 30, 1997. These increases were offset in part, by an increase in the
combined operating losses of ART's equity investees. ART's equity share of such
losses were $200,000 and $5.0 million for the three and nine months ended
September 30, 1998, compared to losses of $1.2 million and $1.9 million for the
same periods of 1997.

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Gains on sale of real estate were $5.7 million and $14.7 million for the
three and nine months ended September 30, 1998, compared to $3.2 million and
$11.4 million for the three and nine months ended September 30, 1997. In April
1998, ART recognized a $663,000 gain on the Valley Ranch land and a $1.9 million
gain on the sale of Lewisville land. In May 1998, ART recognized a previously
deferred gain of $179,000 on the December 1997 sale of Valley Ranch land and a
gain of $671,000 on the sale of Parkfield land. In June 1998, ART recognized a
gain of $848,000 on the sale of Chase Oaks land, a $789,000 gain on the sale of
Rasor land and a $3.9 million gain on the sale of Palm Desert land. In July
1998, ART recognized a gain of $869,000 on the sale of Las Colinas land. In
September 1998, ART recognized a $3.4 million gain on the sale of BP Las Colinas
land, a $408,000 gain on the sale of Santa Clarita land and a $969,000 gain on
the sale of Kamperman land.

In June 1997, ART recognized a previously deferred gain of $3.0 million on
the sale of Porticos Apartments and a $216,000 gain on the sale of the Kamperman
land. In April 1997, a gain of $668,000 was recognized on the sale of a 3.1 acre
tract of Las Colinas I land. In February 1997, a gain of $3.4 million was
recognized on the sale of a 40.2 acre tract of BP Las Colinas land, a gain of
$171,000 on the sale of Osceola mortgage note receivable and a gain of $676,000
on the sale of a 3.0 acre tract of Las Colinas I land. In September 1997, a gain
of $578,000 was recognized on the sale of a 2.6 acre tract of Las Colinas I
land, a $481,000 gain on the sale of the Mopac Building and a $771,000 gain on
the sale of a 3.9 acre tract of Las Colinas I land.

1997 Compared to 1996. ART reported a net loss of $2.4 million in 1997 as
compared to a net loss of $5.6 million in 1996. The primary factors contributing
to ART's net loss are discussed in the following paragraphs.

Sales and cost of sales were $17.9 million and $14.5 million, respectively,
in 1997. ART had no sales or cost of sales prior to May 1997. These items of
revenue and cost relate to PWSI, consolidated in May 1997.

Rents increased from $20.7 million in 1996 to $29.1 million in 1997. Hotel
rents increased from $6.1 million in 1996 to $12.7 million in 1997 while rents
from other real estate activities increased from $14.6 million in 1996 to $16.4
million in 1998. The increase in the hotel rents is due to the acquisition of
the four Piccadilly Hotels in October 1997 and the Company obtaining the
Williamsburg Hospitality House through foreclosure in September 1997. The
increase in rents from other real estate activities is due to the acquisition of
the Collection Retail Center in September 1997.

Property operations expense increased from $15.9 million in 1996 to $24.2
million in 1997. Hotel property operations expense increased from $4.8 million
in 1996 to $9.9 million in 1997 while the other real estate activities property
operations expense increased from $11.1 million in 1996 to $14.3 million in
1997. The increase in hotel property operations expense is due to the
acquisition of the four Piccadilly Hotels and the Company obtaining the
Williamsburg Hospitality House through foreclosure in 1997. The property
operating expenses of other real estate activities increased due to the
acquisition of the Collection Retail Center and twenty-four land parcels in
1997.

Interest income decreased from $4.7 million in 1996 to $2.8 million in
1997. This decrease is primarily attributable to the sale of two notes
receivable and the payoff of a third note receivable in 1997. Interest income in
1998 is expected to approximate that in 1997.

Other income decreased from $1.6 million in 1996 to $134,000 in 1997. This
decrease is due in part to recognizing a unrealized gain on marketable equity
securities of $486,000 in 1996 compared to an unrealized loss of $850,000 in
1997. This decrease is also attributable in part to a decrease in dividend
income and net gains on sales of marketable equity securities of $67,000 and
$56,000, respectively.

Interest expense increased from $16.5 million in 1996 to $30.2 million in
1997. Of this increase, $10.8 million is due to the debt secured by the Best
Western Oceanside Hotel acquired in 1996 and the Williamsburg Hospitality House,
Piccadilly Hotels, Pin Oak land, Scout land, Katy land, McKinney land, Lacy
Longhorn land, Santa Clarita land, Chase Oaks land, Pioneer Crossing land,
Pantex land, Keller land, Perkins land, Rasor land, Dowdy land, Palm Desert land
and LBJ land acquired in 1997, $2.0 million is due to additional borrowings and
a full years interest on the loan secured by NRLP units and $1.1 million is due
to refinancing the debt secured by the Kansas City Holiday Inn and Denver
Merchandise Mart. Interest expense for 1998 is expected to increase from the
continued acquisition of properties on a leveraged basis.

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Advisory and mortgage servicing fees increased from $1.5 million in 1996 to
$2.7 million in 1997. The increase is attributable to the increase in ART's
gross assets, the basis for such fee. Such fee will continue to increase as
ART's gross assets increase.

General and administrative expenses, increased from $2.7 million in 1996 to
$7.0 million in 1997. The increase is attributable to a $1.1 million increase in
legal fees and travel expenses in 1997 relating to potential acquisitions,
financings and refinancings, a $1.1 million increases in advisor cost
reimbursements and $2.1 million attributable to the general and administrative
expenses of PWSI.

Depreciation and amortization increased from $2.0 million in 1996 to $3.3
million in 1997 due to the acquisition of six properties and PWSI in 1997.
Depreciation and amortization are expected to increase again in 1998 from a full
years depreciation of the properties acquired in 1997.

Minority interest in 1997 is the preferred return paid on limited partner
units of Ocean Beach Partners, L.P., Valley Ranch, L.P., Grapevine American,
L.P., Edina Park Plaza Associates, L.P. and Hawthorne Lakes Associates, L.P.

Equity in income of investees improved from $2.0 million in 1996 to $10.7
million in 1997. The increase in equity income is primarily attributable to an
increase of $32.1 million in gains on sale of real estate in IORI, NRLP and TCI
offset by a decrease of $1.9 million in CMET. ART's equity share of such gains
was $13.5 million. The increase is also attributable to an improvement in income
from property operations for the Affiliated REITs and NRLP, from increased
rental rates and operating expense control.

Gains on the sale of real estate increased from $3.7 million in 1996 to
$20.3 million in 1997. In 1996, ART recognized a $2.0 million gain on the sale
of a 32.3 acre tract of BP Las Colinas land in Las Colinas, Texas, and a $1.1
million gain on the sale of a 4.6 acre tract of Las Colinas I land also in Las
Colinas, Texas. In 1997, the Company recognized gains of $5.9 million on the
sale of a 49.7 acre tract of BP Las Colinas land in Las Colinas, Texas; $3.5
million on the sale of tracts totaling 116.8 acres of Valley Ranch land in
Irving, Texas; $2.7 million on the sale of a 12.5 acre tract of Las Colinas I
land in Las Colinas, Texas; $3.6 million on the sale of Pin Oak land in Houston,
Texas; $216,000 on the sale of a 99.7 acre tract of Kamperman land in Collin
County, Texas; $371,000 on the sale of a 32.0 acre tract of Parkfield land in
Denver, Colorado; $211,000 on the sale of a 86.5 acre tract of Rasor land in
Plano, Texas; $106,000 on the sale of Park Plaza Shopping Center in Manitowoc,
Wisconsin; $480,000 on the sale of the Mopac Building in St. Louis, Missouri;
and $172,000 on the sale of a mortgage note receivable. ART also recognized a
previously deferred gain of $3.0 million on the sale of Porticos Apartments. See
NOTE 4. "REAL ESTATE."

ART reported $381,000 in extraordinary gains in 1996 compared to no
extraordinary gains in 1997. The 1996 extraordinary gain is ART's share of TCI's
extraordinary gain from the early payoff of debt and CMET's extraordinary gain
from an insurance settlement.

1996 Compared to 1995. ART reported a net loss of $5.6 million in 1996 as
compared to a net loss of $2.8 million in 1995. The primary factors contributing
to the increase in ART's net loss are discussed in the following paragraphs.

Net rental income (rents less property operating expenses) increased from
$4.6 million in 1995 to $4.8 million in 1996. This increase is primarily
attributable to increased rents at the Denver Merchandise Mart and increased
room rates and occupancy at the Kansas City Holiday Inn. Net rental income is
expected to increase in 1997 from continued improvement at the Kansas City
Holiday Inn and from a full years operations of the Best Western Oceanside Hotel
which was acquired in December 1996.

Interest income decreased from $4.9 million in 1995 to $4.7 million in
1996. This decrease is primarily attributable to a note receivable being paid
off in 1995.

Other income increased from $154,000 in 1995 to $1.6 million in 1996. This
increase is due to recognizing an unrealized gain of $486,000 on ART's trading
portfolio of equity securities in 1996 compared to recognizing an unrealized
loss of $1.4 million in 1995. This increase was offset in part by dividend
income and gain on marketable equity securities decreasing by $689,000 and
$292,500 respectively.

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Interest expense increased from $8.9 million in 1995 to $16.5 million in
1996. The increase is primarily attributable to debt refinancings and the debt
incurred related to the purchase of six parcels of land in 1995 and 1996 and the
Oak Tree Village obtained in November 1995. Offsetting the increase was a
$161,000 decrease in interest expense due to the sale of an apartment complex in
February 1995.

Advisory and mortgage servicing fees increased from $1.2 million in 1995 to
$1.5 million in 1996. The increase is primarily attributable to ART's increase
in gross assets, the basis for such fee.

Depreciation increased from $1.7 million in 1995 to $2.0 million in 1996
due to $2.9 million in property improvements made in 1996.

Equity in income of investees improved from a loss of $851,000 in 1995 to
income of $2.0 million in 1996. The increase in equity income is primarily
attributable to an improvement in income from property operations for both CMET
and NRLP, from increased rental rates and a decrease in operating expenses. The
1995 gains are attributable to ART's equity share ($1.8 million) of NRLP's
fourth quarter gain on the sale of two apartment complexes, ART's equity share
($2.5 million) of TCI's gain on the sale of land in the third quarter and an
apartment complex in the fourth quarter of 1995, a $4.6 million gain
representing ART's equity share of the REIT's gain on sale of real estate.

Gains on the sale of real estate increased from $2.6 million in 1995 to
$3.7 million in 1996. In 1996, ART recognized a $2.0 million gain on the sale of
32.3 acres of the BP Las Colinas land in Las Colinas, Texas, and a $1.1 million
gain on the sale of 4.6 acres of the Las Colinas I land also in Las Colinas,
Texas. The 1995 gains are attributable to a $1.6 million gain recognized on the
sale of 6.9 acres of Las Colinas I land and a $924,000 gain recognized on the
sale of the Boulevard Villas Apartments in February 1995.

ART reported $783,000 in extraordinary gains in 1995 compared to $381,000
in extraordinary gains in 1996. The 1996 extraordinary gain is ART's share of
TCI's extraordinary gain from the early payoff of debt and CMET's extraordinary
gain from an insurance settlement. The 1995 extraordinary gain is ART's equity
share of TCI's extraordinary gain from the early payoff of mortgage debt.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, ART 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 ART for personal injury associated with such
materials.

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

INFLATION

The effects of inflation on ART'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 ART from property sales.

YEAR 2000

BCM, ART's advisor, has informed ART that its computer hardware operating
system and computer software have been certified as year 2000 compliant.

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Further, Carmel, Ltd., an affiliate of BCM that performs property
management services for ART's properties, has informed ART that it is currently
testing year 2000 compliant property management computer software for ART's
commercial properties. Carmel, Ltd. expects to begin utilizing such software
January 1, 1999. With regards to ART's apartment properties, Carmel, Ltd. has
informed ART that its subcontractors either have in place or will have in place
in the first quarter of 1999, year 2000 compliant property management computer
software.

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

ART's Management has yet to complete its evaluation of ART's computer
controlled building systems, such as security, elevators, heating and cooling,
etc., to determine which systems are not year 2000 compliant. ART's Management
does not believe that any necessary modifications to such systems will require
significant expenditures or cause interruptions in operations, as such enhanced
operating systems are readily available.

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

DESCRIPTION OF THE CAPITAL STOCK OF ART
GENERAL

ART is authorized by its Articles of Incorporation, as amended, to issue up
to 100,000,000 ART Common Shares and 20,000,000 shares of a special class of
stock, $2.00 par value per share (the "Special Stock"), which may be designated
by the ART Board from time to time. The ART Preferred Shares are a series of the
Special Stock.

ART PREFERRED SHARES

On August 13, 1997, the ART Board designated and authorized the issuance of
a total of 7,500,000 ART Preferred Shares with a par value of $2.00 per share
and a preference on liquidation of $10.00 per share plus payment of accrued and
unpaid dividends. On October 23, 1998, the ART Board authorized the issuance of
an additional 7,500,000 ART Preferred Shares, thereby increasing the total
number of authorized and issued ART Preferred Shares to 15,000,000. The ART
Preferred Shares are non-voting except (i) as provided by law, (ii) with respect
to an amendment to ART's articles of incorporation or bylaws that would
materially alter or change the existing terms of the ART Preferred Shares, and
(iii) at any time or times when all or any portion of the dividends on the ART
Preferred Shares for any six quarterly dividends, whether or not consecutive,
shall be in arrears and unpaid. In the latter event, the number of directors
constituting the board of directors of ART shall be increased by two and the
holders of ART Preferred Shares, voting separately as a class, shall be entitled
to elect two directors to fill such newly created directorships with each holder
being entitled to one vote in such election for each share of ART Preferred
Shares held. ART is not obligated to maintain a sinking fund with respect to the
ART Preferred Shares.

The ART Preferred Shares are convertible, at the option of the holder, into
ART Common Shares at any time and from time to time, in whole or in part, after
the earliest to occur of (i) August 15, 2003; (ii) the first business day, if
any, occurring after a Quarterly Dividend Payment Date (as defined below), on
which an amount equal to or in excess of 5% of the $10.00 liquidation value
(i.e., $.50 per ART Preferred Share) is accrued and unpaid, or (iii) when ART
becomes obligated to mail a statement, signed by an officer of ART, to the
holders of record of each of the ART Preferred Shares because of a proposal by
ART at any time before all of the ART Preferred Shares have been redeemed by or
converted into ART Common Shares, to merge or consolidate with or into any other
corporation (unless ART is the surviving entity and holders of ART Common Shares
continue to hold such ART Common Shares without modification and without receipt
of any additional consideration), or to sell, lease, or convey all or
substantially all its property or business, or to liquidate, dissolve or wind
up. The ART Preferred Shares are convertible into the Conversion Price which is
that number of shares of ART Common Shares obtained by multiplying the number of
shares being converted by $10.00, then adding all accrued and unpaid dividends,
then dividing such sums by (in most instances) 90% of the simple average of the
daily closing price of the ART Common Shares for the 20 business days

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ending on the last business day of the calendar week immediately preceding the
date of conversion on the principal stock exchange on which such ART Common
Shares are then listed. Notwithstanding the foregoing, ART, at its option, may
elect to redeem any ART Preferred Shares sought to be so converted by paying the
holder of such ART Preferred Shares cash in an amount equal to the Conversion
Price.

The ART Preferred Shares bear a cumulative compounded dividend per share
equal to 10% per annum of the Adjusted Liquidation Value, payable on each
Quarterly Dividend Payment Date, and commencing accrual on the date of issuance
to and including the date on which the redemption price of such shares is paid,
whether or not such dividends have been declared and whether or not there are
profits, surplus or other funds of ART legally available for the payment of such
dividends. Dividends on the ART Preferred Shares are in preference to and with
priority over dividends upon the ART Common Shares. Except as provided in the
following sentence, the ART Preferred Shares rank on a parity as to dividends
and upon liquidation, dissolution or winding up with all other Special Stock
issued by ART. ART will not issue any shares of Special Stock of any series
which are superior to the ART Preferred Shares as to dividends or rights upon
liquidation, dissolution or winding up of the Corporation as long as any ART
Preferred Shares are issued and outstanding, without the prior written consent
of the holders of at least 662/3 %of such shares of the ART Preferred Shares
then outstanding voting separately as a class. As of November 16, 1998, the
outstanding Special Stock of ART consisted of 3,350,000 ART Preferred Shares,
16,681 shares of its Series C 10% Cumulative Preferred Stock (as described
below), and 1,000 shares of its Series G Cumulative Convertible Preferred Stock
(as described below).

In addition to ART's redemption right in connection with conversions of ART
Preferred Shares as described above, ART may redeem any or all of the ART
Preferred Shares at any time and from time to time, at its option, for cash upon
no less than 20 days nor more than 30 days prior notice thereof. The redemption
price of the ART Preferred Shares shall be an amount per share equal to (i) 104%
of the Adjusted Liquidation Value during the period from August 16, 1998 through
August 15, 1999; and (ii)103% of the Adjusted Liquidation Value at any time on
or after August 16, 1999. Each ART Preferred Share will be convertible, at the
option of the holder, into fully paid and nonassessable ART Common Shares.

The ART Preferred Shares constitute a new issue of securities with no
established trading market. While the listing of the ART Preferred Shares on the
NYSE is a condition precedent to EQK's obligation to consummate the Merger,
there can be no assurance that an active market for the ART Preferred Shares
will develop or be sustained in the future on the NYSE if the listing is
approved. Moreover, to the extent that EQK Shares are tendered and accepted in
the Merger, the liquidity and trading market for the EQK Shares could be
adversely affected. See "Risk Factors -- ART Preferred Shares -- Application for
the Listing and Trading of ART Preferred Shares and Possible Subsequent
Delisting."

ART COMMON SHARES

All of the ART Common Shares are entitled to share equally in dividends
from funds legally available therefor, when declared by the ART Board, and upon
liquidation or dissolution of ART, whether voluntary or involuntary (subject to
any prior rights of holders of the Special Stock), and to share equally in the
assets of ART available for distributions to shareholders. Each holder of ART
Common Shares is entitled to one vote for each share held on all matters
submitted to the shareholders. There is no cumulative voting, redemption right,
sinking fund provision or right of conversion with respect to the ART Common
Shares. The holders of ART Common Shares do not have any preemptive rights to
acquire additional ART Common Shares when issued. All outstanding ART Common
Shares are fully paid and nonassessable. As of November 16, 1998, 10,756,308 ART
Common Shares were outstanding.

SPECIAL STOCK

The following is a description of certain general terms and provisions of
the Special Stock, including the ART Preferred Shares, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock, the Series G
Preferred Stock and the Series H Preferred Stock.

Article 5 of the Articles of Incorporation of ART, as amended, authorizes
the issuance of up to 20,000,000 shares of Special Stock in one or more series
with such preferences, limitations and rights as the ART Board determines. In
particular, the ART Board may fix and determine, among other things, the
dividend payable with respect to such shares of Special Stock (including whether
and in what manner such dividend shall be accumulated); whether such shares
shall be redeemable, and if so, the prices, terms and conditions of such
redemption; the amount payable on such

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shares in the event of voluntary or involuntary liquidation; the nature of any
purchase, retirement or sinking fund provisions; the nature of any conversion
rights with respect to such shares; and the extent of the voting rights, if any,
of such shares. Certain provisions of the Special Stock may, under certain
circumstances, adversely affect the rights or interests of holders of ART Common
Shares. For example, the ART Board could, without shareholder approval, issue a
series of Special Stock with voting and conversion rights which could adversely
affect the voting power of the common shareholders. In addition, the Special
Stock may be issued under certain circumstances as a defensive device to thwart
an attempted hostile takeover of ART.

Through the date of this Prospectus/Proxy Statement, ART has amended its
Articles of Incorporation to designate eight series of the Special Stock as
described below. Each series of Special Stock now outstanding ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
shares of Special Stock.

Series A Preferred Stock; Terminated Rights Plan. On April 11, 1990, the
ART Board designated 500,000 shares of the Series A Cumulative Participating
Preferred Stock (the "Series A Preferred Stock"), adopted a preferred share
purchase rights plan and approved the distribution to shareholders of a dividend
of one preferred share purchase right on each outstanding ART Common Share (the
"Rights"). On February 27, 1997, ART filed articles of amendment to its articles
of incorporation reducing the number of authorized shares of Series A Preferred
Stock to zero and eliminating such designation.

Series B Preferred Stock. On April 3, 1996, the ART Board designated 4,000
shares of Series B Preferred Stock with a par value of $2.00 per share and a
preference on liquidation of $100 per share plus payment of accrued and unpaid
dividends. On May 27, 1998, ART filed articles of amendment to its articles of
incorporation reducing the number of authorized shares of Series B Preferred
Stock to zero and eliminating such designation.

Series C Preferred Stock. On May 23, 1996, the ART Board designated 16,681
shares of Series C Preferred Stock with a par value of $2.00 per share and a
preference on liquidation of $100 per share plus all accrued and unpaid
dividends. The Series C Preferred Stock is non-voting except as required by the
Georgia Business Code. The Georgia Business Code grants the holders of the
outstanding shares of a class the authority to vote as a separate voting group
on a proposed amendment if that amendment would effect a detrimental
reclassification of the existing shares, create a new class with preferences
over the existing shares, or cancel or otherwise affect the rights to
distributions and dividends. ART is not required to maintain a sinking fund for
such stock.

Each share of Series C Preferred Stock is convertible, but only during a
90-day period beginning on November 25, 1998, into the number of ART Common
Shares obtained by multiplying the number of shares of Series C Preferred Stock
being converted by $100 and dividing the result by (in most instances) 90% of
the then-recent average trading price for the ART Common Shares.

The Series C Preferred Stock bears a cumulative dividend per share of
$10.00 per annum, payable quarterly in equal installments of $2.50. Dividends on
the Series C Preferred Stock are in preference to and with priority over
dividends upon the ART Common Shares. The Series C Preferred Stock ranks on a
parity as to dividends and upon liquidation, dissolution or winding up with all
other shares of Special Stock, including the ART Preferred Shares. The dividends
for the first twelve months were paid in additional shares of Series C Preferred
Stock.

ART has redeemed all of the outstanding shares of Series C Preferred Stock
at their liquidation value of $100 per share plus all accrued and unpaid
dividends on November 24, 1998. As of October 30, 1998, there were 16,681 shares
of Series C Preferred Stock issued and outstanding.

Series D Preferred Stock. The ART Board designated 91,000 shares of Series
D Cumulative Preferred Stock (the "Series D Preferred Stock") on August 2, 1996,
with a par value of $2.00 per share and a preference on liquidation of $20.00
per share plus payment of accrued and unpaid dividends. The Series D Preferred
Stock is non-voting except as required by law and is not convertible. ART is not
required to maintain a sinking fund for such stock.

Each Share of Series D Preferred Stock has a cumulative dividend per share
of 9.50% per annum of the $20.00 liquidation preference, payable quarterly in
equal installments of $0.475. Dividends on the Series D Preferred Stock are in
preference to and with priority over dividends upon the ART Common Shares. The
Series D Preferred Stock ranks on a parity as to dividends and upon liquidation,
dissolution or winding up with all other shares of Special Stock.

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ART may from time to time after June 1, 2001 redeem any or all of the
Series D Preferred Stock upon payment of the liquidation value of $20.00 per
share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series D Preferred Stock by ART while there is
any arrearage in payment of dividends except that at the time of such repurchase
or redemption ART must pay all accrued and unpaid dividends on the shares being
redeemed. As of October 30, 1998, there were no shares of Series D Preferred
Stock issued or outstanding.

The Series D Preferred Stock is reserved for issuance upon the conversion
Class A units held by the limited partners of Ocean Beach Partners L.P.

Series E Preferred Stock. On December 3, 1996, the ART Board designated
80,000 shares of Series E Cumulative Convertible Preferred Stock (the "Series E
Preferred Stock") with a par value of $2.00 per share and a preference on
liquidation of $100 per share plus payment of all accrued and unpaid dividends.
The Series E Preferred Stock is non-voting except as required by law. ART is not
required to maintain a sinking fund for such stock.

Each share of Series E Preferred Stock is convertible into that number of
ART Common Shares obtained by multiplying the number of shares being converted
by $100, then adding all accrued and unpaid dividends on such shares, then
dividing such sum by (in most instances) 80% of the ART Common Share's
then-recent average trading price for the 20 business days ending on the last
business day of the calendar week immediately preceding the date of conversion
on the principal stock exchange on which such ART Common Shares are then listed
or admitted to trading as determined by ART. The schedule pursuant to which
shares of Series E Preferred Stock may be so converted is as follows: up to
30,000 shares of the Series E Preferred Stock may be converted beginning as of
November 4, 1998 and thereafter; up to an additional 10,000 shares of the Series
E Preferred Stock may be converted beginning as of November 4, 1999; and up to
an additional 40,000 shares of the Series E Preferred Stock may be converted
beginning as of November 4, 2001.

The Series E Preferred Stock bears a cumulative dividend per share equal to
$10.00 per annum, payable quarterly in equal installments of $2.50 for the
period from date of issuance to November 4, 1999, and $11.00 per annum ($2.75
per quarter) thereafter. Dividends on the Series E Preferred Stock are in
preference to and with priority over dividends upon the ART Common Shares. The
Series E Preferred Stock ranks on a parity as to dividends and upon liquidation,
dissolution or winding up with all other shares of Special Stock.

ART may redeem any or all of the shares of Series E Preferred Stock from
time to time upon payment of $100.00 per share plus all accrued and unpaid
dividends. There is no restriction on the repurchase or redemption of the Series
E Preferred Stock by ART while there is any arrearage in payment of dividends
except that at the time of such repurchase or redemption ART must pay all
accrued and unpaid dividends on the shares being redeemed. As of October 30,
1998, there were no shares of Series E Preferred Stock issued or outstanding.

The Series E Preferred Stock is reserved for issuance upon the conversion
of Class A units held by the limited partners in the Valley Ranch Limited
Partnership.

Series G Preferred Stock. On September 18, 1997, the ART Board designated
11,000 shares of Series G Cumulative Convertible Preferred Stock (the "Series G
Preferred Stock") with a par value of $2.00 per share and a preference on
liquidation of $100 per share plus all accrued and unpaid dividends. On May 27,
1998, ART filed articles of amendment to its articles of incorporation
increasing the number of authorized shares of Series G Preferred Stock from
11,000 to 12,000. The Series G Preferred Stock is non-voting except as required
by the Georgia Business Code. The Georgia Business Code grants the holders of
the outstanding shares of a class the authority to vote as a separate voting
group on a proposed amendment if that amendment would effect a detrimental
reclassification of the existing shares, create a new class with preferences
over the existing shares, or cancel or otherwise affect the rights to
distributions and dividends. ART is not required to maintain a sinking fund for
such stock.

Each share of Series G Preferred Stock is convertible, but only after
October 6, 2000, into that number of ART Common Shares obtained by multiplying
the number of shares of Series G Preferred Stock being converted by $100 and
then dividing such sum by (in most instances) 90% of the simple average of the
daily closing price of the ART Common Shares for the 20 trading days ending on
the last trading day of the calendar week immediately preceding the conversion
on the market where the ART Common Shares are then regularly traded. The right
of conversion shall terminate upon receipt of the notice of redemption from ART
and on the earlier of (i) the commencement of any liquidation, dissolution or
winding up of ART or (ii) the adoption of any resolution authorizing the
commencement thereof. ART may elect to redeem the shares of Series G Preferred
Stock sought to be converted instead of issuing shares of ART Common Stock.

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The Series G Preferred Stock bears a cumulative dividend per share equal to
$10.00 per annum, payable in arrears in quarterly equal installments of $2.50 on
each Quarterly Dividend Payment Date, and commencing accrual on the date of
issuance to and including the date on which the redemption price of such shares
is paid. Dividends on the Series G Preferred Stock are in preference to and with
priority over dividends upon the ART Common Shares. The Series G Preferred Stock
ranks on a parity as to dividends and upon liquidation, dissolution or winding
up with all other shares of Special Stock.

ART may redeem any or all of the shares of the Series G Preferred Stock at
any time and from time to time, at its option, for cash upon no less than twenty
(20) days nor more than thirty (30) days prior notice thereof. The redemption
price of the shares of the Series G Preferred Stock shall be an amount per share
equal to the $100 liquidation value plus all accrued and unpaid dividends on
such shares through the redemption date. The right of ART to redeem shares of
Series G Preferred Stock remains effective notwithstanding prior receipt by ART
of notice by any holder of Series G Preferred Stock of such holder's intent to
convert shares of Series G Preferred Stock. As of October 30, 1998 there were
1,000 issued and outstanding shares of Series G Preferred Stock.

11,000 shares of Series G Preferred Stock have been reserved for issuance
upon the conversion of Class A units held by the limited partners in Grapevine
American, Ltd.

Series H Preferred Stock. On June 26, 1998, the ART Board designated
231,750 shares of Series H Cumulative Convertible Preferred Stock (the "Series H
Preferred Stock") with a par value of $2.00 per share and a preference on
liquidation of $10 per share plus all accrued and unpaid dividends. The Series H
Preferred Stock is non-voting except as required by the Georgia Business Code.
The Georgia Business Code grants the holders of the outstanding shares of a
class the authority to vote as a separate voting group on a proposed amendment
if that amendment would effect a detrimental reclassification of the existing
shares, create a new class with preferences over the existing shares, or cancel
or otherwise affect the rights to distributions and dividends. ART is not
required to maintain a sinking fund for such stock.

Each share of Series H Preferred Stock is convertible at the option of the
holders thereof in the following amounts at any time on or after the respective
dates (i) 25,000 shares on or after December 31, 2000, (ii) 25,000 shares on or
after June 30, 2002, (iii) 25,000 shares on or after June 30, 2003, (iv) 25,000
shares on or after December 31, 2005, and (v) all remaining outstanding shares
on or after December 31, 2006 into that number of ART Common Shares obtained by
multiplying the number of shares of Series H Preferred Stock being converted by
$10 and then dividing such sum by (in most instances) 90% of the simple average
of the daily closing price of the ART Common Shares for the 20 trading days
ending on the last trading day of the calendar week immediately preceding the
conversion on the market where the ART Common Shares are then regularly traded.
The right of conversion shall terminate upon receipt of the notice of redemption
from ART and on the earlier of (i) the commencement of any liquidation,
dissolution or winding up of ART or (ii) the adoption of any resolution
authorizing the commencement thereof. ART may elect to redeem the shares of
Series H Preferred Stock sought to be converted instead of issuing shares of ART
Common Stock.

The Series H Preferred Stock bears a cumulative quarterly dividend per
share in an amount equal to (i) 7% per annum during the period from issuance to
June 30, 1999, (ii) 8% per annum during the period from July 1, 1999 to June 30,
2000, (iii) 9$ per annum during the period from July 1, 2000 to June 30, 2001,
and (iv) 10% per annum from July 1, 2001 and thereafter, in each case calculated
on the basis of the adjusted liquidation value of the Series H Preferred Stock,
payable in arrears in cash on each Quarterly Dividend Payment Date, and
commencing accrual on the date of issuance to and including the date on which
the redemption price of such shares is paid. Dividends on the Series H Preferred
Stock are in preference to and with priority over dividends upon the ART Common
Shares. The Series H Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.

ART may redeem all or a portion of the shares of the Series H Preferred
Stock issued and outstanding at any time after January 1, 1999 and from time to
time, at its option, for cash upon no less than twenty (20) days nor more than
thirty (30) days prior notice thereof. The redemption price of the shares of the
Series H Preferred Stock shall be an amount per share equal to the sum of (i)
(a) 105% of liquidation value during the period from issuance through December
31, 1999; (b) 104% of liquidation value during the period from January 1, 2000
through December 31, 2000;

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(c) 103% of liquidation value during the period from January 1, 2001 through
December 31, 2001; (d) 102% of liquidation value during the period from January
1, 2002 through December 31, 2002; (e) 101% of liquidation value during the
period from January 1, 2003 through December 31, 2003; and (f) 100% of
liquidation value from January 1, 2004 and thereafter, and (ii) all accrued and
unpaid dividends on such shares through the redemption date. The right of ART to
redeem shares of Series H Preferred Stock remains effective notwithstanding
prior receipt by ART of notice by any holder of Series H Preferred Stock of such
holder's intent to convert shares of Series H Preferred Stock. As of October 30,
1998 there were no issued or outstanding shares of Series H Preferred Stock.

The Series H Preferred Stock is reserved for issuance upon the conversion
of Class A units held by the limited partners in ART Palm, Ltd.

The description of the foregoing provisions of each series of the Special
Stock does not purport to be complete and is subject to and qualified in its
entirety by reference to the definitive Articles of Amendment of the Articles of
Incorporation relating to such series of Special Stock.

DESCRIPTION OF EQK

EQK (sometimes referred to herein as the "Trust") was formed pursuant to
the Declaration of Trust. LLPM, (successor in interest to EQK Partners),
currently acts as the Advisor to EQK. LLPM is a wholly owned subsidiary of ERE,
itself an indirect wholly owned subsidiary of Equitable. Upon consummation of
the Merger, BCM, an affiliate of and advisor to ART, will assume the role of New
Advisor to EQK. See "The New Advisory Agreement Proposal" herein.

EQK has transacted its affairs so as to qualify as, and has elected to be
treated as, a REIT under applicable provisions of the Code. Under the Code, a
REIT that meets applicable requirements is not subject to Federal income tax on
that portion of its taxable income that is distributed to its shareholders. EQK
is currently a closed-end trust (i.e., it may not issue any additional EQK
Shares without the approval of holders of three-quarters of the outstanding EQK
Shares), and, except in limited circumstances, it may not make any additional
real estate investments and is required to distribute to its shareholders the
net proceeds from each sale and financing of any investment. Consequently, EQK
is currently a self-liquidating trust. However, upon consummation of the Merger,
subject to the Requisite Shareholder Approval, the Declaration of Trust will be
amended to extend the term of EQK for an additional 20 years. See "The
Declaration Amendment Proposal" herein.

The principal executive offices of EQK and of the Advisor are located at
5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia, 30342, and their
telephone number is (404) 303-6100.

THE BUSINESS OF EQK

GENERAL

EQK was formed for the purpose of acquiring for a finite holding period a
specified portfolio of substantially unleveraged, institutional quality real
estate in order to maximize current distributions of cash flow from operations,
to realize long-term capital appreciation for distribution and to protect its
shareholders' capital. None of EQK's policies may be amended without the
approval of holders of three-quarters of the outstanding EQK Shares. See "The
Declaration Amendment Proposal" herein.

EQK consummated the public offering of its EQK Shares on March 12, 1985.
Certain of the net proceeds to EQK from such offering were expended to acquire
certain properties on March 13, 1985 (which were comprised of the Center as
described below, as well as two properties subsequently sold: Castleton Park
("Castleton"), an office park in Indianapolis, Indiana, which was sold in
transactions in 1991 and 1995, and Peachtree Dunwoody Pavilion ("Peachtree"), an
office complex in Atlanta, Georgia, which was sold in transactions in 1992 and
1993).

The Declaration of Trust currently provides that actual disposition of the
remaining property, the Center, may occur at any time prior to March 1999. The
precise timing of this disposition or an alternative strategic transaction will

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be at the discretion of EQK's Board of Trustees, depending on both the
prevailing conditions in the relevant real estate market and the ability of EQK
to extend or refinance its debt maturing in June 1998. For a description of the
Center and certain proposed amendments to the Declaration of Trust, see
"Description of the Center" and "The Declaration Amendment Proposal" herein.

Since December 15, 1992, EQK has had in place a mortgage note (the
"Mortgage Note") with Prudential, which had an initial balance of $75,689,000,
and an original maturity date of December 15, 1995. The interest rates on the
Mortgage Note averaged 9.79% over its initial three year term. However, the
Mortgage Note agreement required monthly payments of interest only at the rate
of 8.54% per annum. The additional interest charges were accrued and added to
principal over this initial term of the Mortgage Note. Absent any prepayments of
debt arising from property dispositions, the amount of principal due on the
original maturity date of December 15, 1995 would have been $78,928,000. Under
the terms of the Mortgage Note, Prudential received the Prudential Warrants.

EQK has also had a term loan (the "Term Loan") in place since December 15,
1992 with PNC Bank Corp. ("PNC"). The Term Loan bears interest at 8.33% per
annum and requires payments at the same annual rate of 8.54% as was required
under the Mortgage Note agreement. The payments made in excess of the interest
rate were applied to the principal balance of the loan such that the original
principal balance of $2,859,000 would have been reduced over its three year term
to $2,839,000, absent any prepayments arising from property dispositions.

On December 8, 1995, EQK completed the sale of Castleton, its 44 building
office park located in Indianapolis, Indiana. The net proceeds of $35,990,000
(reduced by customary prorations of $2,517,000) were used to retire $34,738,000
of the Mortgage Note and $1,252,000 of the Term Loan. At the original expiration
of the Mortgage Note and Term Loan on December 15, 1995, the remaining balances
of $44,125,000 and $1,587,000, respectively, were extended for one year to
December 15, 1996 under terms substantially comparable to those previously in
effect.

The principal balances outstanding under the Mortgage Note and the Term
Loan at December 15, 1996, $43,794,000 and $1,585,000, respectively, were
extended for 18 months through June 15, 1998. The Mortgage Note remains
collateralized by a first mortgage lien on the Center, an assignment of leases
and rents, and certain cash balances. The Term Loan is collateralized by a
subordinate lien on the Center. The Mortgage Note requires payments of interest
only at the rate of 8.88% per annum. The Term Loan reflects the same pay rate of
8.88% that is applicable to the Mortgage Note, but also bears interest at an
accrual rate that re-sets periodically and is computed at EQK's discretion at
either 2 5/8% above the Euro-Rate (as defined in the Term Loan) or 1 1/8% above
the Prime Rate (as defined in the Term Loan). The accrual rate in effect through
May 18, 1997 averaged 8.12%. The difference between the accrual rate and the pay
rate will be subtracted from the principal balance due at maturity.

In consideration for the fixed annual interest accrual rate on the Mortgage
Note, EQK paid an up-front application fee of $165,000 and agreed to pay a back
end fee of $272,900, plus interest thereon at the contract rate of 8.88%, at the
maturity date of June 15, 1998, or the date at which all or any part of the
original principal amount is prepaid.

EQK's debt instruments (aggregate principal outstanding of $45,375,000) had
scheduled maturity dates of June 15, 1998. While the Mortgage Note holder has
refused to grant an extension of this maturity date, it has agreed to a
forbearance arrangement wherein it will not exercise remedies for non-repayment
of the outstanding principal due through December 15, 1998. The Term Loan holder
has agreed to an extension of the maturity date, also through December 15, 1998.
The forbearance and extension arrangements are conditioned upon, among other
things, EQK continuing to make timely debt service payments in monthly amounts
equal to those amounts stipulated in the December 1996 debt extension
agreements.

On June 15, 1998 EQK paid deferred loan fees plus interest to the mortgage
note holder in the amount of $309,200 and deferred loan fees to the term loan
holder in the amount of $88,100.

On March 19, 1998, Prudential exercised the Prudential warrants for EQK
Shares. Such shares were issued to Prudential on May 7, 1998 thus bringing the
total number of issued and outstanding EQK Shares to 9,632,212. The net loss per
share as reflected on the statements of operations has been calculated using the
weighted average of the number of shares outstanding during the periods
presented.

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In connection with the December 15, 1992 debt financings, EQK issued
1,675,000 previously repurchased EQK Shares to the Advisor for consideration of
$6,700,000, or $4.00 per share. EQK may, at its discretion, reissue the
remaining 791,211 EQK Shares previously repurchased. Any issuance of EQK Shares
in excess of the EQK Shares previously repurchased would require shareholder
approval.

Subject to certain restrictions, EQK is permitted to make additional real
estate investments involving the expansion of its existing properties. EQK has
no intentions of acquiring additional real estate interests, but will make
certain capital expenditures required to maintain or enhance the value of the
Center, including tenant allowances associated with leasing activity.

EQK may make secured or unsecured borrowings to make distributions to its
shareholders and for normal working capital needs, including tenant alterations
and/or allowances and the repair and maintenance of properties in which it has
invested. The Declaration of Trust currently prohibits EQK's aggregate
borrowings from exceeding 75% of its total asset value, as defined therein. See
"The Declaration Amendment Proposal."

EQK will not engage in any business not related to its real estate
investments and, as described below, the Declaration of Trust currently imposes
certain prohibitions and investment restrictions on various investment practices
or activities of EQK. See "The Declaration Amendment Proposal."

SUMMARY OF THE EXISTING DECLARATION OF TRUST

The following is a brief summary of provisions of the Declaration of Trust
not described elsewhere in this Prospectus/Proxy Statement. EQK's Declaration of
Trust provides that each person who becomes an EQK Shareholder shall as a result
thereof be deemed to have agreed to and be bound by the provisions of the
Declaration of Trust. Reference is made to the Declaration of Trust.

Trustees. The Declaration of Trust provides that the number of Trustees may
be fixed from time to time by the Trustees or by the holders of EQK Shares, with
a minimum of five and a maximum of 12 Trustees, a majority of whom must be
unaffiliated with EQK or LLPM (each, an "Unaffiliated Trustee"). There are
currently seven Trustees, including four Unaffiliated Trustees. Trustees
continue in office until the next annual meeting of shareholders and until their
successors are duly elected and qualified. Vacancies may be filled by a majority
of the remaining Trustees, except that a vacancy among the Unaffiliated Trustees
shall be filled by a majority of the remaining Unaffiliated Trustees, or by the
holders of EQK Shares. Any Trustee may be removed with cause by all the
remaining Trustees, or with or without cause by holders of a majority of the
outstanding EQK Shares.

The Declaration of Trust provides that no Trustee or officer of EQK, shall
be liable to any party (including EQK and its holders of EQK Shares), except for
liability arising from his own bad faith, willful misfeasance, gross negligence
or reckless disregard of his duties. The Declaration of Trust also provides for
indemnification of the Trustees and officers against expense or liability in any
action arising out of such person's activities on behalf of EQK, except with
respect to conduct of the types described above. Therefore, EQK Shareholders may
be entitled to more limited rights of action than those to which they otherwise
would have been entitled absent the limitation on the Trustees' and officers'
liability set forth in the Declaration of Trust.

Shareholder Liability. The Declaration of Trust provides that the EQK
Shareholders shall not be subject to any liability for the acts or obligations
of EQK and that, as far as practicable, each written agreement of EQK is to
contain a provision to that effect. With respect to all types of claims in such
jurisdictions and with respect to tort claims, contract claims whereas the
shareholder liability is not disavowed as described above, claims for taxes and
certain statutory liabilities in other jurisdictions, an EQK Shareholder may be
held personally liable to the extent that claims are not satisfied by EQK.
However, the Declaration of Trust provides that, upon payment of any such
liability, the EQK Shareholder will be entitled to reimbursement from EQK's
general assets. The Trustees intend to continue to maintain appropriate
insurance and to conduct the operations of EQK, with the advice of counsel, in
such a way as to avoid, as far as practicable, the ultimate liability of the EQK
Shareholders.

Redemption and Prohibition of Transfer of Shares. For EQK to continue to
qualify as a REIT under the Code in any taxable year, not more than 50% of its
outstanding EQK Shares may be owned by five or fewer individuals at

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any time during the last half of the taxable year, and the EQK Shares must be
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year. In order to
meet these requirements, the Trustees have power to redeem or prohibit the
transfer of a sufficient number of EQK Shares selected in a manner deemed
appropriate to maintain or bring the ownership of the EQK Shares into conformity
with such requirements. The price to be paid in the event of the redemption of
the EQK Shares will be the last reported sale price of the EQK Shares on the
last business day prior to the redemption date on the NYSE.

Duration and Termination of EQK. If the Merger-Related Proposals do not
receive the Requisite Shareholder Approval, the duration of EQK will terminate
in March of 1999. The Declaration of Trust also permits the holders of a
majority of the outstanding EQK Shares to terminate EQK at any time. Termination
by the Trustees may be effected without any action or consent of the
shareholders, except that any plan for the termination of EQK which contemplates
the distribution to shareholders of securities or other property in kind, other
than the right to receive cash, also requires the affirmative vote of the
holders of three-quarters of the outstanding EQK Shares. See "The Declaration
Amendment Proposal."

Transactions with Affiliates. Affiliates of the Advisor may perform
leasing, property management, or other similar services for EQK, provided that
any such transactions are approved by a majority of the Unaffiliated Trustees
who determine that the compensation is not in excess of any compensation paid to
such affiliates by nonaffiliates for comparable services in the same geographic
area and that the compensation paid is not greater than that generally charged
by competent nonaffiliates for comparable services in the same geographic area.
No properties will be sold to affiliates of the Advisor unless the transaction
is approved by a majority of the Unaffiliated Trustees and of the holders of a
majority of the outstanding EQK Shares. In addition, no such sale is permitted
unless the sale price is equal to or greater than the independently appraised
value of the property being sold.

Amendment of Declaration of Trust; Merger. The Declaration of Trust may be
amended, or EQK may be merged into a successor entity, by the majority vote of
the Trustees (including a majority vote of the Unaffiliated Trustees in the case
of a merger) and by vote of the holders of a majority of the outstanding EQK
Shares, except that the holders of three-quarters of the outstanding EQK Shares
must approve any amendment that would alter any of EQK's investment or
operational policies. In addition, two-thirds of the Trustees may, without the
approval or consent of the shareholders, adopt any amendment which they in good
faith determine to be necessary to permit EQK to continue to qualify as a REIT
under the Code, or to comply with other Federal laws or regulations or to comply
with state securities laws or the requirements of administrative agencies
thereunder. The Trustees may also, without the vote or consent of the
shareholders, change the name of EQK to a name that does not include any name
similar to that of LLPM or any affiliate thereof.

Prohibited Activities and Investments. EQK may not currently engage in any
business not related to its real estate investments and, in that regard, the
Declaration of Trust currently imposes certain prohibitions and investment
restrictions on various investment practices or activities of EQK, including a
prohibition against investing in any mortgage, other than purchase money
mortgages designed to facilitate the sale of EQK's real estate investments,
provided that the term of any such purchase money mortgage does not exceed the
remaining term of EQK as described above under "--Duration and Termination of
EQK."

PROPERTY MANAGEMENT AGREEMENT

EQK has also entered into a property management agreement with ERE Yarmouth
Retail, Inc. (the "Property Manager", formerly Compass), for the on-site
management of the Center. Management fees paid to the Property Manager are
generally based upon a percentage of rents and certain other charges. EQK
believes that such fees are comparable to those charged by unaffiliated
third-party management companies providing comparable services. For the years
ended December 31, 1997, 1996, and 1995, management fees paid to the Property
Manager were $307,000, $297,000, and $291,000, respectively. For the nine months
ended September 30, 1998, management fee expense attributable to services
rendered by the Property Manager was $228,000.

In connection with the redevelopment of the Center's outparcel building,
the Property Manager received a $150,000 development fee in 1995.

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SELECTED FINANCIAL DATA OF EQK

The selected historical financial data of EQK set forth below has been
derived from the financial statements of EQK as they appeared in EQK's Forms
10-K filed with the Commission for each of the five fiscal years in the period
ended December 31, 1997.

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<TABLE>
<CAPTION>
As of and for the nine
months ended
September 30, As of and for the YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from rental
operations....................... $ 4,509 $ 4,515 $ 6,158 $ 6,174 $15,761 $16,512 $18,458

Write down of
investments in real
estate (a).................... -- -- -- -- (3,200) -- --

Loss before gain on sales
of real estate and
extraordinary loss............ (198) (1,418) (1,961) (1,488) (6,575) (3,459) (2,351)

Gain on sales of
real estate (b)......... -- -- -- -- 229 -- 282

Loss before extraordinary
gain.......................... (198) (1,418) (1,961) (1,488) (6,346) (3,459) (2,069)

Extraordinary loss from
early retirement
of debt (c)................... -- -- -- -- -- -- (1,711)

Net loss......................... (198) (1,418) (1,961) (1,488) (6,346) (3,459) (3,780)

Per share data (d) Loss per share:
Loss before gain on
sales of real estate and
extraordinary loss......... $ (0.02) $ (0.15) $ (0.21) $ (0.16) $ (0.71) $ (0.37) $ (0.25)

Loss before
extraordinary loss........ $ (0.02) $ (0.15) $ (0.21) $ (0.16) $ (0.68) $ (0.37) $ (0.22)

Net loss.................... $ (0.02) $ (0.15) $ (0.21) $ (0.16) $ (0.68) $ (0.37) $ (0.41)

Dividends declared.......... -- -- -- -- -- -- --

Total assets..................... 44,265 44,908 45,067 46,830 48,209 90,258 93,163

Long-term obligations:
Mortgage notes payable,
net of imputed interest
and discount.................. 45,375 45,379 45,379 45,379 45,712 80,032 78,727

Shareholders' equity
(deficit)................ (5,180) (4,439) (4,982) (3,021) (1,533) 4,813 8,176
</TABLE>

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(a) To the extent that the net cost investment in any property exceeds its
current market value, an allowance is recorded to adjust the net investment
to management's estimate of net realizable value. The write-downs in 1995
related to EQK's investment in Castleton, a commercial office complex
located in Indianapolis, Indiana.

(b) In 1995, EQK sold its remaining interest in Castleton and recognized a gain
on the sale of $229,000. In 1993, EQK sold its remaining two buildings at
Peachtree Dunwoody Pavilion, a commercial office complex in Atlanta,
Georgia, and recognized a gain on the sale of $282,000.

(c) In 1993 EQK retired mortgage notes assumed in connection with its purchase
of the Center and recognized an extraordinary charge to earnings of
$1,711,000.

(d) Calculation is based on 9,264,344 weighted average shares outstanding
during all periods presented, except for the nine months ended June 30,
1998 during which there were 9,462,427 weighted average shares outstanding.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF EQK

FINANCIAL CONDITION

CAPITAL RESOURCES

EQK Background

At September 30, 1998, EQK's remaining real estate investment is the
Center, a regional shopping center located in Harrisburg, Pennsylvania. During
1995, EQK sold its remaining interest in Castleton, an office park located in
Indianapolis, Indiana. During 1993, EQK sold its two remaining office buildings
within its office complex located in Atlanta, Georgia, formerly known as
Peachtree. Prior to 1993, EQK sold two office buildings at Castleton (1991) and
five office buildings at Peachtree (1992).

The Declaration of Trust currently provides that the actual disposition of
the remaining property, the Center, may occur at any time prior to March 1999.
The Declaration of Trust further provides that this date may be extended by up
to two years upon the recommendation of the Trustees and the affirmative vote of
a majority of its shareholders. Based on the finite-life provisions of the
Declaration of Trust, EQK's management has been pursuing the disposition of its
remaining real estate investment and/or an alternative strategic transaction.

Due to the impact of certain adverse market conditions described below, it
may be necessary for the Trustees to recommend a formal extension of EQK's life
to facilitate the completion of the sale of the Center.

Effective December 23, 1997, EQK entered into an Agreement and Plan of
Merger, pursuant to which an affiliate of ART is to merge with and into EQK,
with EQK being the surviving entity. The Merger contemplates, among other
things, a 20-year extension of the life of EQK.

Delays in completing the Merger as originally proposed required certain
revisions to the Merger Agreement, the most significant of which are the right
of EQK's management to dispose of The Center and to distribute the proceeds of
such sale to EQK's shareholders prior to completing the Merger and a
corresponding reduction in the Merger consideration to be paid to EQK's
shareholders. EQK's management commenced marketing and sales activities during
the second quarter of 1998 including the retention of an outside broker, and is
currently proceeding towards negotiating a sales and purchase agreement with
buyers, although no definitive agreement has been reached.

Since the commencement of sales activities, changing conditions in the
capital markets have had an adverse effect on the market for real estate, and
especially on the market for regional malls. This unfavorable environment has
been characterized by a reduction in available sources of financing for real
estate transactions and by reduced purchasing interest on the part of many
traditional buyers, including many of the public real estate investment trusts.

Largely due to the conditions described above, it appears likely that
completion of the sale of the Center will occur subsequent to December 15, 1998,
the date on which the current forbearance agreement with the primary lender of
EQK's mortgage indebtedness terminates. At this time, EQK believes it may be
necessary to extend the term of the forebearance agreement, as well as the term
of EQK's loan. As a result, EQK's management has commenced discussions with both
lenders regarding extension for a period of six months with a termination date
of June 15, 1999. In consideration of the extension, it is probable that an
extension fee will be imposed. Although EQK's management believes the lender
will agree to the extension on reasonable economic terms, no assurances can be
made at this time.

On August 25, 1998 EQK executed an Amended and Restated Agreement and Plan
of Merger (defined herein as the "Merger Agreement"). According to the terms of
the Merger Agreement, upon completion of the sale of the Center, and subject to
shareholder approval, the Merger would be completed. Immediately prior to the
closing of the Merger, ART is expected to convey one of its properties to EQK.
ART will provide 100% of the financing for this property contribution via a
non-recourse note.

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ART has agreed to permit EQK to continue to solicit, or respond to, offers
from third parties for EQK. In the event EQK accepts an offer from a party other
than ART and elects not to proceed with the Merger, EQK generally will be
obligated to pay ART a "break-up" fee of $200,000 plus its share of transaction
expenses (collectively, the "Break-Up Consideration").

The Merger Agreement may be terminated by EQK if any of the following
conditions exist: (i) the Merger has not been accomplished by December 15, 1998;
(ii) EQK secures a more favorable offer from another party subject to the
payment of the Break-Up Consideration; or (iii) if the Merger Agreement in any
way impairs or delays the sale of the Center, or is likely to result in a
material reduction in proceeds.

Proceeds from the sale of the Center and, if applicable, the completion of
the Merger, will be distributed to the EQK Shareholders once EQK's liabilities
have been settled (including the retirement of its mortgage note and term loan)
and related transaction costs have been paid.

The Merger is contingent upon, among other things, the Registration
Statement relating to ART Preferred Shares to be issued pursuant to the Merger
Agreement, as revised, being declared effective by the Commission, and the
affirmative vote of the holders of 75% of the outstanding EQK Shares.

EQK, its trustees, and its Advisor have been named as defendants in a
purported class action complaint filed in Massachusetts state court, which seeks
to enjoin the Merger. The complaint also seeks other relief including
unspecified damages. EQK is vigorously pursuing its legal defenses and believes
that the disposition of this matter will not have a material adverse affect on
the financial position of the Trust.

Trading in the EQK Shares on the NYSE terminated on May 4, 1998, as EQK did
not meet the NYSE's continued listing criteria. A market for the EQK shares has
been created on the OTC Bulletin Board system.

Overview of the Center

Over the past several years, the retail industry has experienced a
significant number of retail store mergers and bankruptcies. Consolidations
within the retail industry and the financial difficulties experienced by
individual retailers have, in turn, led to a high level of unanticipated store
closings and requests for rent relief within regional shopping malls.

At the Center, the current state of the retail industry has impacted both
its department stores and its smaller specialty stores. Two of the department
stores operating in 1994 have since closed, Hess's (November 1994) and John
Wanamaker (October 1995). These department store spaces remained "dark" for
substantial periods of time pending the opening of their replacements, Hecht's
(October 1995) and Lord & Taylor (March 1997).

Mortgage Debt Extensions

On December 15, 1996 EQK extended the maturity dates on the remaining
balances of its Mortgage Note ($43,794,000) and Term Loan ($1,585,000) for a
period of 18 months (extended maturity date, June 15, 1998). The terms of such
debt facilities pursuant to the extensions are substantially comparable to the
terms in effect since the original issuance date, December 15, 1992, except as
described below. The Mortgage Note and Term Loan were previously extended from
their original maturity date on December 15, 1995 to December 15, 1996. The
Mortgage Note remains collateralized by a first mortgage lien on the Center, an
assignment of leases and rents, and certain cash balances. The Term Loan is
collateralized by a subordinate lien on the Center.

The Mortgage Note agreement has been amended to provide for monthly
payments of interest only accruing at the rate of 8.88% per annum ($324,000 per
month). This interest rate reflects an increase from the 8.54% interest rate in
effect during the previous extension period (December 16, 1995 to December 15,
1996). The average rate in effect during the initial three year term of the debt
was 9.79% per annum.

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In consideration for the extension of the maturity date of the Mortgage
Note agreement through June 15, 1998, EQK paid an up-front application fee of
$165,000 and agreed to pay a back end fee of $272,900, plus interest thereon at
the contract rate of 8.88%, at the maturity date of June 15, 1998, or the date
at which all or any part of the original principal amount is prepaid. In
consideration for the extension of the maturity date of the Term Loan through
June 15, 1998, EQK incurred an extension fee of $23,800.

The Term Loan reflects the same pay rate of 8.88% that is applicable to the
Mortgage Note, but accrues interest at a rate that re-sets periodically. The
accrual rate is computed at EQK's discretion at either 2 5/8% above the
Euro-Rate (as defined) or 1 1/8% above the Prime Rate (as defined). The accrual
rate in effect as of March 16, 1998 was 8.25%. The difference between the
accrual rate and the pay rate will be reflected in the principal balance due at
maturity.

On June 15, 1998 EQK paid deferred loan fees plus interest to the mortgage
note holder in the amount of $309,200 and deferred loan fees to the term loan
holder in the amount of $88,100.

One of the conditions of the Mortgage Note was the establishment of a
capital reserve account, which is maintained by a third-party escrow agent and
from which expenditures must be approved by the lender. The cash balance of
EQK's capital reserve account at March 31, 1998 was $432,000. EQK's management
believes the current cash balance in this account, coupled with additional cash
flows projected to be generated from operations, will be sufficient to fund the
Center's capital expenditure requirements discussed below.

LIQUIDITY

The comparability of the Statements of Cash Flows during 1995 to 1997 is
affected by the property disposition and debt repayments that occurred during
1995 as discussed below.

For the nine months ended September 30, 1998, cash flows used in operating
activities primarily represent the payment of the deferred loan fees of $361,000
and related accrued interest on the fees of $36,300. These fees were accrued and
paid in connection with the extension of the term loan agreement through June
15, 1998. For the nine month period ending September 30, 1997, cash flows used
in operating activities primarily represent the payment of real estate taxes as
well as interest.

During 1997, EQK generated cash flows from operating activities of
$208,000, a decrease of $1,009,000 from the prior year's operating cash flow of
$1,217,000. Operating cash flow comparisons were impacted by two 1996
non-recurring events which essentially offset one another, the refund of
previously paid real estate taxes at Peachtree Dunwoody Pavilion ($268,000), and
the repayment of a $300,000 loan to the Advisor in 1996. The decrease in
operating cash flows from 1996 was primarily attributable to a decrease in the
Center's's cash flows from operations due to the receipt of lease cancellation
income ($451,000) in 1996. Also contributing to the decrease is an increase in
accounts receivable from certain anchor tenants of $390,000 due to the timing of
collection of the 1997-1998 tax reimbursements. Additionally, interest payments
increased by $136,000 from prior year. The increase in interest is a result of
an increase in the mortgage note interest rate to 8.88% from 8.54% effective
with the December 15, 1996 mortgage note extension agreement.

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<PAGE> 123

During 1996, the cash flows provided by operating activities increased by
$94,000 compared to 1995. This increase in operating cash flows was primarily
attributable to a decline in cash paid for interest following the December 1995
partial repayment of mortgage debt ($2,816,000), an increase in the Center's
cash flows from operations related to the receipt of lease termination fees
($451,000) and the accelerated collections of real estate tax recoveries
($150,000), and the receipt of a $268,000 refund in 1996 of previously paid real
estate taxes related to reductions in the 1991 and 1992 assessed values of
Peachtree (see Note 10). These increases were partially offset by the loss of
Castleton's operating cash flow following the sale in December 1995 (which
amounted to $3,656,000 in 1995).

Cash flows used in investing activities for the nine months ended September
30, 1998 and 1997 were for routine capital expenditures at The Center. EQK
anticipates capital expenditures of approximately $700,000 for the remainder of
1998, which primarily represents tenant allowances.. Certain of these
expenditures are discretionary in nature and may be deferred into future
periods.

Cash flows used in investing activities during 1997 were $546,000. The 1997
results reflect the costs associated with a parking lot repavement project and
the payment of build out allowances to tenants at the Center. Cash flows used in
investing activities during 1996 ($195,000) were primarily for the payment of
tenant allowances.

Net cash provided by investing activities in 1995, $33,145,000, was due to
the receipt of proceeds from the sale of Castleton, $38,507,000, partially
offset by additional investments in real estate, including $3,440,000 related to
the redevelopment of the Center outparcel building.

The cash flows used in financing activities for the nine months ended
September 30, 1998 are limited to principal payments on EQK's term loan. The
mortgage note requires monthly payments of interest only.

There were no cash flows used in financing activities during 1997. Pursuant
to the mortgage debt extension effective December 15, 1996, the Mortgage Note
and Term Loan generally require monthly payments of interest only.

Cash flows used in financing activities during 1996 ($333,000) were limited
to scheduled principal payments on EQK's debt.

Net cash used in financing activities in 1995, $35,997,000, primarily
related to the application of sales proceeds of $35,990,000 (net of customary
prorations) to retire a portion of EQK's mortgage indebtedness.

EQK will make certain capital expenditures to maintain or enhance the value
of the property, including tenant allowances associated with leasing activity.
EQK anticipates making capital expenditures in 1998 of up to $2,200,000, which
include budgeted tenant allowances of $1,700,000. Certain of these expenditures
are discretionary in nature and therefore may be deferred into future periods.

EQK's liquidity requirements for the remainder of 1998 also will include
principal and interest payments of approximately $1,007,000 pursuant to the
existing loan agreements. The loan agreements specify that the remaining loan
balances of $45,375,000 be paid in full by December 15, 1998.

EQK's cash management agreement stipulates that all rental payments from
tenants are to be made directly to a third party escrow agent that also funds
monthly operating expenses in accordance with a budget approved by the lender.
EQK believes that its cash flow for 1998 will be sufficient to fund its various
operating requirements, including budgeted capital expenditures and monthly
principal and interest payments, although its discretion with respect to cash
flow management will be limited by the terms of the cash management agreement.
EQK's management believes that EQK's current cash reserves, coupled with
additional cash flow projected to be generated from operations, will permit EQK
to meet its operating, capital and monthly debt service requirements.

EQK has recorded its investments in real estate held for sale at the lower
of cost or fair value less cost to sell. Accordingly, EQK has not written up the
cost basis of its investment in the Center to its substantially higher net
realizable value. Therefore, EQK's management does not believe that its deficit
in shareholders' equity of $5,180,000 at September 30, 1998 is indicative of its
current liquidity or the net distribution that its shareholders would receive
upon liquidation.

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<PAGE> 124

YEAR 2000 READINESS DISCLOSURE

The inability of computers, software and other equipment to recognize and
properly process data fields containing a two-digit year is commonly referred to
as the Year 2000 compliance issue ("Y2K"). As the year 2000 approaches, such
systems may be unable to accurately process certain date-based information.

Y2K exposures of EQK and the Center are currently being assessed. Potential
critical exposures include reliance on third party vendors and building systems
that are not Y2K compliant. EQK has begun to communicate with its third party
service vendors such as LLPM and LaSalle Partners in an effort to assess their
Y2K compliance status and the adequacy of their Y2K efforts.

The Center is being assessed in an effort to identify Y2K issues. Any
required remediation strategy will depend on the outcome of the assessment and
therefore will not be developed until the assessment is complete. EQK's
management expects the assessment to be completed and remediation efforts to be
underway by the end of the first quarter of 1999.

Neither EQK nor the Center has incurred any material costs to date relating
to Y2K. The total assessment cost is expected to total approximately $10,000.
These costs were not incurred and therefore not accrued at September 30, 1998.
Remediation costs cannot be reasonably estimated until the assessment is
complete and a remediation strategy is determined.

The failure to adequately address the Year 2000 issue may result in the
closure of the Mall. In order to reduce the potential impact on the operations
of EQK and the Center, contingency plans are expected to be developed once Y2K
exposures have been assessed.

A building contingency plan is expected to be developed once the assessment
has been completed. A contingency plan may involve but not be limited to the
engagement of additional security services, the disconnect of system interfacing
(that does not significantly impact the Center's operations) and the
identification and engagement of alternative service vendors.

If the sale of the Center and the Merger with ART occur as currently
proposed, the Property Manager and the Advisor will cease providing services to
EQK. If, subsequent to the sale of the Center, the Merger is approved and EQK
continues as an operating entity, affiliates of ART will provide property
management and advisory services on an ongoing basis. EQK does not currently
have knowledge of the status of ART's and its affiliates' Y2K compliance.
Accordingly, there can be no assurance that all business critical systems will
be fully Y2K compliant, or that the consequences of any systems deficiencies
will not have a material adverse effect on EQK.

RESULTS OF OPERATIONS

For the nine months ended September 30, 1998, EQK reported a net loss of
$198,000 ($.02 per share) compared to a net loss of $1,418,000 ($.09 per share)
for the nine months ended September 30, 1997. For the three months ended
September 30, 1998, EQK reported net income of $282,000, compared to a net loss
of $565,000 for the three months ended September 30, 1997.

For the year ended December 31, 1997, EQK reported a net loss of $1,961,000
($.21 per share) compared to net losses of $1,488,000 ($.16 per share) and
$6,346,000 ($.71 per share) for the years ended December 31, 1996 and 1995,
respectively. The year ended December 31, 1995 includes a write-down of the
investment in Castleton of $3,200,000 ($.35 per share) and the gain on the sale
of Castleton of $229,000 ($0.03 per share).

EQK's revenues from rental operations for the three and nine months ended
September 30, 1998 were $1,619,000 and $4,509,000, respectively. The increase
for the three months ended September 30, 1998, $74,000, is due

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<PAGE> 125

to the receipt of a non-recurring lease cancellation fee of approximately
$200,000. This increase in income is largely offset by the sum of other income
variances, none of which are individually significant. There were no significant
variances in revenues on a year to date basis.

EQK's revenues for the year ended December 31, 1997 were $6,158,000, which
represented a $16,000 decrease from the 1996 amount of $6,174,000. Rental
revenues in 1997 increased by approximately $379,000 over 1996. A portion of
this increase, $103,000, was a result of increased rent payments from certain
tenants whose payment obligations had been reduced in prior years pursuant to
the exercise of cotenancy provisions in their lease agreements and short-term
rent relief agreements associated with anchor store vacancies. The remaining
increase in rental revenues from 1996 ($276,000) is attributable to a non-cash
adjustment to straight-line rents made in 1996. The increases in 1997 rental
revenues, however, were offset by the non-recurrence of lease termination fees
and other miscellaneous income recorded in 1996.

EQK's revenues for the year ended December 31, 1996 were $6,174,000, which
represented a $9,587,000 decrease from the 1995 amount of $15,761,000. This
decline was primarily due to the sale of Castleton, which accounted for revenues
of $9,554,000 for the year ended December 31, 1995. The Center's 1996 rental
revenues declined from amounts recognized in 1995 due to the effects of tenant
bankruptcies and short-term rent relief agreements ($216,000), lower percentage
rent due to decreases in certain tenants' sales volumes ($90,000), and a
non-cash adjustment to the calculation of minimum rents recognized on a
straight-line basis over the terms of the tenant leases ($276,000). However,
such decreases were substantially offset by collections of lease termination
fees of $451,000 and an increase of $135,000 in temporary tenant rental
revenues.

EQK's operating expenses for three and nine months ended September 30, 1998
were $190,000 and $629,000, respectively, representing a decrease of $93,000 and
$13,000 from the respective prior year periods. This variance is attributable to
the sum of several operating expense variances, none of which is individually
significant.

The decrease in the depreciation and amortization expense between periods
is primarily due to the cessation of depreciation and amortization expense
relating to the real estate investment and deferred leasing costs effective as
of March 31, 1998.

Operating expenses (net of reimbursements from tenants) for the year ended
December 31, 1997 were $1,083,000, which represented an increase of $196,000
from the 1996 amount of $887,000. This increase is primarily due to a decrease
in common area maintenance expense recoveries of $84,000 due to lower average
occupancy levels in 1997. Also, bad debt expenses increased by $82,900 from 1996
due to tenant bankruptcies.

Operating expenses (net of reimbursements from tenants) for the year ended
December 31, 1996 were $887,000, which declined from the related 1995 amounts of
$5,403,000. The decline is primarily due to the sale of Castleton, which
accounted for expenses of $4,600,000 for the year ended December 31, 1995. This
decline in annual expenses was offset by a net increase in the Center's
operating expenses of $77,000. The annual increase was due to an increase in bad
debt expenses of $151,000 due to the non-recurrence of collections in 1995 of
previously reserved tenant receivables and an increase in administrative
expenses of $50,000. These increases were offset by decreases in advertising
expenses of $94,000 and sales tax expenses of $53,000 attributable to
non-recurring items in 1995.

Other income of $268,000 and $400,000 was recorded in 1996 and 1995,
respectively, relating to refunds of previously paid real estate taxes for
Peachtree Dunwoody Pavilion and Castleton. No such similar events occurred
during 1997.

Interest expense for the years ended December 31,1997, 1996, and 1995 was
$4,046,000, $3,896,000, and $8,302,000, respectively. The increase in interest
expense in 1997 as compared to 1996 is due to an increase in the mortgage note
interest rate to 8.88% from 8.54% effective with the December 15, 1996 mortgage
note extension agreement. The decrease in interest expense in 1996 as compared
to 1995 is primarily attributable to the lower average debt balances outstanding
in 1996 following the mortgage debt repayment in December 1995, as well as
decreases in the interest accrual rates for both the Mortgage Note and Term
Loan.

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<PAGE> 126

Other expenses-net consist of portfolio management fees, other costs
related to the operation of EQK, and interest income earned on cash balances.
Other expenses decreased $298,000 in 1997 from 1996 amounts. This decrease is
primarily attributable to the recognition of imputed interest on deferred
advisory fees in 1996 of $302,000.

Other expenses-net decreased $227,000 in 1996 from 1995 balances. The
decrease is primarily due to a decrease in portfolio management and other
professional fees.

As discussed in the liquidity section above, EQK's management believes that
its existing cash reserves and its anticipated cash flow generated from
operations will be sufficient to meet its capital and monthly debt service
requirements. However, due to the effects of non-cash accounting adjustments
(principally depreciation and amortization), EQK's management anticipates that
EQK will incur losses in the future comparable to the loss recognized in 1997.
There is no assurance that future results will not be materially affected
(positively or negatively) by, among other factors, changes in mall occupancy
and rental rates, significant deviations in operating expenses, changes in
interest rates and transaction costs incurred in connection with sale and
financing transactions.

DESCRIPTION OF THE EQK SHARES

EQK is currently authorized to issue 10,055,555 EQK Shares, and the EQK
Board may not currently issue any additional EQK Shares unless such issuance is
approved by the holders of three-quarters of the outstanding EQK Shares. Upon
consummation of the Merger, the Declaration of Trust will be amended to remove
all limitations on the number of EQK Shares that EQK shall have the authority to
issue. See "The Declaration Amendment Proposal." The EQK Shareholders are
entitled to receive and to participate ratably in dividends, when and as
declared by the EQK Board out of any funds legally available for such purpose,
and, in the event of termination of EQK or upon the distribution of its net
assets, to receive and to participate ratably in payments and distributions. All
EQK Shares have equal voting rights. The EQK Shares do not have any preference,
appraisal, conversion, exchange or preemptive rights. Outstanding EQK Shares are
freely transferable, except that in certain limited circumstances the EQK Board
may refuse to transfer EQK Shares or may compel redemption of EQK Shares. See
"The Business of EQK -- Summary of the Existing Declaration of Trust --
Redemption and Prohibition of Transfer of Shares." The outstanding EQK Shares
have been legally issued and are fully paid and nonassessable, except to the
extent of any personal liability of the EQK Shareholders as described herein
under "The Business of EQK -- Summary of the Existing Declaration of Trust --
Shareholder Liability." At any meeting of the holders of EQK Shares, each EQK
Shareholder is entitled to one vote for each EQK Share owned without cumulative
voting with respect to the election of Trustees and with respect to all other
matters as to which the vote of the EQK Shareholders may from time to time be
required or permitted under the Declaration of Trust. The EQK Shareholders may
vote by proxy provided that proxies are placed on file with EQK before the time
of voting.

According to EQK's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1998, there were 9,632,212 outstanding EQK Shares. It is a
condition of the Merger that 9,632,212 EQK Shares are outstanding immediately
prior to the consummation of the Merger. In addition, according to EQK's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998,
there were 234 holders of record of EQK Shares. Although EQK does not know the
exact number of beneficial holders of its shares, EQK estimates that the number
exceeds 1,500.

EQK has appointed Chase Mellon Shareholder Services as its registrar and
transfer agent.

On April 23, 1998, the New York Stock Exchange announced that trading in
the common stock of EQK Realty Investors I would be suspended prior to the
opening of the NYSE on May 4, 1998, as it had fallen below the NYSE's continued
listing criteria. The EQK Shares are currently traded in the over-the-counter
market.

COMPARISON OF EQK SHARES TO ART PREFERRED SHARES

The following is a brief summary comparison of certain of the principal
terms of the EQK Shares and the ART Preferred Shares.

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<PAGE> 127

<TABLE>
<CAPTION>
EQK Shares ART Preferred Shares
---------- --------------------

<S> <C> <C>
Interest/Dividend Rate No stated rate. Each EQK Share 10% per annum, payable
is entitled to receive quarterly quarterly, on a cumulative,
distributions of cash flow compounded basis, and
generated from operations in commencing accrual on the date
excess of operating expenses, of issuance.
capital expenditures, debt service,
working capital and reasonable
reserves. No dividends have been
paid in respect of the EQK Shares
since 1994.

Optional Redemption Not applicable, except that the ART may redeem any or all of
EQK Board has the power to the ART Preferred Shares at any
redeem or prohibit the transfer of time and from time to time, at its
a sufficient number of EQK option, for cash upon no less than
Shares selected in a manner 20 days nor more than 30 days
deemed appropriate to maintain prior notice thereof. The
or bring the ownership of the redemption price of the ART
EQK Shares into conformity with Preferred Shares shall be an
the real estate investment trust amount per share equal to
requirements of the Code. (i) 104% of the Adjusted
Liquidation Value during the
period from August 16, 1998
through August 15, 1999; and (ii)
103% of the Adjusted Liquidation
Value at any time on or after
August 16, 1999.

Ranking The EQK Shares are the only Shall rank on a parity as to
class of shares currently dividends and upon liquidation,
authorized by the Declaration of dissolution or winding up with all
Trust. However, upon other shares of Special Stock
completion of the Merger, the issued by ART and shall be
Declaration of Trust may be senior to ART Common Shares.
amended to provide for the ART shall not issue any shares of
issuance of Additional EQK Special Stock of any series which
Shares or other types of are superior to the ART Preferred
securities, certain of which may Shares as to dividends or rights
have preferences senior to the upon liquidation, dissolution or
EQK Shares. winding up of ART as long as
any shares of the ART Preferred
Shares are issued and
outstanding, without the prior
written consent of the holders of
66 2/3% of such ART Preferred
Shares then outstanding and
voting separately as a class.

</TABLE>

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<PAGE> 128

<TABLE>
<S> <C> <C>
Voting Rights One vote per EQK Share. Non-voting except (i) as provided
by law, (ii) with respect to an
amendment to ART's articles of
incorporation or bylaws that
would materially alter or change
the existing terms of the ART
Preferred Shares, and (iii) at any
time or times when all or any
portion of the dividends on the
ART Preferred Shares for any six
quarterly dividends, whether or
not consecutive, shall be in
arrears and unpaid.

New York Stock Exchange On May 4, 1998 the EQK Shares Application will be made to list
Listing were delisted from the NYSE. the ART Preferred Shares on the
NYSE.

Dividends Received Distributions on the EQK Shares Dividends on the ART Preferred
Deductions are not eligible for the dividends Shares are eligible for the
received deduction for corporate dividends received deduction for
holders. corporate holders. The dividends
received deduction is not
applicable to individual,
non-corporate holders.

</TABLE>

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<PAGE> 129

<TABLE>
<S> <C> <C>
Conversion Not Applicable. Convertible into ART Common
Shares at the option of the holder
after the earliest to occur of (i)
the August 15, 2003; (ii) the first
business day, if any, occurring
after a Quarterly Dividend
Payment Date on which
dividends equal to or in excess of
5% of the Liquidation Value is
accrued and unpaid, or (iii) ART
becomes obligated to mail a
statement to the holders of record
of each of the ART Preferred
Shares because of a proposal by
ART to merge or consolidate
with or into any other corporation
(unless ART is the surviving
entity), or to sell, lease, or convey
all or substantially all its property
or business, or to liquidate,
dissolve or wind up. Each ART
Preferred Share is convertible (in
most instances) into that number
of ART Common Shares
obtained by dividing (i) the sum
of the Adjusted Liquidation
Value of such ART Preferred
Share plus all accrued and unpaid
dividends on such ART Preferred
Share to the date of conversion by
(ii) the Conversion Price. The
Conversion Price will be the
amount (rounded upward to the
nearest cent) equal to 90% of the
simple average of the daily
closing price of the ART
Common Shares for the twenty
business days ending on the last
business day of the calendar week
immediately preceding the date of
conversion on the principal stock
exchange on which such ART
Common Shares are then listed.
ART may elect to redeem ART
Preferred Shares that are
submitted for conversion as
described herein.

</TABLE>

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<PAGE> 130

DESCRIPTION OF THE HARRISBURG EAST MALL

GENERAL

The Center is a two-level enclosed regional mall shopping center located
approximately three miles from the central business district of Harrisburg,
Pennsylvania, the state capital. It contains approximately 851,000 gross
leasable square feet anchored by three major department stores: J.C. Penney,
Hecht's, and Lord & Taylor. The Center is located on a site of approximately 64
acres with paved surface parking for approximately 4,763 automobiles (5.5 spaces
per 1,000 gross leasable square feet). ERE Yarmouth Retail currently manages the
Center.

The total building area of the Center is allocated as shown in the table
below.

<TABLE>
<CAPTION>
Approximate
Number of Gross
Store Spaces at Leasable Area % of Total Occupancy %
Dec.31, 1997 (Sq. Ft.) Building Area at 12/31/97
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Gross Leasable area
Anchor stores 3 514,565 51.6% 100.0%
Mall stores 106 284,260 28.5 80.8
Other stores in free-standing building 3 52,345 5.2 87.8
--- ------- ------
Total Gross leasable area 112 851,170 85.30 92.8%
=== ------- ----- ======
Common area 146,371 14.70
------- -----
Total building area 997,541 100.0%
======= =====
</TABLE>

LOCATION AND TRADE AREA OVERVIEW

The Center is located in Dauphin County, Pennsylvania, near the
intersection of Paxton Street (U.S. Route 322) and Interstate 83. The Center is
adjacent to Pennsylvania Route 441, approximately five miles from the
Pennsylvania Turnpike and three miles from the central business district of
Harrisburg. Access to the site from Interstate 83, the major north-south traffic
corridor serving Harrisburg, is provided by the Paxton Street interchange.
Access from the Pennsylvania Turnpike, the major east-west traffic corridor
serving Harrisburg, is provided by the Interstate 283 interchange.

The primary trade area for the Center encompasses the populated section of
Dauphin County, Pennsylvania, and along with small adjacent portions of
Cumberland and Perry Counties, Pennsylvania, comprises the Harrisburg
Metropolitan Statistical Area (the "Harrisburg M.S.A."). In total, the
Harrisburg M.S.A. encompasses 1,991 square miles.

Harrisburg, the capital of the Commonwealth of Pennsylvania, is situated in
south-central Pennsylvania on the banks of the Susquehanna River, between
Philadelphia and Pittsburgh. The Harrisburg M.S.A. is ranked 85th in regard to
size among metropolitan areas in the United States. The Harrisburg M.S.A. is an
area which has experienced moderate economic and demographic growth in the
recent past. Historically a center for agriculture and manufacturing, the area's
economy has become increasingly more diversified with strong job growth
experienced in services-related employment. In addition, as the state capital,
the area is a center for government and government related employment. Similar
to many areas nationally, demographic growth in the Harrisburg M.S.A. is
projected to occur at a more moderate rate relative to past levels. However, the
Harrisburg M.S.A. remains economically vital.

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<PAGE> 131

ANCHOR TENANTS

The Center has three department stores, two of which are currently occupied
by J.C. Penney and Hecht's, a division of May Department Stores Co. ("May
Company"), which replaced Hess' in November 1995. The third department store
space was formerly occupied by John Wanamaker, which closed in October 1995
following Woodward & Lothrop's (the owner of John Wanamaker) sale of certain
department stores in this retail chain to May Company pursuant to an August 1995
bankruptcy court auction. Given its existing presence at the Center through its
recently- opened Hecht's department store, May Company initially pursued an
assignment of this leasehold interest to other retail operators before deciding
in May 1996 to instead open a Lord & Taylor (a division of May Company)
department store in this location. The execution of such lease agreement has
resulted in, among other things, the termination of the legal proceedings
initiated by EQK against May Company in March 1996 following May Company's
failure to open or cause another retail operator to open for business once the
John Wanamaker store closed, which was a violation of a continuous operating
covenant contained in its lease agreement.

Lord & Taylor opened its newly renovated store on March 10, 1997.
Initially, Lord & Taylor had projected an opening prior to the 1996 holiday
shopping season. However, issues affecting construction scheduling delayed the
opening date.

The three anchor tenants lease their stores and the underlying land
pursuant to leases which are summarized below.

<TABLE>
<CAPTION>
Area Minimum Expiration Renewal
Anchor Tenant (Sq. Ft.) Annual Rent Date Options
------------- --------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Hecht's 187,280 $200,000 1/31/2007 3-10 yr. options
J.C. Penney 153,770 $300,000 3/31/2001 6-5 yr. options
Lord & Taylor 173,515 $150,000 10/31/2005 3-10 yr. options
</TABLE>

MALL AND OTHER TENANTS

At September 30, 1998, the Center had 82 mall and out parcel tenants
(excluding anchor store tenants) occupying approximately 284,000 square feet of
gross leasable area, representing an occupancy rate of 82% and approximately
57,000 square feet were vacant. The gross leaseable area of the mall is divided
evenly between national and regional/local tenants. Exclusive of the anchor
stores, no tenant occupies more than 10% of the gross leasable area of the
Center.

[Remainder of Page Intentionally Left Blank]

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<PAGE> 132

LEASE EXPIRATIONS

The following table shows selected vacancy and lease expiration information
for the tenants of the mall and outparcel stores at December 31, 1997:

<TABLE>
<CAPTION>
% of
Gross 1997 Aggregate 1997
Number of Leased Minimum Minimum
Leases Area Annual Annual
Year Expiring (a) (Sq. Ft.) Rent Rent
---- ------------ --------- ------- --------------
<S> <C> <C> <C> <C>
Month to Month 5 10,696 198,594 4.0%

1998 13 12,588 288,670 5.9%

1999 4 5,637 148,558 3.0%

2000 11 33,461 526,178 10.6%

2001 8 16,107 426,772 8.7%

2002 8 19,458 305,537 6.2%

2003 9 24,579 487,722 9.9%

2004 5 8,794 234,666 4.8%

2005 7 59,271 637,112 12.9%

2006 6 28,174 489,776 9.9%

2007 and thereafter 5 56,804 444,494 9.0%
--- ------- --------- ----
TOTAL 81 275,569 4,188,079 84.9%
=== ======= ========= ====
</TABLE>

(a) Assumes no renewal options will be exercised in order to show the earliest
termination of the leases.

CAPITAL REQUIREMENTS

EQK will make certain capital expenditures to maintain or enhance the value
of The Center, including tenant allowances associated with leasing activity. EQK
anticipates making capital expenditures in 1998 of $2,200,000, which include
budgeted tenant allowances of $1,700,000. Certain of these expenditures are
discretionary in nature and therefore may be deferred into future periods.

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<PAGE> 133

One of the conditions of the Mortgage Note was the establishment of a
capital reserve account, which is maintained by a third-party escrow agent and
from which expenditures must be approved by Prudential. The balance of this
account at December 31, 1997 was $1,852,000. Management of EQK believes the
current cash balance in this account will be sufficient to fund the Center's
capital expenditures requirements.

OCCUPANCY DATA AND AVERAGE EFFECTIVE ANNUAL RENT

Information regarding occupancy rates and average effective annual rent for
the property, including anchor and outparcel tenants, is set forth below:

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Occupancy Rate (a) 92.8% 93.7% 73.6% 94.3% 96.9%
==== ==== ==== ==== ====

Total Annual Minimum Rent (b) $ 5,005,603 $ 4,902,122 $ 5,110,162 $ 5,973,828 $ 5,943,748

Total Percentage Rent 193,019 225,419 269,558 294,591 154,039
------------- ------------- ------------- ------------- -------------

Total Annual Effective Rent $ 5,198,622 $ 5,127,541 $ 5,379,720 $ 6,268,419 $ 6,097,787
============= ============= ============= ============= =============

Average Annual Rent
Per Square Foot (c)

Mall Anchor Tenants $ 1.29 $ 1.37 $ 1.32(d) $ 1.67 $ 1.71

Outparcel Stores $ 7.38 $ 7.44 $ 6.91 $ 5.69 $ 6.30

Mall Tenants $ 18.18 $ 17.08 $ 16.46 $ 16.55 $ 15.48

All Tenants $ 6.58 $ 6.26 $ 6.44(d) $ 7.49 $ 7.16
</TABLE>

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

(a) Occupancy rate at December 31, 1995 reflects vacancy of the former John
Wanamaker anchor space. Excluding the effect of the vacancy, the occupancy rate
on a pro forma basis at December 31, 1995 was 95.8%. On May 13, 1996, EQK and
May Company executed a lease agreement that provides for the opening of a Lord &
Taylor department store. The December 31, 1996 occupancy rate includes the
occupancy of Lord & Taylor, which opened for business on March 10, 1997.

(b) Total minimum annual rent and percentage rent represents actual tenant
rental income for each calendar year, and does not include adjustments for
stipulated rent increases in accordance with Generally Accepted Accounting
Principles.

(c) Anchor and outparcel rent per square foot data is based on actual leased
square footage during each calendar year presented. Mall tenant rent per square
foot data is based on leased square footage at December 31 of each year
presented.

(d) The decrease in mall anchor tenant average rent per square foot in 1995 and
average rent per square foot for all tenants is principally due to the
replacement of the Hess department store with Hecht's in November 1994, and
Hecht's expansion into an adjacent basement space. Hecht's now occupies 187,280
square feet at $1.07 per square foot, whereas Hess formerly occupied 139,656
square feet at $2.18 per square foot.

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<PAGE> 134

COMPETITION

The following table provides selected information with respect to certain
existing competitors of the Center. Each property is located within eight miles
of the Mall. Additional information with respect to Colonial Park Plaza, Capital
City Mall and Camp Hill Shopping Center, the primary competitors of the Center,
is set forth below.

<TABLE>
<CAPTION>
Gross Leasable
Shopping Center Type of Center Area (Sq. Ft.) Anchor Stores
--------------- -------------- -------------- -------------
<S> <C> <C> <C>
Colonial Park Plaza Enclosed one level 765,000 Sears, The Bon Ton, Boscov's
regional mall

Capital City Mall Enclosed one level 565,000 Sears, Hecht's, JC Penney
regional mall

Camp Hill Shopping Center Enclosed one level mall 506,000 Boscov's, Montgomery Ward,
Giant Grocery Store

Union Square Power Center 289,000 Dunham Sports, Office Max,
Gabriel Bros., Weis, Chuck E.
Cheese

Colonial Commons Power Center 429,000 Giant Grocery Store, Service
Merchandise, Montgomery
Ward, AMC Theater, RX
Place

Point Shopping Center Strip Center 277,000 U.S. Factory Outlet,
Burlington Coat , Long Horn
Steakhouse
</TABLE>

The boundaries of the trade area for the Center are influenced by the
existence of natural boundaries, competing developments, and demographic
characteristics. The Susquehanna River splits the Harrisburg market in two,
creating the East and West shores. The Center is located in Dauphin County in
the East shore area. The Mall's primary trade area consists of all of Dauphin
County, while the secondary trade area includes sections of Lebanon and
Lancaster counties on the East shore and sections of Perry and Cumberland
counties on the West shore.

Primary competition for the Center consists of three regional centers
located in the Harrisburg trade area: Colonial Park Plaza, Capital City Mall,
and Camp Hill Shopping Center.

Colonial Park Plaza, which opened in 1960, is located approximately five
miles north of the Center in the primary trade area, and contains 762,000 square
feet of gross leasable area. It is anchored by The Bon-Ton, Sears, and

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<PAGE> 135

Boscov's, contains 90 in-line specialty retailers and as of December 31, 1996
had an occupancy percentage of 90%. In 1990, this one- level center was
renovated and expanded to include a food court and additional specialty shops.
Colonial Center continues to be Harrisburg East's primary competitor due to the
strength of Boscov's and its tenant mix, which is very similar to that found at
Harrisburg.

Capital City Mall, a one-level center which opened in 1974, is located
eight miles west of the Center in the secondary trade area. The center contains
approximately 722,000 square feet of gross leasable area and is anchored by
Hecht's, JC Penney, and Sears. As of December 31, 1996 it was 97.7% occupied,
with a strong concentration of boutique style retailers, and with the addition
of Hecht's and JC Penney in 1995, offers the same anchor appeal as the Center.

Camp Hill Shopping Center, a former community center originally constructed
in 1959, was completely enclosed and renovated in 1987. Camp Hill is located
approximately eight miles west of the Center in the secondary trade area, and
contains approximately 505,700 square feet. The center is anchored by Boscov's
and Montgomery Ward, and also contains a 42,000 square foot Pathmark Superstore.
The tenant mix is mostly comprised of local retailers and occupancy at 95.0% at
December 31, 1996.

DEBT

As previously discussed, EQK's management is pursuing an extension of EQK's
mortgage debt to at least the end of the year. As described herein under "The
Business of EQK," EQK completed an 18 month extension of its existing mortgage
debt aggregating $45,379,000 effective December 1996 (maturity date of June 15,
1998). The following table sets forth certain information regarding the
outstanding debt. Both the Mortgage Note and the Term Loan may be prepaid in
full without penalty.

<TABLE>
<CAPTION>
Principal
Principal Annual Debt Balance at
Balance as of Service Maturity Maturity
Lender Annual Rate 1997 (000's) (000's) Date (000's)
------ ----------- ------------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Prudential 8.88%(a) $43,794 $3,888 6/15/98 $43,794
PNC 8.88%(b) 1,585 132 6/15/98 1,585(2)
</TABLE>

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

(a) The extended Mortgage Note Agreement with Prudential requires monthly
interest only payments of $324,000, at 8.88%. In consideration for the fixed
annual interest accrual rate, EQK paid an up-front application fee of $165,000
and agreed to pay a back end fee of $272,900, plus interest thereon at the
contract rate of 8.88%, at the maturity date of June 15, 1998, or the date at
which all or any part of the original principal amount is prepaid.

(b) The extended Term Loan Agreement with PNC provides for the accrual interest
rate to be re-set periodically, and is computed at EQK's discretion at either 2
5/8% above the Euro-Rate (as defined in the Term Loan Agreement) or 1 1/8% above
the Prime Rate (as defined in the Term Loan Agreement). The accrual rate in
effect as of March 16,1998 is 8.25%. The differential between the accrual rate
and the pay rate of 8.88% will be added or subtracted to the principal balance
due at maturity. In consideration for the extension of the maturity date of the
Term Loan through June 15, 1998, EQK incurred an extension fee of $23,800.

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<PAGE> 136

PHYSICAL DESCRIPTION OF BUILDINGS

The enclosed shopping mall and the anchor stores are two-level buildings of
steel frame and masonry construction with reinforced concrete foundations and
four-ply built-up roofs. The free-standing building is a one-level building of
similar construction, containing convenience-type shops. The exterior of the
mall consists of stone and brick walls and the anchor stores are of
complimentary finishes. The mall's two levels are connected by two escalators
and two stairways. All mall tenants and the anchor stores have their own air
handling units which are supplied with chilled and hot water from a central
plant. The free-standing building is served by roof-top cooling units which are
predominantly of the packaged, self-contained type with gas heating sections.

PHYSICAL IMPROVEMENTS

Since acquiring the Mall in 1985, EQK has undertaken several physical
improvement programs. In 1987, EQK converted approximately 51,400 square feet of
space in the basement of the former Hess's department store space into mall
tenant space, at which time it was leased to Toys 'R' Us. During 1988, a new
food court with approximately 13,000 square feet of gross leasable area was
added. In 1991, EQK completed the conversion of 47,960 square feet of space
previously occupied by JC Penney into approximately 31,500 square feet of new
leasable area leased at substantially higher rates.

In conjunction with the JC Penney conversion, the remaining area of the JC
Penney store was remodeled. In addition, the terms of the amended JC Penney
lease required EQK to renovate the common areas and the exterior facade of the
Mall. This renovation was completed in 1993 for a cost of approximately
$4,000,000. The project included a complete refurbishment of the property's
interior common area, with new floors, finishes, and lighting throughout.

Upon the expansion of Hecht's into the basement space previously occupied
by Toys 'R' Us (approximately 51,400 square feet), EQK renovated Harrisburg East
Mall's outparcel building (approximately 51,000 square feet) to accommodate the
relocation of Toys 'R' Us for a cost of approximately $3,440,000. In addition to
the expansion of the anchor tenant space, Hecht's performed an interior
renovation of its new department store space.

In anticipation of the opening of Lord & Taylor in the former John
Wanamaker anchor space, May Company (Lord & Taylor's parent company) completed a
major renovation of this anchor store location. EQK's management believes that
May Company has spent approximately $10,000,000 on renovations and improvements.

APPRAISAL OF THE CENTER

EQK has received an appraisal from an unaffiliated third-party appraiser
(the "Independent Appraiser") with respect to the market value of the Center.
Based upon the analysis set forth in such appraisal, the Independent Appraiser
estimates that the market value of the leasehold interest (subject to occupancy
leases) of the Center, on a free and clear basis as of December 31, 1997, was
$62,300,000. In arriving at its appraised value for the Center, the Independent
Appraiser considered relevant economic and market factors, including population,
employment and other demographic factors and the impact of competition from
other shopping centers in the Harrisburg M.S.A.

REAL ESTATE TAXES

Real estate taxes are levied against the Center for county and township,
and school tax purposes. County and township taxes are due March 1 and school
taxes are payable on September 1. Harrisburg paid $1,035,000 in real estate
taxes in 1997. The 1997 millage rate was 28.39. Though the county lowered the
assessed value of Harrisburg East in 1997, the decrease in tax expense
associated with the lower assessed value was offset by a rate increase announced
by the county of approximately 2 millage points. Real estate taxes are
substantially reimbursed by the tenants through real estate tax recovery
billings.

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<PAGE> 137

DEPRECIATION

As of December 31, 1997, for Federal income tax purposes, EQK depreciates
its assets under the ACRS and the MACRS as follows:

<TABLE>
<CAPTION>
Buildings:
<S> <C>
Gross Federal Income Tax Basis $50,284,000
Accumulated Depreciation $15,586,000
Depreciation Method Straight Line
Depreciable Life 40 Years

<CAPTION>
Land Improvements:

Gross Federal Income Tax Basis $ 2,585,000
Accumulated Depreciation $ 248,000
Depreciation Method Straight Line
Depreciable Life 40 Years

<CAPTION>
Personal Property:

Gross Federal Income Tax Basis $ 185,000
Accumulated Depreciation $ 115,000
Depreciation Method Straight Line*
Depreciable Life 10 Years*
</TABLE>

*Except for automobiles which are depreciated over a range of 3 to 7 years using
the double declining balance method.

ADDITIONAL INFORMATION

For additional information concerning the Center, see EQK's 1997 Form 10-K,
filed with the Commission on March 31, 1998, each of which is incorporated by
reference herein.

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF ART AND EQK

The following unaudited pro forma combined financial information of ART and
EQK presents the historical consolidated balance sheets and statements of
operations of ART and EQK after giving effect to the Merger. The unaudited pro
forma combined balance sheet data at September 30, 1998 gives effect to the
Merger as if it had occurred on September 30, 1998. The unaudited pro forma
combined statements of operations for the nine months ended September 30, 1998
and the fiscal year ended December 31, 1997 gives effect to the Merger as if it
had occurred on January 1, 1997. These statements have been prepared on the
basis of accounting for the Merger as a purchase of an investment in an equity
method investee and are based on the assumptions set forth in the notes thereto.

The following unaudited pro forma combined financial information has been
prepared from, and should be read in conjunction with, the consolidated
financial statements and related notes thereto of ART as set forth herein and
the consolidated financial statements and related notes thereto of EQK included
elsewhere in this Prospectus/Proxy Statement. The following information is not
necessarily indicative of the financial position or operating results that would
have occurred had the Merger been consummated on the date as of which, or at the
beginning of the periods for which, the Merger is being given effect, nor is it
necessarily indicative of future operating results or financial position. See
"Incorporation of Certain Documents by Reference."

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<PAGE> 138

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
Proforma Proforma
Assets Historical Adjustments Combined
------ ---------- ----------- --------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Notes and interest receivable, net of allowances
for estimated losses.......................... $ 298 $ 1,524 (4) $ 1,822
Real estate held for sale, net of accumulated
depreciation.................................. 255,836 -- 255,836
Real estate held for investment, net of
accumulated depreciation...................... 216,141 (1,524) (4) 214,617
Pizza parlor equipment, net of accumulated
depreciation.................................. 7,401 -- 7,401
Marketable equity securities at market
value......................................... 7,734 -- 7,734
Cash and cash equivalents........................... 2,021 ( (91) (3)) 1,430
( (500) (5))
Investments in equity investees..................... 66,097 (1,312 (1)) 68,992
( 992 (2))
( 91 (3))
( 500 (5))
Intangibles, net of accumulated
amortization.................................. 15,020 -- 15,020
Other assets........................................ 25,864 -- 25,864
-------- -------- ---------
Total $596,412 $ 2,304 $ 598,716
======== ======== =========
</TABLE>

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<PAGE> 139

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET - CONTINUED
SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
Proforma Proforma
Liabilities and Stockholders' Equity Historical Adjustments Combined
------------------------------------ ---------- ----------- --------
(dollars in thousands, except per share)
<S> <C> <C> <C>

Liabilities
Notes and interest payable.......................... $384,096 $ -- $384,096
Margin borrowings................................... 42,212 -- 42,212
Accounts payable and other liabilities.............. 51,615 -- 51,615
-------- ------- --------
477,923 -- 477,923
Minority interest................................... 52,268 -- 52,268

Redeemable Preferred Stock
16,681 shares Series C.................... 1,668 -- 1,668
(at liquidation preference)
Stockholders' Equity
Preferred Stock, $2.00 par value,
authorized 20,000,000 shares, issued
and outstanding
3,580,493 shares Series F................. 6,100 ( 263 (1)) 6,561
(liquidation preference $35,805) ( 198 (2))
1,000 shares Series G..................... 2 -- 2
(liquidation preference $100)
Common Stock, $.01 par value, authorized
100,000,000 shares, issued 13,492,800
shares........................................ 135 -- 135

Paid-in capital..................................... 84,185 (1,049 (1)) 86,028
( 794 (2))
Accumulated (deficit)............................... (25,841) -- (25,841)
Treasury stock at cost, 2,737,216 shares............ (28) -- (28)
-------- ------- --------
Total Stockholders' Equity 64,553 2,304 66,857
-------- ------- --------
Total Liabilities and Stockholders' Equity $596,412 $ 2,304 $598,716
======== ======= ========
</TABLE>

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<PAGE> 140

AMERICAN REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998

NOTE 1. Purchase of an aggregate of 1,685,556 EQK Shares from LLPM, 916,900
EQK Shares from Summit, 919,400 EQK Shares from Sutter and 854,200 EQK
Shares from Halperin at $0.30 per EQK Share, paid in ART Preferred
Shares valued for this purpose at the liquidation value of $10.00 per
ART Preferred Share. As consideration for their EQK Shares LLPM will
receive 50,566 ART Preferred Shares, Summit 27,507 ART Preferred
Shares, Sutter 27,582 ART Preferred Shares and Halperin 25,626
Preferred Shares.

NOTE 2. Purchase of 673,976 newly issued EQK Shares for consideration of
$1.47 per share in ART Preferred Shares, a total of 99,212 ART
Preferred Shares, valued for this purpose at the liquidation value of
$10.00 per ART Preferred Share. Such ART Preferred Shares are to be
distributed to the EQK Shareholders, other than ART, at the rate of
$0.14 per EQK Share owned, consisting of 0.014 of a share of ART
Preferred Stock.

NOTE 3. Cash payment of $0.10 per EQK Share held by remaining 5% holder in
consideration for its execution of Standstill Agreement.

NOTE 4. Sale of Oak Tree Village to EQK for a $2,780,000 wraparound
mortgage note receivable. Deferred gain on sale of 1,256,000 offset
against note receivable.

NOTE 5. Payment of remaining closing costs related to stock purchase/merger
transaction.

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<PAGE> 141

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

Proforma Proforma
Historical Adjustments Combined
---------- ----------- --------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Revenues
Sales .............................. $ 21,344 $ -- $ 21,344
Rents .............................. 45,098 (364) (1) 44,734
Interest ........................... 169 250 (2) 419
Other .............................. (454) -- (454)
------------ ------------ ------------
66,157 (114) 66,043
Expenses
Cost of sales ...................... 18,329 -- 18,329
Property operations ................ 34,192 (108) (1) 34,084
Interest ........................... 35,676 -- 35,676
Advisory and servicing fees ........ 2,767 -- 2,767
General and administrative ......... 5,939 -- 5,939
Depreciation and amortization ...... 4,683 (28) (1) 4,655
Provision for loss ................. 3,000 3,000
Minority interest .................. 1,591 -- 1,591
------------ ------------ ------------
106,177 (136) 106,041
------------ ------------ ------------
(Loss) from operations ................... (40,020) 22 (39,998)
Equity in income of investees ............ 27,429 ( (123) (3)) 27,089
( (217) (4))
Gain on sale of real estate .............. 14,692 -- 14,692
------------ ------------ ------------
Net income ............................... 2,101 (318) 1,783
Preferred dividend requirement ........... (595) (173) (5) (768)
------------ ------------ ------------
Net income applicable to
Common shares ............................ $ 1,506 $ (491) $ 1,015
============ ============ ============
Earnings per share
Net income ............................... $ .14 $ .09
============ ============
Weighted average Common shares used in
computing earnings per share ....... 10,741,137 10,741,137
============ ============
</TABLE>

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<PAGE> 142

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

NOTE 1. Elimination of rents, operating expenses and depreciation of Oak
Tree Village sold to EQK for a $2,780,000 wraparound mortgage note
receivable.

NOTE 2. Interest income on $2,780,000 wraparound mortgage note receivable
which bears interest at 12% per annum and is secured by Oak Tree
Village.

NOTE 3. Equity in proforma net loss of EQK for the nine months ended
September 30, 1998 (pro forma net loss of $(251,000) times ART's
ownership percentage of 49%).

NOTE 4. Amortization of cost in excess of net book value of EQK Shares
acquired (proforma net book value at September 30, 1998 of zero, plus
purchase price assigned to EQK investment of $2,895,000 equals
$2,895,000 or ART's excess of cost over proforma net book value of EQK
Shares) amortized over 10 years.

NOTE 5. Dividend requirement on ART Preferred Shares (230,493 shares times
$.75 per share).

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<PAGE> 143

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
Proforma Proforma
Historical Adjustments Combined
---------- ----------- --------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Income
Sales .............................. $ 17,926 $ -- $ 17,926
------------ ------------ ------------
Rents .............................. 29,075 (485) (1) 28,590
Interest ........................... 2,835 334 (2) 3,169
Other .............................. 135 -- 135
------------ ------------ ------------
49,971 (151) 49,820

Expenses
Cost of sales ...................... 14,492 -- 14,492
Property operations ................ 24,195 (191) (1) 24,004
Interest ........................... 30,231 -- 30,231
Advisory and servicing fees ........ 2,657 -- 2,657
General and administrative ......... 6,997 -- 6,997
Depreciation and amortization ...... 3,338 (59) (1) 3,279
Minority interest .................. 1,445 -- 1,445
------------ ------------ ------------
83,355 (250) 83,105
------------ ------------ ------------

(Loss) from operations ................... (33,384) 99 (33,285)

Equity in income of investees ............ 10,660 ((237) (3)) 10,133
((290) (4))

Gain on sale of real estate .............. 20,296 -- 20,296
------------ ------------ ------------

Net (loss) ............................... (2,428) (428) (2,856)

Preferred dividend requirement ........... (206) (230) (5) (436)
------------ ------------ ------------

Net (loss) applicable to Common shares ... $ (2,634) $ (658) $ (3,292)
============ ============ ============

Earnings per share

Net (loss) ............................... $ (.22) $ (.28)
============ ============

Weighted average Common shares used in
computing earnings per share ....... 11,710,013 11,710,013
============ ============
</TABLE>

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<PAGE> 144

AMERICAN REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

NOTE 1. Elimination of rents, operating expenses and depreciation of Oak
Tree Village sold to EQK for a $2,780,000 wraparound mortgage note
receivable.

NOTE 2. Interest income on $2,780,000 wraparound mortgage note receivable
which bears interest at 12% per annum and is secured by Oak Tree
Village.

NOTE 3. Equity in net loss of EQK for the year needed December 31, 1997
(pro forma net loss of $(483,000) times ART's ownership percentage of
49%).

NOTE 4. Amortization of cost in excess of net book value of EQK Shares
acquired (pro forma net book value at December 31, 1997 of zero plus
purchase price assigned to EQK investment of $2,895,000 equals
$2,895,000 or ART's excess of cost over net book value of EQK Shares)
amortized over 10 years.

NOTE 5. Dividend requirement on ART Preferred Shares (230,493 shares times
$1.00 per share).

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<PAGE> 145

EQK REALTY INVESTORS 1
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------
DISPOSITION PURCHASE OF
OF OAK TREE
ASSETS HISTORICAL THE CENTER (a) SUBTOTAL VILLAGE (b) PRO FORMA
--------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Investment in real estate $ -- $ -- $ -- $ 2,780 $ 2,780
Real estate held for sale 39,264 (39,264) -- -- --
Cash and cash equivalents:
Cash Management Agreement 2,127 (2,127) -- -- --
Other 612 (555) 57 -- 57
Accounts receivable and other assets
(net of allowance of $213 in the historical 2,262 (2,262) -- -- --
presentation)
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 44,265 $ (44,208) $ 57 $ 2,780 $ 2,837
========= ========= ========= ========= =========
LIABILITIES AND DEFICIT IN SHAREHOLDERS'
EQUITY
Liabilities:
Mortgage note payable $ 43,794 $ (43,794) $ -- $ 2,780 $ 2,780
Term loan payable to bank 1,581 (1,581) -- -- --
Accounts payable and other liabilities (including 4,070 (4,013) 57 -- 57
amounts due affiliates of $3,091 in the
historical presentation)
--------- --------- --------- --------- ---------
49,445 (49,388) 57 2,780 2,837
Deficit in Shareholders' Equity:
Shares of beneficial interest, without par value: 135,875 (135,875) -- --(e) --
10,055,555 shares authorized 9,632,212
shares issued and outstanding in the
historical presentation and an unlimited
number of shares authorized,
10,306,188 shares issued and
outstanding in the pro forma
presentation
Accumulated deficit (141,055) 141,055 -- -- --
--------- --------- --------- --------- ---------
(5,180) 5,180 -- -- --
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND DEFICIT IN $ 44,265 $ (44,208) $ 57 $ 2,780 $ 2,837
SHAREHOLDERS' EQUITY
========= ========= ========= ========= =========
</TABLE>

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<PAGE> 146

EQK REALTY INVESTORS 1
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------
DISPOSITION PURCHASE OF
OF OAK TREE
HISTORICAL THE CENTER (c) SUBTOTAL VILLAGE (d) PRO FORMA
---------- -------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>

Revenues from rental operations $ 6,158 $ (6,158) $ -- $ 357 $ 357
Operating expenses, net of tenant reimbursements 1,083 (1,083) -- 63 63
(including property management fees
earned by an affiliate of $307 in the
historical presentation and $24 in the pro
forma presentation)
Depreciation and amortization 2,532 (2,532) -- 92 92
---------- --------- ---------- --------- ---------
Income from rental operations 2,543 (2,543) -- 202 202
Interest expense 4,046 (4,046) -- 310 310
Other expenses, net of interest income (including 458 (108) 350 25 375
portfolio management fees earned by an
affiliate of $242 in the historical
presentation and $21 in the pro forma
presentation)
---------- --------- ---------- --------- ---------
Net loss $ (1,961) $ 1,611 $ (350) $ (133) $ (483)
========== ========= ========== ========= =========
Weighted average shares outstanding 9,264,344 9,264,344 673,976 9,938,320
Net loss per share ($0.21) ($0.04) ($0.05)
========== ========= ========== ========= =========
</TABLE>

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<PAGE> 147

EQK REALTY INVESTORS 1
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------
DISPOSITION PURCHASE OF
OF OAK TREE
HISTORICAL THE CENTER (c) SUBTOTAL VILLAGE (d) PRO FORMA
---------- -------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues from rental operations $ 4,509 $ (4,509) $ -- $ 272 $ 272
Operating expenses, net of tenant reimbursements 629 (629) -- (3) (3)
(including property management fees earned
by an affiliate of $228 in the historical
presentation and $18 in the pro forma
presentation)
Depreciation and amortization 548 (548) -- 69 69
---------- --------- ---------- --------- ----------

Income from rental operations 3,332 (3,332) -- 206 206
Interest expense 3,204 (3,204) -- 210 210
Other expenses, net of interest income (including 326 (95) 231 16(f) 247
portfolio management fees earned by an
affiliate of $174 in the historical presentation
and $16 in the pro forma presentation)
---------- --------- ---------- --------- ----------
Net income (loss) $ (198) $ (33) $ (231) $ (20) $ (251)
========== ========= ========== ========= ==========
Weighted average shares outstanding 9,462,427 $ -- 9,462,427 673,976 10,136,403
Net loss per share $ (0.02) $ (0.02) $ (0.02)
========== ========= ========== ========= ==========
</TABLE>

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<PAGE> 148

EQK REALTY INVESTORS I
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

The Unaudited Pro Forma Statement of Operations for the year ended December 31,
1997 is derived from the historical Statement of Operations included herein and
in the Annual Report on Form 10-K for the year ended December 31, 1997. The
Unaudited Pro Forma Balance Sheet as of September 30, 1998 and the Unaudited Pro
Forma Statement of Operations for the nine months ended September 30, 1998 are
derived from the historical statements included herein and in the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.

The pro forma financial information should be read in conjunction with the
Trust's historical Financial Statements and Notes thereto contained herein and
in the Annual Report on Form 10-K for the year ended December 31, 1997 and the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. The pro
forma financial information does not purport to be indicative of the results of
operations or the financial position which would have actually resulted if the
sale transaction had been consummated on the date indicated. In addition, the
pro forma financial information does not purport to be indicative of the results
of operations or financial position which may be obtained in the future.

The Unaudited Pro Forma Adjustments are comprised of the following:

(a) The September 30, 1998 Unaudited Balance Sheet Pro Forma Adjustments
reflecting the disposition of the Center have assumed a sale price enabling
EQK to recover the carrying value of its remaining assets and settle all of
its liabilities. Such a sale price is not necessarily indicative of a sale
price that could be achieved through negotiation between parties in a sale
transaction. The Merger is conditioned upon, among other things, EQK's sale
of the Center and distributions of the remaining net proceeds to the EQK
shareholders. It is Management's intent to sell the Center and distribute
any remaining net proceeds.

(b) The September 30, 1998 Unaudited Balance Sheet Proforma Adjustments
reflecting EQK's acquisition of Oak Tree Village from ART reflect total
consideration for the acquisition of The Oak Tree Village of $2,780,046 and
the assumption of existing debt of $1,530,046 and a non-recourse promissory
note by EQK payable to ART in the amount of $1,250,000.

(c) The Unaudited Proforma Statements of Operations adjustments reflecting the
disposition of The Center for the year ended December 31, 1997 and the nine
months ended September 30, 1998 consist of: (i) the elimination of the
results of operations of The Center; (ii) the elimination of interest
expense on the debt of EQK which will be repaid with the proceeds from the
sale of The Center; and (iii) an adjustment to management fees resulting
from the disposal of The Center.

(d) The Unaudited Proforma Statements of Operations adjustments reflecting the
acquisition of Oak Tree Village for the year ended December 31, 1997 and
the nine months ended September 30, 1998 consist of: (i) the addition of
the historical results of operations of Oak Tree Village; (ii) the
elimination of historical depreciation and amortization of Oak Tree
Village; (iii) the addition of depreciation and amortization of the
purchase price of Oak Tree Village using the historical depreciation and
amortization policies of EQK; and (iv) the addition of interest expense
related to debt assumed as part of the acquisition of Oak Tree Village.

(e) In conjunction with the Merger, EQK will issue 673,976 EQK shares to ART.
ART will issue to the Public EQK Shareholders, for each EQK Share currently
owned, $0.14 per EQK Share in the form of 0.01400 of an ART Preferred Share
with a Liquidation Value of $10.00 per share.

(f) Under the terms of the Advisory Agreement between EQK Realty Investors I
and Basic Capital Management, the Advisor will receive an asset management
fee of 0.75% per year of the gross asset value of the Trust.

-132-

<PAGE> 149

PLAN OF DISTRIBUTION

The Dealer Manager, an affiliate of ART and BCM, will distribute the EQK
Merger Consideration to EQK Shareholders residing in the states of Florida,
Kansas, Missouri, New Jersey, North Carolina, North Dakota and Vermont on ART's
behalf. The Merger Agent will distribute the EQK Merger Consideration to all
other EQK Shareholders on ART's behalf.

The Dealer Manager and the Merger Agent will be entitled to
indemnifications by ART against certain civil liabilities, including liabilities
under the Securities Act, or to contribution by ART to payments they may be
required to make in respect thereof. The Dealer Manager is an affiliate of ART
and may engage in transactions with, or perform services for ART in the ordinary
course of business.

LEGAL MATTERS

The validity of the shares of ART Preferred Shares offered hereby has been
passed upon for ART by Holt Ney Zatcoff & Wasserman, LLP, Atlanta, Georgia.
Certain matters in connection with the Merger will be passed upon for EQK by its
special Massachusetts counsel, Palmer & Dodge, Boston, Massachusetts. The
federal income tax consequences of the Merger have been passed upon by Andrews &
Kurth L.L.P., Dallas, Texas.

EXPERTS

The financial statements and schedules of ART included and incorporated by
reference in this Prospectus/Proxy Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the period
set forth in their reports appearing elsewhere herein and in the Registration
Statement, and such reports are included herein in reliance upon the authority
of said firm as experts in auditing and accounting.

The financial statements as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 and the related financial
statement schedule as of December 31, 1997 of EQK included and incorporated by
reference in this Prospectus/Proxy Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.

The references to the Brown Appraisal in this Prospectus/Proxy Statement
have been included in this Prospectus/Proxy Statement in reliance upon the
authority of Brown & Associates as expert independent appraisers with respect to
the Oak Tree Village.

The references to the Blosser Survey in this Prospectus/Proxy Statement
have been included in this Prospectus/Proxy Statement in reliance upon the
authority of the Blosser Appraisal Company as an expert independent appraiser
for the Lubbock, Texas MSA.

-133-

<PAGE> 150

APPENDIX A

GLOSSARY OF SELECT TERMS

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>
5% Holder.............................. Each EQK Shareholder holding 5% or more of the issued and
outstanding EQK Shares, excluding LLPM, Summit, Sutter and
Halperin (Summary)

ACMs................................... Asbestos-containing materials (Risk Factors)

ADA.................................... Americans with Disabilities Act of 1980 (Risk Factors)

Advisor................................ LLPM, in its capacity as advisor to EQK (Summary)

Adjusted Liquidation Value............. The Liquidation Value plus the amount of any accrued and unpaid
dividends (Summary)

Advisory Agreement..................... Agreement between LLPM and EQK, with LLPM as EQK's Advisor
(Summary)

Affiliated REITs....................... CMET, IORI and TCI (The Business of ART)

Amended Declaration of Trust........... ART Realty Investors I Second Amended and Restated Declaration
of Trust (Summary)

ART Board.............................. Board of Directors of American Realty Trust, Inc. (Prospectus Cover
Pages)

ART Common Shares...................... Shares of ART Common Stock (Prospectus Cover Pages)

ART Designated Trustees................ Persons designated by ART to become the New EQK Board (The
Board Election Proposal)

ART Form 10-K.......................... ART's Annual Report on Form 10-K for the year ended
December 31, 1997 (Summary)

ART Merger Consideration............... 673,976 EQK Shares ART will be entitled to receive as consideration
for the Merger (Prospectus Cover Pages)

ART Newco.............................. ART Newco, LLC, a Massachusetts limited liability company
(Prospectus Cover Pages)

ART Preferred Shares................... ART's Series F Cumulative Convertible Preferred Stock with a par
value of $2.00 per share and a stated Liquidation Value of $10.00 per
share (Prospectus Cover Pages)

ART Realty Investors I................. The Trust (Summary)

ART.................................... American Realty Trust, Inc., a Georgia corporation (Prospectus
Cover Pages)

Avacelle............................... Avacelle, Inc. (The Board Election Proposal)
</TABLE>

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<PAGE> 151

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>
BCM.................................... Basic Capital Management, Inc., a Nevada corporation and an
affiliate of ART (Summary)

BCM Affiliates......................... The affiliates of BCM (Summary)

Block Purchase......................... ART's purchase of an aggregate of 4,376,056 EQK Shares from
LLPM, Summit, Sutter and Halperin, pursuant to separate stock
purchase agreements (Prospectus Cover Pages)

Block Purchase Consideration........... Consideration of 0.030 ART Preferred Shares paid by ART to
LLPM, Summit, Sutter or Halperin for each EQK Share they
respectively own (Prospectus Cover Pages)

Blosser................................ Blosser Appraisal (The Proposed Merger and Related Matters)

Blosser Survey......................... Survey of the Lubbock, Texas commercial real estate market
performed by Blosser (The Proposed Merger and Related Matters)

Board Election Proposal................ Proposal to elect specific members to the EQK Board at the EQK
Annual Meeting. The Board Election Proposal will require the
affirmative vote of EQK Shareholders representing a majority of the
total votes authorized to be cast by EQK Shares then outstanding
which are present at the EQK Annual Meeting in person or by proxy
and entitled to vote thereon (Summary)

Brown Appraisal........................ Oak Tree Village appraisal by Brown & Associates (The Proposed
Merger and Related Matters)

Brown & Associates..................... Unaffiliated third-party appraiser hired to appraise the market value
of Oak Tree Village (The Proposed Merger and Related Matters)

Break-Up Consideration................. $200,000 plus ART's share of transaction expenses, paid by EQK to
ART under certain conditions if EQK elects not to proceed with the
Merger (Management's Discussion and Analysis of Financial
Condition and Results of Operations of EQK)

Campbell Associates.................... Campbell Center Associates, Ltd. (The Business of ART)

Carmel, Ltd............................ Carmel Realty Services, Ltd., an affiliate of BCM (Description of
ART)

Carmel Realty.......................... Carmel Realty, Inc., owned by First Equity (Description of ART)

Cash Distribution Agreement............ July 15, 1998 agreement between NRLP, SAMLP and the NRLP Oversight Committee
(The Business of ART)

Castleton.............................. Castleton Park (The Business of EQK)

Center................................. Harrisburg East Mall, EQK's only current real estate investment
(Summary)

CMET................................... Continental Mortgage and Equity Trust, an affiliate of ART
(Incorporation of Certain Information by Reference)
Code................................... Internal Revenue Code of 1986 (Summary)
</TABLE>

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<PAGE> 152

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>
Commission............................. Securities and Exchange Commission (Prospectus Cover Pages)

Compass................................ Compass Retail, Inc., a subsidiary of ERE (n/k/a ERE Yarmouth
Retail, Inc.) (Summary)

Conversion Price....................... The number of shares of ART Common Shares obtained by
multiplying the number of ART Preferred Shares being converted by
$10.00, then adding all accrued and unpaid dividends, then dividing
such sum by (in most instances) 90% of the simple average of the
daily closing price of the ART Common Shares for the 20 business
days ending on the last business day of the calendar week
immediately preceding the date of conversion on the principal stock
exchange on which such ART Common Shares are then listed.
(Summary)

Davister............................... Davister Corp., a general partner in a partnership that owns
approximately 15.6% of ART's outstanding shares of Common Stock
(The Business of ART)

Declaration Amendment Proposal......... Proposal to amend and restate the Declaration of Trust (Summary)

Dealer Manager......................... Interfirst Capital Corporation, a California corporation and an
affiliate of ART and BCM (Summary)

Declaration of Trust................... EQK's Amended and Restated Declaration of Trust, dated
February 27, 1985, as amended on March 5, 1986 (Summary)
duPont................................. E.I. duPont de Nemours Co. Inc. Trust Fund (Summary)

Effective Time......................... The time at which the Merger is filed on a Certificate of Merger with
the Secretary of State of the Commonwealth of Massachusetts
(Summary)

EQK Annual Meeting..................... Annual Meeting of the EQK Shareholders to be held on
__________ ___, 1999 (Prospectus Cover Pages)

EQK Board.............................. EQK's Board of Trustees (Prospectus Cover Page)

EQK Form 10-K.......................... EQK's Annual Report on Form 10-K for the year ended
December 31, 1997 (Summary)
EQK Merger Consideration............... Consideration for the Merger, payable to each EQK Shareholder
consisting of 0.014 of an ART Preferred Share with a Liquidation
Value for such portion of a share of $0.14 (Prospectus Cover Pages)
EQK Record Date........................ , 1999 (Prospectus Cover Pages)

EQK Shareholders....................... Holders of EQK Shares (Prospectus Cover Pages)

EQK Shares............................. Shares of beneficial interest of EQK, par value of $0.01 per share
(Prospectus Cover Pages)
EQK.................................... EQK Realty Investors I, a Massachusetts business trust (Prospectus
Cover Pages)
Equitable.............................. The Equitable Life Assurance Society of the United States, former
owner of Compass and LLPM (Summary)
</TABLE>

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<PAGE> 153

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>
ERE.................................... Equitable Real Estate Investment Management, Inc., current owner
of LLPM and Compass (Summary)

Exchange Act........................... Securities Exchange Act of 1934, as amended (Available
Information)

Expense Sharing Agreement.............. Agreement whereby each of ART and EQK will share the costs and
expenses associated with the Merger (The Proposed Merger and
Related Matters)

Financial Advisor...................... The independent financial advisor engaged by the EQK Board
(Summary)

First Equity........................... First Equity Property, Inc. (The Board Election Proposal)

GCLP................................... Garden Capital, L.P., a Delaware limited partnership in which NOLP
owns a 99.3% limited partner interest (The Business of ART)

Greenspring............................ Greenspring Fund, Incorporated (Summary)

Halperin............................... Maurice A. Halperin (Prospectus Cover Pages)

Halperin Purchase...................... Halperin's purchase of 854,200 EQK Shares during the period from
December 26, 1997 through January 20, 1998 (Summary)

Harrisburg M.S.A....................... Harrisburg Metropolitan Statistical Area (Description of the
Harrisburg East Mall)

IGI Properties......................... Twenty-nine apartment complexes in Florida and Georgia, purchased
by ART in April 1998 (The Business of ART)

Independent Appraiser.................. Unaffiliated third-party appraiser hired by EQK to appraise the
market value of the Center (Description of the Harrisburg East Mall)

Independent Trustee.................... Trustee unaffiliated with ART or its Affiliates (The Board Election
Proposal)

IORI................................... Income Opportunity Realty Investors, Inc., an affiliate of ART
(Incorporation of Certain Information by Reference)

ITAA................................... Information Technology Association of America (ART
Management's Discussion and Analysis of Financial Condition and
Results of Operations of ART)

Lender................................. Midland Loan Services (The Proposed Merger and Related Matters)

Liquidation Value...................... $10.00 per ART Preferred Share (Prospectus Cover Pages)

LLPM................................... Lend Lease Portfolio Management, Inc., EQK's Advisor (Prospectus
Cover Pages)

LLPM/ART Stock Purchase Agreement...... Amended and Restated Stock Purchase Agreement between LLPM
and ART, dated 8/25/98 (Summary)
</TABLE>

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<PAGE> 154

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>

MACRS.................................. Modified Accelerated Cost Recovery System (The Business of ART)

May Company............................ May Department Stores Co. (Description of the Harrisburg East
Mall)

Merger Agent........................... American Stock Transfer and Trust Company (The Proposed Merger
and Related Matters)

Merger Agreement....................... Amended and Restated Agreement and Plan of Merger, dated as of
August 25, 1998 among ART, ART Newco, BCM, EQK and LLPM
(Prospectus Cover Pages)

Merger Consideration................... The ART Merger Consideration and the EQK Merger Consideration
(Prospectus Cover Pages)

Merger Proposal........................ Proposal for the Merger to be voted on at the EQK Annual Meeting,
requiring Requisite Shareholder Approval (Summary)

Merger-Related Proposals............... The Merger Proposal, the Declaration Amendment Proposal and the
New Advisory Agreement Proposal, all of which are subject to
Requisite Shareholder Approval (Summary)

Merger................................. The merger of ART Newco with and into EQK, with EQK being the
surviving entity (Prospectus Cover Pages)

Moorman Settlement Agreement........... An agreement settling a class action lawsuit as to Gene Phillips,
William S. Friedman, SAMLP, NRLP and NOLP (The Business of
ART)

Mortgage Note.......................... EQK's mortgage note with Prudential (The Business of EQK)

MSA.................................... Metropolitan statistical area (The Proposed Merger and Related
Matters)

Nanook Limited Partner................. A limited partner in Nanook Partners, L.P., a limited partnership that
owns approximately 15.6% of the outstanding shares of ART's
Common Stock (The Business of ART).

Negative Determination................. Determination by the EQK Board that it can no longer recommend
the approval of the Merger-Related Proposals to the EQK
Shareholders (Summary)

New EQK Board.......................... The three member board of trustees of EQK consisting of the ART
Designated Trustees (The Board Election Proposal)

New Advisor............................ BCM, under the New Advisory Agreement (Summary)

New Advisory Agreement................. Agreement which replaces the Advisory Agreement and makes BCM
EQK's New Advisor (Summary)

NIRT................................... National Income Realty Trust (The Board Election Proposal)

New Advisory Agreement Proposal........ Proposal to terminate the Advisory Agreement and institute the New
Advisory Agreement with BCM as the New Advisor to EQK
(Summary)
</TABLE>

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<PAGE> 155

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>
NOLP................................... National Operating, L.P.

NOLs................................... Net operating losses (Summary)

Note................................... A non-recourse promissory note by EQK payable to ART with
respect to Oak Tree Village in the amount of $1,250,000 that shall
bear interest at a rate of 12% per annum and shall be payable
quarterly in installments of interest only over a term of five years
with a final principal payment being due on December 15, 2003 (The
Proposed Merger and Related Matters)

NRLP Oversight Committee............... Oversight committee for NRLP created by the Moorman Settlement
Agreement (The Business of ART)

NRLP................................... National Realty, L.P., an affiliate of ART (Incorporation of Certain
Information by Reference)

NYSE................................... New York Stock Exchange (Prospectus Cover Pages)

NYSE Rules............................. NYSE's published guidelines (Summary)

Oak Tree Village....................... Oak Tree Village Shopping Center, located in Lubbock, Texas
(Summary)

Original Merger Agreement.............. Agreement and Plan of Merger by and among ART, ART Newco,
BCM, EQK, Equity Realty Portfolio Management, Inc. and Compass
dated December 23, 1997 (Summary)
OTC Bulletin Board..................... Over-the-Counter Bulletin Board (Summary)

Ownership Limit........................ Specific provisions in the Declaration Amendment Proposal
restricting the ownership of more than 4.9% of the outstanding EQK
Shares by any single EQK Shareholder, other than ART (Summary)

Peachtree.............................. Peachtree Dunwoody Pavilion (The Business of EQK)

Plan................................... 1997 ART Stock Option Plan (Description of ART)

PNC.................................... PNC Bank Corp., holder of the Term Loan (The Business of EQK)

Property Manager....................... ERE Yarmouth Retail, Inc. (formerly Compass) (The Business of
EQK)

Proposals.............................. The Merger Proposal, the Declaration Amendment Proposal, the New
Advisory Agreement Proposal and the Board Election Proposal
(Summary)

Proxy Solicitor........................ Shareholders Communications Corporation (The EQK Annual
Meeting)

Prudential............................. Prudential Insurance Company of America (Summary)

Prudential Warrants.................... Prudential's warrants to purchase 367,868 EQK Shares (Summary)

Public EQK Shareholders................ The EQK Shareholders other than ART and its affiliates, LLPM,
Summit, Sutter and Halperin (Prospectus Cover Pages)
</TABLE>

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<PAGE> 156

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>

PWSI................................... Pizza World Supreme, Inc., a wholly-owned subsidiary of ART
(Summary)

Quarterly Dividend Payment Rate........ A cumulative, compounded dividend per ART Preferred Share equal
to 10% per annum of the Accumulated Liquidation Value, payable
quarterly on the 15th day of the month following the end of each
calendar quarter (Summary)

Redeemable General Partner Interest.... SAMLP's general partner interest in NOLP and NRLP (The Business
of ART)

Reform Act............................. Private Securities Litigation Reform Act of 1995 (Prospectus Cover
Pages)

Registration Statement................. ART's Registration Statement on Form S-4, Registration Statement
No. 333-43777 (Prospectus Cover Pages)

REIT................................... Real Estate Investment Trust (Summary)

Requisite Shareholder Approval......... Affirmative vote of EQK Shareholders representing three-quarters of
the total votes authorized to be cast by EQK Shares then outstanding
(Summary)

Resolution Agreement................... December 15, 1997 Agreement for Establishment of a Class
Distribution of Fund and Election of Successor General Partner
between NRLP, SAMLP, the NRLP Oversight Committee, Joseph B.
Moorman and Invenex (The Business of ART)

Rights................................. A dividend of one Series A Preferred Stock share purchase right on
each outstanding ART Common Share (Description of the Capital
Stock of ART)

RTC.................................... Resolution Trust Corporation (Risk Factors)

SAMI................................... Syntek Asset Management, Inc. (The Board Election Proposal)

SAMLP.................................. Syntek Asset Management, L.P. (Description of ART)

San Jacinto............................ San Jacinto Savings Association (Risk Factors)

Securities Act......................... Securities Act of 1933, as amended (Prospectus Cover Pages)

Series A Preferred Stock............... ART's Series A Cumulative Participating Preferred Stock
(Description of the Capital Stock of ART)

Series D Preferred Stock............... ART's Series D Cumulative Preferred Stock (Description of the
Capital Stock of ART)

Series E Preferred Stock............... ART's Series E Cumulative Convertible Preferred Stock (Description
of the Capital Stock of ART)

Series G Preferred Stock............... ART's Series G Cumulative Convertible Preferred Stock
(Description of the Capital Stock of ART)

Series H Preferred Stock............... ART's Series H Cumulative Convertible Preferred Stock
(Description of the Capital Stock of ART)
</TABLE>

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<PAGE> 157

<TABLE>
<CAPTION>
TERM DEFINED AS (PART OF PROXY STATEMENT/PROSPECTUS)
---- -----------------------------------------------
<S> <C>
Southmark.............................. Southmark Corporation (Risk Factors)

Special Stock.......................... 20,000,000 Shares of a special class of ART stock, $2.00 per value
per share (Description of the Capital Stock of ART)

Standstill Agreement...................

Summit................................. Summit Ventures, L.P. (Prospectus Cover Pages)

Summit/Sutter Purchases................ Summit and Sutter's purchase of an aggregate of 1,252,500 EQK
Shares (Summary)

Supervising Judge...................... Judge appointed to supervise the class action settlement in the
Resolution Agreement (The Business of ART)

Sutter................................. Sutter Opportunity Fund, LLC (Prospectus Cover)

Tax Counsel............................ Andrews & Kurth L.L.P.

Term Loan.............................. EQK loan in place from December 15, 1992 with PNC as the lender
(The Business of EQK)

TIN.................................... Tax Identification Number (The Proposed Merger and Related
Matters)

Trust.................................. ART Realty Investors I, the surviving entity of the Merger
(Prospectus Cover Pages)

Trustee................................ A member of the EQK Board of Trustee (Summary)

Unaffiliated Trustee................... Trustees unaffiliated with EQK or LLPM under the Declaration of
Trust (Description of EQK)

VPT.................................... Vialand Property Trust (Board Election Proposal)

Y2K.................................... Year 2000 compliance issue (Management's Discussion and Analysis
of Financial Condition and Results of Operations of EQK)
</TABLE>

-141-
<PAGE> 158

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS OF AMERICAN REALTY TRUST, INC.:

Report of Independent Certified Public Accountants..............................................................F-3

Consolidated Balance Sheets -
December 31, 1997 and 1996...................................................................................F-4

Consolidated Statements of Operations -
Years Ended December 31, 1997, 1996 and 1995................................................................F-5

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1997, 1996 and 1995.................................................................F-6

Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995.................................................................F-8

Notes to Consolidated Financial Statements.....................................................................F-11

Interim Financial Statements (Unaudited):

Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997....................................................................F-34

Consolidated Statements of Operations -
Nine Months Ended September 30, 1998 and 1997...............................................................F-36

Consolidated Statements of Stockholders' Equity -
Nine Months Ended September 30, 1998........................................................................F-37

Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997...............................................................F-38

Notes to Consolidated Interim Financial Statements.............................................................F-41

FINANCIAL STATEMENTS OF EQK REALTY INVESTORS I:

Report of Independent Certified Public Accountants.............................................................F-53

Balance Sheets at December 31, 1997 and 1996...................................................................F-54

Statements of Operations -
Years Ended December 31, 1997, 1996 and 1995................................................................F-55

Statements of Shareholders' Equity -
Years Ended December 31, 1997 1996 and 1995.................................................................F-56
</TABLE>

F-1

<PAGE> 159

<TABLE>
<S> <C>
Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995................................................................F-57

Notes to Financial Statements, including
Supplementary Data..........................................................................................F-58

Financial Statement Schedule...................................................................................F-65

Interim Financial Statements (Unaudited)

Balance Sheets at September 30, 1998 and
December 31, 1997...........................................................................................F-66

Statements of Operations -
for nine months ended
September 30, 1998 and September 30, 1997...................................................................F-67

Statements of Cash Flow-
for nine months ended September 30, 1998
and September 30, 1997......................................................................................F-68

Notes to Financial Statements..................................................................................F-69
</TABLE>

All other schedules are omitted because they are not required, are not
applicable or the information required is included in the Financial Statements
or the notes thereto.

F-2

<PAGE> 160

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors of
American Realty Trust, Inc.

We have audited the accompanying consolidated balance sheets of American Realty
Trust, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Realty Trust, Inc. and Subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

Dallas, Texas
March 25, 1998

F-3

<PAGE> 161

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
--------- ---------
(dollars in thousands,
except per share)
<S> <C> <C>
Assets
Notes and interest receivable
Performing (including $1,307 in 1997 and $13,563 in 1996 from affiliate) ......................... $ 9,300 $ 50,784
Nonperforming, nonaccruing ....................................................................... 18,624 1,627
--------- ---------
27,924 52,411

Less - allowance for estimated losses ............................................................... (2,398) (3,926)
--------- ---------
25,526 48,485

Real estate held for sale, net of accumulated depreciation ($5,098 in 1996) ........................ 178,938 77,688

Real estate held for investment net of accumulated depreciation ($5,380 in 1997
and $4,234 in 1996) .............................................................................. 123,515 41,347

Pizza parlor equipment, net of accumulated depreciation ($905 in 1997) .............................. 6,693 --

Marketable equity securities, at market value ....................................................... 6,205 2,186
Cash and cash equivalents ........................................................................... 5,347 1,254
Investments in equity investees ..................................................................... 45,851 55,880
Intangibles, net of accumulated amortization ($704 in 1997) ......................................... 15,230 --
Other assets ........................................................................................ 26,494 8,197
--------- ---------
$ 433,799 $ 235,037
========= =========

Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable (including $11,400 in 1997 and $8,973 in 1996 to affiliates) ............ $ 261,986 $ 127,863
Margin borrowings ................................................................................... 53,376 40,044
Accounts payable and other liabilities (including $22.9 million in 1997 and $318,000
in 1996 to affiliate) ............................................................................ 34,442 8,433
--------- ---------
349,804 176,340

Minority interest ................................................................................... 20,542 10,911

Commitments and contingencies

Stockholders' equity
Preferred Stock, $2.00 par value, authorized 20,000,000 shares, issued and outstanding
Series B, 4,000 shares in 1997 and 1996 (liquidation preference $400) ........................... 8 8
Series C, 16,681 shares in 1997 and 15,877 shares in 1996 (liquidation preference
$1,668)....................................................................................... 32 33
Series F, 2,000,000 shares in 1997 (liquidation preference $20,000) ............................. 4,000
Common Stock, $.01 par value, authorized 100,000,000 shares; issued 13,479,348
shares in 1997 and 1996 .......................................................................... 135 135
Paid-in capital ..................................................................................... 84,943 68,595
Accumulated (deficit) ............................................................................... (25,638) (20,978)
Treasury stock at cost, 2,767,427 shares in 1997 and 56,704 shares in 1996 .......................... (28) (6)
--------- ---------
63,453 47,786
--------- ---------
$ 433,799 $ 235,037
========= =========
</TABLE>

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

F-4

<PAGE> 162
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Income
Sales ..................................................................... $ 17,926 $ -- $ --
Rents ..................................................................... 29,075 20,658 17,869
Interest (including $230 in 1997, $539 in 1996 and $506 in 1995 from
affiliates) ............................................................ 2,835 4,724 4,929
Other ..................................................................... 135 1,597 154
------------ ------------ ------------
49,971 26,979 22,952

Expenses
Cost of sales ............................................................. 14,492 -- --
Property operations (including $865 in 1997, $892 in 1996 and $1,200
in 1995 to affiliates) ................................................. 24,195 15,874 13,260
Interest (including $433 in 1997, $418 in 1996 and $437 in 1995 to
affiliates) ............................................................ 30,231 16,450 8,941
Advisory and servicing fees to affiliate .................................. 2,657 1,539 1,195
General and administrative (including $1,809 in 1997, $691 in 1996
and $516 in 1995 to affiliate) ......................................... 6,997 2,712 2,554
Depreciation and amortization ............................................. 3,338 2,002 1,691
Minority interest ......................................................... 1,445 -- 671
------------ ------------ ------------
83,355 38,577 28,312
------------ ------------ ------------

(Loss) from operations ....................................................... (33,384) (11,598) (5,360)

Equity in income (loss) of investees ......................................... 10,660 2,004 (851)
Gain on sale of real estate .................................................. 20,296 3,659 2,594
------------ ------------ ------------

(Loss) before income taxes ................................................... (2,428) (5,935) (3,617)
Income tax expense ........................................................... -- -- 2
------------ ------------ ------------
(Loss) before extraordinary gain ............................................. (2,428) (5,935) (3,619)
Extraordinary gain ........................................................... -- 381 783
------------ ------------ ------------

Net (loss) ................................................................... (2,428) (5,554) (2,836)
Preferred dividend requirement ............................................... (206) (113) --
------------ ------------ ------------

Net (loss) applicable to Common shares ....................................... $ (2,634) $ (5,667) $ (2,836)
============ ============ ============

Earnings per share
(Loss) before extraordinary gain ............................................. $ (.22) $ (.46) $ (.31)
Extraordinary gain ........................................................... -- 03 .07
------------ ------------ ------------

Net (loss) applicable to Common shares ....................................... $ (.22) $ (.43) $ (.24)
============ ============ ============

Weighted average Common shares used in computing earnings per share .......... 11,710,013 12,765,082 11,716,656
============ ============ ============
</TABLE>

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

F-5

<PAGE> 163

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Series B Series C
Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Capital (Deficit) Equity
--------- --------- --------- --------- --------- --------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 ................... $ -- $ -- $ 117 $ -- $ 66,661 $ (10,884) $ 55,894

Net (loss) ................................. -- -- -- -- -- (2,836) (2,836)
--------- --------- --------- --------- --------- --------- ---------

Balance, December 31, 1995 ................. -- -- 117 -- 66,661 (13,720) 53,058

Common Stock issued ........................ -- -- 18 -- (18) -- --

Series B Preferred Stock issued ............ 8 -- -- -- 392 -- 400

Series C Preferred Stock issued ............ -- 30 -- -- 1,469 -- 1,499

Common Stock cash dividend ($ 15 per share) -- -- -- -- -- (1,491) (1,491)

Redemption of share purchase rights ($ ..... 01
per right) .............................. -- -- -- -- -- (101) (101)

Series B Preferred Stock cash dividend ($6 . 46
per share) .............................. -- -- -- -- -- (25) (25)

Series C Preferred Stock dividend ($5 ...... 74
per share) .............................. -- 2 -- -- 85 (87) --

Treasury stock, at cost .................... -- -- -- (6) 6 -- --

Net (loss) ................................. -- -- -- -- -- (5,554) (5,554)
--------- --------- --------- --------- --------- --------- ---------

Balance, December 31, 1996 ................. $ 8 $ 32 $ 135 $ (6) $ 68,595 $ (20,978) $ 47,786
</TABLE>

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

F-6

<PAGE> 164

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Continued

<TABLE>
<CAPTION>
Series B Series C Series F
Preferred Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Stock Capital (Deficit) Equity
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ............. $ 8 $ 32 $ -- $ 135 $ (6) $ 68,595 $(20,978) $ 47,786

Series F Preferred Stock issued ...... -- -- 4,000 -- -- 16,000 -- 20,000

Common Stock cash dividend ($.20
per share) ........................ -- -- -- -- -- -- (2,026) (2,026)

Series B Preferred Stock cash
dividend ($10.00 per share) ....... -- -- -- -- -- -- (40) (40)

Series C Preferred Stock, stock and
cash dividend ($10.00 per share) .. -- 1 -- -- -- 81 (166) (84)

Sale of Common Stock ................. -- -- -- -- -- 245 -- 245

Treasury stock, at cost .............. -- -- -- -- (22) 22 -- --

Net (loss) ........................... -- -- -- -- -- -- (2,428) (2,428)
-------- -------- -------- -------- -------- -------- -------- --------

Balance, December 31, 1997 ........... $ 8 $ 33 $ 4,000 $ 135 $ (28) $ 84,943 $(25,638) $ 63,453
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

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

F-7

<PAGE> 165
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Pizza parlor sales collected ........................................... $ 17,790 $ -- $ --
Rents collected ........................................................ 28,199 19,013 18,473
Interest collected ($262 in 1997, $385 in 1996 and $399 in 1995
from affiliates) .................................................... 2,592 4,304 4,845
Distributions from equity investees' operating activities .............. 5,689 9,054 1,464
Interest paid ($19 in 1995 to affiliate) ............................... (19,092) (9,601) (8,296)
Payments for property operations (including $865 in 1997, $892
in 1996 and $1,200 in 1995 to affiliate) ............................ (22,821) (15,034) (13,442)
Payments for pizza parlor operations ................................... (12,580) -- --
Advisory fee paid to affiliate ......................................... (2,657) (1,539) (1,195)
Distributions to minority interest holders ............................. (1,445) -- --
Purchase of marketable equity securities ............................... (15,147) (22,613) (19,394)
Proceeds from sale of marketable equity securities ..................... 10,588 23,557 18,374
General and administrative expenses paid (including $1,809 in
1997, $691 in 1996 and $516 in 1995 to affiliate) ................... (6,982) (3,095) (2,448)
Litigation settlement .................................................. -- -- (100)
Other .................................................................. (781) (1,661) 1,016
------------ ------------ ------------

Net cash provided by (used in) operating activities ................ (16,647) 2,385 (703)

Cash Flows From Investing Activities
Collections on notes receivable (including $3,503 in 1997, $1,166
in 1996 and $394 in 1995 from affiliates) ........................... 4,489 1,495 1,604
Proceeds from sale of notes receivable ................................. 16,985 -- --
Notes receivable funded ................................................ (8,716) (250) (3,295)
Proceeds from sale of real estate ...................................... 38,169 7,718 11,992
Contributions from minority interest holders ........................... 9,799 -- --
Acquisitions of real estate ............................................ (123,074) (41,636) (21,394)
Real estate improvements ............................................... (10,993) (2,862) (1,802)
Pizza parlor equipment purchased ....................................... (2,695) -- --
Deposits ............................................................... (6,221) 577 (516)
Investment in equity investees ......................................... (1,331) (15,471) (7,169)
------------ ------------ ------------

Net cash (used in) investing activities ............................. (83,588) (50,429) (20,580)

Cash Flows From Financing Activities
Proceeds from notes payable ............................................ 161,103 86,490 36,211
Margin borrowings, net ................................................. 8,914 2,981 7,626
Proceeds from issuance of Preferred Stock .............................. -- 400 --
Payments on notes payable (including $990 in 1995 to affiliate) ........ (81,639) (30,003) (22,268)
Deferred borrowing costs ............................................... (5,174) (5,028) (2,475)
Net advances (payments) to/from affiliates ............................. 23,274 (4,979) 3,050
Dividends .............................................................. (2,150) (1,617) --
------------ ------------ ------------

Net cash provided by financing activities ........................... 104,328 48,244 22,144
------------ ------------ ------------
</TABLE>

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

F-8

<PAGE> 166
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Net increase in cash and cash equivalents ................................. $ 4,093 $ 200 $ 861
Cash and cash equivalents, beginning of year .............................. 1,254 1,054 193
------------ ------------ ------------

Cash and cash equivalents, end of year .................................... $ 5,347 $ 1,254 $ 1,054
============ ============ ============

Reconciliation of net (loss) to net cash provided by (used in)
operating activities
Net (loss) ................................................................ $ (2,428) $ (5,554) $ (2,836)
Adjustments to reconcile net (loss) to net cash provided by (used in)
operating activities
Extraordinary gain .................................................. -- (381) (783)
Gain on sale of real estate ......................................... (20,296) (3,659) (2,594)
Depreciation and amortization ....................................... 3,338 2,002 1,691
Amortization of deferred borrowing costs ............................ 4,042 2,692 326
Equity in (income) losses of investees .............................. (10,660) (2,004) 851
Distributions from equity investees' operating activities ........... 5,689 9,054 1,464
(Increase) decrease in marketable equity securities ................. (4,559) 944 (1,020)
(Increase) decrease in accrued interest receivable .................. 66 (117) 79
(Increase) decrease in other assets ................................. 2,403 (2,817) 1,629
Increase (decrease) in accrued interest payable ..................... 1,019 1,417 (5)
Increase in accounts payable and other liabilities .................. 4,978 733 495
Other ............................................................... (239) 75 --
------------ ------------ ------------

Net cash provided by (used in) operating activities .............. $ (16,647) $ 2,385 $ (703)
============ ============ ============
</TABLE>

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

F-9

<PAGE> 167

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Schedule of noncash investing and financing activities

Notes payable from acquisition of real estate ....................... $ 44,151 $ 9,099 $ 21,394

Stock dividends on Series C Preferred Stock .......................... 82 31 --

Series F Preferred Stock issued for real estate ...................... 20,000 -- --

Current value of property obtained through foreclosure of note
receivable ........................................................ 20,226 -- --

Note receivable put to basis ......................................... 2,737 -- --

Note payable assumed on property obtained through foreclosure ........ 11,867 -- --

Carrying value of real estate exchanged .............................. 7,882 -- --

Notes payable from acquisition of minority interest in subsidiary .... 5,000 -- --

Acquisition of Pizza World Supreme, Inc

Carrying value of intangible ...................................... 15,641 -- --
Carrying value of pizza parlor equipment .......................... 3,998 -- --
Carrying value of note receivable retired ......................... 13,387 -- --
Carrying value of accounts payable and other liabilities .......... 1,314 -- --

Sale of real estate subject to debt .................................. -- -- (5,878)

Settlement with insurance company

Carrying value of real estate received ............................ -- -- 1,619
Carrying value of note receivable
participation received ......................................... -- -- 1,500
Carrying value of notes receivable returned ....................... -- -- (32)
Carrying value of real estate returned ............................ -- -- (2,183)
</TABLE>

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

F-10

<PAGE> 168

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, the most significant of which are
described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." These, along
with the remainder of the Notes to Consolidated Financial Statements, are an
integral part of the Consolidated Financial Statements. The data presented in
the Notes to Consolidated Financial Statements are as of December 31 of each
year and for the year then ended, unless otherwise indicated.
Dollar amounts in tables are in thousands, except per share amounts.

Certain balances for 1995 and 1996 have been reclassified to conform to the 1997
presentation. Shares and per share data have been restated for the 2 for 1
forward Common Stock splits effected February 17, 1997 and January 2, 1996.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and company business. American Realty Trust, Inc. ("ART"), a
Georgia corporation, is successor to a District of Columbia business trust, that
primarily invests in real estate and real estate-related entities and purchases
and originates mortgage loans.

Basis of consolidation. The Consolidated Financial Statements include the
accounts of ART, and all majority-owned subsidiaries and partnerships other than
National Realty, L.P. ("NRLP") and during the period April 1996 to April 1997
for Pizza World Supreme, Inc. ("PWSI"). The Company uses the equity method to
account for its investment in NRLP as control is considered to be temporary. The
Company used the equity method to account for its investment in PWSI from April
1996 to April 1997 as control was considered to be temporary. See NOTE 2.
"SYNTEK ASSET MANAGEMENT, L.P." and NOTE 7. "ACQUISITION OF PIZZA WORLD SUPREME,
INC." All significant intercompany transactions and balances have been
eliminated.

Accounting estimates. In the preparation of the Company's Consolidated Financial
Statements in conformity with generally accepted accounting principles it was
necessary for the Company's management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenues and expense for the year then
ended. Actual results could differ from these estimates.

Interest recognition on notes receivable. It is the Company's policy to cease
recognizing interest income on notes receivable that have been delinquent for 60
days or more. In addition, accrued but unpaid interest income is only recognized
to the extent that the net realizable value of the underlying collateral exceeds
the carrying value of the receivable.

Allowance for estimated losses. Valuation allowances are provided for estimated
losses on notes receivable considered to be impaired. Impairment is considered
to exist when it is probable that all amounts due under the terms of the note
will not be collected. Valuation allowances are provided for estimated losses on
notes receivable to the extent that the Company's investment in the note exceeds
the Company's estimate of fair value of the collateral securing such note.

Real Estate Held for Investment and Depreciation. Real estate held for
investment is carried at cost. Statement of Financial Accounting Standards No.
121 ("SFAS No. 121") requires that a property 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 property. If impairment exists, an
impairment loss is recognized by a charge against earnings, equal to the amount
by which the carrying amount of the property exceeds the fair value of the
property. If impairment of a property is recognized, the carrying amount of the
property is reduced by the amount of the impairment, and a new cost for the
property is established. Such new cost is depreciated over the property's
remaining useful life. Depreciation is provided by the straight-line method over
estimated useful lives, which range from 10 to 40 years.

Real Estate Held for Sale. Foreclosed real estate is initially recorded at new
cost, defined as the lower of original cost or fair value minus estimated costs
of sale. SFAS No. 121 also requires that properties held for sale be reported at
the lower of carrying amount or fair value less costs of sale. If a reduction in
a held for sale property's carrying amount to fair value less costs of sale 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 property's
estimated fair value less costs of sale is recorded as an adjustment to the
property's

F-11

<PAGE> 169

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

carrying amount, but not in excess of the property's carrying amount when
originally classified as held for sale. A corresponding charge against or credit
to earnings is recognized. Properties held for sale are not to be depreciated.

Investments in equity investees. Because the Company may be considered to have
the ability to exercise significant influence over the operating and investment
policies of certain of its investees, the Company accounts for such investments
by the equity method. Under the equity method, the Company's initial investment,
recorded at cost, is increased by the Company's proportionate share of the
investee's operating income and any additional investment and decreased by the
Company's proportionate share of the investee's operating losses and
distributions received.

Present value premiums/discounts. The Company provides for present value
premiums and discounts on notes receivable or payable that have interest rates
that differ substantially from prevailing market rates and amortizes such
premiums and discounts by the interest method over the lives of the related
notes. The factors considered in determining a market rate for notes receivable
include the borrower's credit standing, nature of the collateral and payment
terms of the note.

Revenue recognition on the sale of real estate. Sales of real estate are
recognized when and to the extent permitted by Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No. 66"). Until
the requirements of SFAS No. 66 for full profit recognition have been met,
transactions are accounted for using either the deposit, the installment, the
cost recovery, the financing or other method, whichever is appropriate.

Fair value of financial instruments. The Company used the following assumptions
in estimating the fair value of its notes receivable, marketable equity
securities and notes payable. For performing notes receivable, the fair value
was estimated by discounting future cash flows using current interest rates for
similar loans. For nonperforming notes receivable the estimated fair value of
the Company's interest in the collateral property was used. For marketable
equity securities fair value was based on the year end closing market price of
each security. For notes payable the fair value was estimated using current
rates for mortgages with similar terms and maturities.

Cash equivalents. For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.

Earnings per share. Loss per share is presented in accordance with the provision
of the Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". Loss per share is computed based upon the weighted average number of
shares of Common Stock outstanding during each year, adjusted for the two for
one forward Common Stock splits effected February 17, 1997 and January 2, 1996.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

The Company owns a 96% limited partner interest in Syntek Asset Management, L.P.
("SAMLP"). 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 also a general partner of SAMLP. As of September 30, 1997, the Company
owned approximately 54% of the outstanding limited partner units of NRLP.

NRLP, SAMLP and Mr. Phillips were among the defendants in a class action lawsuit
arising from the formation of NRLP. An agreement settling such lawsuit (the
"Settlement Agreement") 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 and the establishment of specified
annually increasing targets for five years relating to the price of NRLP's units
of limited partner interest.

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.

F-12

<PAGE> 170

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

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 $49.6 million at December 31, 1997,
before reduction for the principal balance ($4.2 million at December 31, 1997)
and accrued interest ($7.2 million at December 31, 1997) on the note receivable
from SAMLP for its original capital contribution to the partnership.

On December 15, 1997, NRLP, SAMLP, the NRLP oversight committee, Joseph B.
Moorman, Invenex and the Counsel for the plaintiff class members executed an
Agreement for Establishment of a Class Distribution Fund and Election of
Successor General Partner (the "Resolution Agreement") which provides for the
nomination of an entity affiliated with SAMLP to be the successor general
partner of NRLP and NOLP, for the establishment of a fund for the benefit of the
plaintiff class members consisting of cash and properties owned by NOLP and for
the resolution of all related matters under the Settlement Agreement.

The Resolution Agreement was submitted to the Judge appointed to supervise the
class action settlement (the "Supervising Judge") and on February 11, 1998, the
Supervising Judge entered an order granting preliminary approval of the
Resolution Agreement and scheduled a hearing to be held on April 24, 1998, for
consideration of preliminary approval of a business plan for the operation of
the entity which will receive the cash and properties and to consider a form of
notice to be distributed to the plaintiff class members describing the
Resolution Agreement and the business plan.

Upon the election and taking office of the successor general partner and the
transfer of the cash and properties to the fund established for the benefit of
the plaintiff class members, the Settlement Agreement and the NRLP oversight
committee shall be terminated.

<TABLE>
<CAPTION>
1997 1996
---------------------------- ---------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Notes Receivable
Performing (including $1,307 in 1997 and $13,563 in 1996
from affiliates) ......................................... $ 9,217 $ 9,340 $ 52,939 $ 55,161
Nonperforming, nonaccruing ................................... 26,344 23,212 1,884 1,584
------------ ------------ ------------ ------------
$ 35,561 32,552 $ 54,823 56,745
============ ============
Interest receivable .......................................... 380 445
Unamortized premiums/(discounts) ............................. (124) (162)
Deferred gains ............................................... (4,884) (4,617)
------------ ------------
$ 27,924 $ 52,411
============ ============
</TABLE>

At December 31, 1996, a $1.1 million nonrecourse participation was deducted from
notes receivable. Such participation was satisfied in conjunction with the
Company's foreclosure of its $8.9 million junior mortgage note receivable
secured by the Williamsburg Hospitality House, as discussed below.

Notes receivable at December 31, 1997, mature from 1998 to 2014 with interest
rates ranging from 6.0% to 12.9% and a weighted average rate of 12.78%. A small
percentage of these notes receivable carry a variable interest rate. Notes
receivable include notes generated from property sales which have interest rates
adjusted at the time of sale to yield rates ranging from 6% to 14%. Notes
receivable are generally nonrecourse and are generally collateralized by real
estate. Scheduled principal maturities of $31.2 million are due in 1998 of which
$23.2 million is due on nonperforming notes receivable.

Nonrecourse participations totaling $2.2 million and $1.6 million at December
31, 1997 and 1996, respectively, have been deducted from notes receivable.

F-13

<PAGE> 171

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

million in connection with the sale of the hotel and casino resulting from a
disputed third lien mortgage being subordinated to the Company's wraparound
mortgage note receivable. In March 1997, the wraparound note was modified and
extended. In exchange for the extension, the borrower was required to invest
$2.0 million in improvements to the hotel and casino within four months of the
March 1997 modification and an additional $2.0 million prior to December 1997.
The borrower also pledged 1,500,000 shares of common stock in Crowne Ventures,
Inc., as additional collateral. The Company's wraparound mortgage note
receivable had a principal balance of $13.3 million at December 31, 1997. The
Company recognizes interest income on this wraparound mortgage note only to the
extent interest is collected. The borrower has not made the required note
payments since April 1997, nor the required improvements. In December 1997, the
borrower filed for bankruptcy protection. In February 1998, a hearing was held
to allow the Company to foreclose on the hotel and casino. At the hearing, the
court allowed the borrower 90 days to submit a reorganization plan and beginning
March 2, 1998, required the borrower to make monthly payments of $175,000 to the
Company. The Company received the first such payment on March 2, 1998. If the
Company is allowed to foreclose on the property it does not expect to incur a
loss as the fair value of the property exceeds the carrying value of the
Company's note 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 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 21, 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.

In September 1997, the Company sold its $16.3 million wraparound mortgage note
receivable secured by the Las Vegas Plaza Shopping Center in Las Vegas, Nevada,
for $15.0 million. The Company received net cash of $5.5 million after the
payoff of $9.2 million in underlying debt. The Company incurred no loss on the
sale in excess of the reserve previously established.

Related Party. In September 1997, the Company foreclosed on its $8.9 million
junior mortgage note receivable secured by the Williamsburg Hospitality House in
Williamsburg, Virginia. The Company obtained the property through foreclosure
subject to the first mortgage of $12.0 million. The Company incurred no loss on
foreclosure as the fair value of the property exceeded the carrying value of the
Company's mortgage note receivable and assumed mortgage debt. The property is
included in real estate held for investment in the accompanying Consolidated
Balance Sheet.

At December 31, 1996, the Company held a mortgage note receivable secured by an
apartment complex in Merrillville, Indiana, with a principal balance of $3.7
million. The property is owned by a subsidiary of Davister Corp. ("Davister"), a
general partner in a partnership that owns approximately 15.6% of the Company's
outstanding shares of Common Stock. In May 1997, the note plus accrued but
unpaid interest was paid in full.

NOTE 4. REAL ESTATE

In January 1997, the Company sold a 3.0 acre tract of Las Colinas I land in Las
Colinas, Texas, for $1.2 million in cash. The Company recognized a gain of
$676,000 on the sale.

Also in January 1997, the Company purchased Scout land, a 546 acre parcel of
undeveloped land in Tarrant County, Texas, for $2.2 million. The Company paid
$725,000 in cash and obtained new mortgage financing of $1.5 million. The
mortgage bears interest at 16% per annum, requires quarterly payments of
interest only and matures in January 2000.

In February 1996, the Company entered into a contract to sell a 72.5 acre tract
of the 92.6 acre parcel of BP Las Colinas land in Las Colinas, Texas, for $12.9
million. The contract called for the sale to close in two phases. In July 1996,
the Company completed the first sale. In February 1997, the Company completed
the second sale of 40.2 acres for $8.0 million, of which $7.2 million was paid
in cash. Of the net cash proceeds of $6.9 million, $1.5 million was used to
payoff the debt secured by the BP Las Colinas land parcel, pay a $500,000
maturity fee to the lender, make a $1.5 million principal paydown on the loan
with the same lender, secured by the Parkfield land in Denver, Colorado and $1.0
million was applied as a principal paydown on the term loan secured by the Las
Colinas I land. 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
bore interest at 12% per annum, with all accrued but unpaid

F-14

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

interest and principal due at maturity in August 1997. The Company recognized a
gain of $3.4 million on such sale, deferring an additional $800,000 of gain
until the unsecured loan was paid in full. The loan was collected in full in
August 1997 and the additional $800,000 gain was recognized.

In March 1997, the Company purchased Katy Road land, a 130.6 acre parcel 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 financing bears interest at 9%
per annum, requires quarterly payments of interest only and matures in March
2000.

In April 1997, the Company purchased McKinney Corners I land, a 30.4 acre parcel
of undeveloped land in Collin County, Texas, for $3.5 million. The Company paid
$1.0 million in cash and obtained new mortgage financing of $2.5 million. The
mortgage bears interest at 14% per annum, requires monthly payments of interest
only and matures in April 1998.

Also in April 1997, the Company purchased McKinney Corners II land, a 173.9 acre
parcel of undeveloped land in Collin County, Texas, for $5.9 million. The
Company paid $900,000 in cash and obtained new mortgage financing of $5.0
million as an advance under the term loan from the Las Colinas I lender. The
McKinney Corners II land was added as additional collateral on the term loan.

Further in April 1997, the Company sold a 3.1 acre tract of Las Colinas I land
for $1.3 million in cash. The Company used $1.0 million of the net cash proceeds
to make a collateral escrow deposit in accordance with the provisions of the
Valley Ranch land term loan. The Company recognized a gain of $668,000 on the
sale.

In May 1997, the Company purchased McKinney Corners III land, a 15.5 acre parcel
of undeveloped land in Collin County, Texas, for $896,000 in cash.

Also in May 1997, the Company purchased Lacy Longhorn land, a 17.1 acre parcel
of undeveloped land in Farmers Branch, Texas, for $1.8 million. The Company paid
$200,000 in cash with the seller providing purchase money financing of the
remaining $1.6 million of the purchase price. The financing bore interest at 10%
per annum, required monthly principal and interest payments of $400,000 and
matured in October 1997. The loan was paid off at maturity.

Further in May 1997, the Company purchased Chase Oaks land, a 60.5 acre parcel
of undeveloped land in Plano, Texas, for $4.2 million. The Company paid $200,000
in cash with the seller providing purchase money financing of the remaining $4.0
million of the purchase price. The financing bears interest at 18% per annum,
requires monthly payments of interest only and matures in May 2000.

In May 1997, the Company purchased Pioneer Crossing land, a 1,448 acre parcel of
undeveloped land in Austin, Texas, for $21.5 million. The Company paid $5.4
million in cash with the seller providing purchase money financing of the
remaining $16.1 million of the purchase price. The financing bears interest at
9.5% per annum, requires monthly payments of interest only and matures in May
2001.

In June 1997, the Company purchased Kamperman land, a 129.6 acre parcel of
undeveloped land in Collin County, Texas, for $5.0 million in cash. The Company
simultaneously sold a 99.7 acre tract for $4.5 million in cash. The Company
recognized a gain of $215,000 on the sale.

Also in June 1997, the Company purchased Keller land, a 811.8 acre parcel of
undeveloped land in Tarrant County, Texas, for $6.3 million. The Company paid
$2.3 million in cash and obtained new mortgage financing of $4.0 million. The
mortgage bears interest at 12.95% per annum, requires monthly payments of
interest only and matures in June 1998.

Further in June 1997, the Company purchased McKinney Corners IV land, a 31.3
acre parcel of undeveloped land in Collin County, Texas, for $2.4 million. The
Company paid $400,000 in cash and obtained new mortgage financing of $2.0
million, as an advance under the term loan from the Las Colinas I lender. The
McKinney Corners IV land was added as additional collateral on the term loan.

F-15

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

In June 1997, the Company purchased Pantex land, a 182.5 acre parcel of
undeveloped land in Collin County, Texas, for $5.4 million. The Company paid
$900,000 in cash with the seller providing purchase money financing of the
remaining $4.5 million of the purchase price. The financing bears interest at
10.5% per annum, requires semiannual payments of interest only and matures in
December 2000.

In July 1997, the Company sold a 3.9 acre tract of Las Colinas I land in Las
Colinas, Texas, for $1.6 million in cash. In accordance with the provisions of
the term loan secured by such parcel, the Company applied the net cash proceeds
of $1.4 million to paydown the term loan in exchange for the lender's release of
its collateral interest in such land. The Company recognized a gain of $771,000
on such sale.

Also in July 1997, the Company purchased Dowdy and McKinney Corners V land, a
total of 174.7 acres of undeveloped land in Collin County, Texas, for $2.9
million. The Company obtained new mortgage financing of $3.3 million as an
advance under the term loan from the Las Colinas I lender. The Dowdy, McKinney
Corners V and McKinney Corners III land were added as additional collateral on
the term loan.

Further in July 1997, the Company purchased Perkins land, a 645.4 acre parcel of
undeveloped land in Collin County, Texas, for $5.8 million. The Company paid
$3.3 million in cash and assumed the existing mortgage of $2.5 million. The
mortgage bears interest at 8.5% per annum, requires quarterly payments of
interest only and matures in March 2002.

In July 1997, the Company purchased LBJ land, a 10.4 acre parcel of undeveloped
land in Dallas County, Texas, for $2.3 million. The Company paid $300,000 in
cash and with the seller providing purchase money financing of the remaining
$2.0 million of the purchase price. The financing bears interest at 18% per
annum, requires quarterly payments of interest only and matures in March 1998.

In September 1997, the Company sold the Mopac Building, a 400,000 square foot
office building, in St. Louis, Missouri, for $1.0 million in cash. The Company
received net cash of $1.0 million after the payment of various closing costs
associated with the sale. In accordance with the provisions of the Las Colinas I
term loan, the Company applied $350,000 of the net cash received to paydown the
term loan in exchange for the lender's release of its collateral interest in the
property. The Company recognized a gain of $481,000 on the sale.

Also in September 1997, the Company sold a 2.6 acre tract of Las Colinas I land
in Las Colinas, Texas, for $1.2 million in cash. In accordance with the
provisions of the term loan secured by such parcel, the Company applied the net
cash proceeds of $1.0 million to paydown the term loan in exchange for the
lender's release of its collateral interest in such land. The Company recognized
a gain of $578,000 on the sale.

Further in September 1997, the Company sold three tracts of Valley Ranch land
totaling 24.0 acres, for $1.6 million in cash. The net cash proceeds of $1.2
million were deposited into a certificate of deposit for the benefit of the
lender, in accordance with the term loan secured by such land. The certificate
of deposit was released to the lender in December 1997, in conjunction with the
payoff of the loan. The Company recognized a gain of $567,000 on the sale.

In September 1997, the Company purchased the Collection, a 267,812 square foot
retail and commercial center in Denver, Colorado, for $19.5 million. The Company
paid $791,000 in cash and assumed existing mortgages totaling $14.7 million, and
issued 400,000 shares of the Company's Series F Cumulative Convertible Preferred
Stock. See NOTE 13. "PREFERRED STOCK." A first mortgage in the amount of $14.2
million bears interest at 8.64% per annum, requires monthly principal and
interest payments of $116,000 and matures in May 2017. A second lien mortgage in
the amount of $580,000 bears interest at 7% per annum until April 2001, 7.5% per
annum from May 2001 to April 2006, and 8% per annum from May 2006 to May 2010,
requires monthly principal and interest payments of $3,000 and matures in May
2010.

In October 1997, the Company contributed its Pioneer Crossing land in Austin,
Texas to a limited partnership in exchange for $3.4 million in cash, a 1%
managing general partner interest in the partnership, all of the Class B limited
partner units in the partnership and the partnership's assumption of the $16.1
million mortgage debt secured by such property. The existing general and limited
partners converted their general and limited partner interests into Class A
limited partner units in the partnership. The Class A limited partner units have
an agreed value of $1.00 per unit and are entitled to a fixed preferred return
of 10% per

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

annum, paid quarterly. The Class A units may be converted into a total of
360,000 shares of the Company's Series F Cumulative Convertible Preferred Stock
at any time after the first but no later than the sixth anniversary of the
closing, on the basis of one share of Series F Preferred Stock for each ten
Class A units. See NOTE 13. "PREFERRED STOCK."

Also in October 1997, the Company contributed the Denver Merchandise Mart in
Denver, Colorado, to a limited partnership in exchange for $6.0 million in cash,
a 1% managing general partner interest in the partnership, all of the Class B
limited partner units in the partnership and the partnership's assumption of the
$23.0 million in mortgage debt secured by such property. The existing general
and limited partners converted their general and limited partner interests into
Class A limited partner units in the partnership. The Class A units have an
agreed value of $1.00 per unit and are entitled to a fixed preferred return of
10% per annum, paid quarterly. The Class A units may be converted into a total
of 529,000 shares of the Company's Series F Cumulative Convertible Preferred
Stock at any time after the first but not later than the sixth anniversary of
the closing, on the basis of one share of Series F Preferred Stock for each ten
Class A units. See NOTE 13. "PREFERRED STOCK."

Further in October 1997, the Company purchased Palm Desert land, a 315.2 acre
parcel of undeveloped land in Palm Desert, California, for $11.2 million. The
Company paid $3.8 million in cash and assumed the existing mortgage of $7.4
million. The mortgage bears interest at 9% per annum, requires monthly principal
and interest payments of $76,000 and matures in February 2002.

In October 1997, the Company purchased Thompson land, a 4.0 acre parcel of
undeveloped land in Dallas County, Texas, for $869,000 in cash.

Also in October 1997, the Company purchased Santa Clarita land, a 20.6 acre
parcel of undeveloped land, in Santa Clarita, California, for $1.3 million. The
Company obtained new mortgage financing of $1.3 million as an advance under the
term loan from the Las Colinas I lender. The Santa Clarita land was added as
additional collateral for the term loan.

Further in October 1997, the Company purchased Tomlin land, a 9.2 acre parcel of
undeveloped land in Dallas County, Texas, for $1.7 million in cash.

In October 1997, the Company purchased Rasor land, a 378.2 acre parcel of
undeveloped land in Plano, Texas, for $14.4 million. The Company paid $5.1
million in cash, obtained new mortgage financing of $3.5 million as an advance
under the term loan from the Las Colinas I lender and exchanged the Perkins
land, a 645.4 acre parcel of undeveloped land in Collin County, Texas, for the
remainder of the purchase price. The Company simultaneously sold an 86.5 acre
tract of the Rasor land for $3.8 million in cash, the Company receiving net cash
proceeds of $3.5 million after the payment of various closing costs associated
with the sale. The Company recognized a gain of $217,000 on the sale of the 86.5
acre tract. The Rasor land was added as additional collateral for the term loan.

Also in October 1997, the Company purchased the Piccadilly Inns, four hotels in
Fresno, California, with a total of 697 rooms, for $33.0 million. The Company
issued 1.6 million shares of its Series F Cumulative Convertible Preferred Stock
for $16.0 million of the purchase price and obtained new mortgage financing of
$19.8 million. See NOTE 13. "PREFERRED STOCK." The Company received net
financing proceeds of $2.2 million after the payment of various closing costs
associated with the financing. The mortgage bears interest at 8.40% per annum,
requires monthly principal and interest payments of $158,000 and matures in
November 2012.

Further in October 1997, a newly formed partnership, of which the Company is the
general partner and Class B limited partner, purchased the Vineyards land, a
15.8 acre parcel of undeveloped land in Tarrant County, Texas, for $4.5 million.
The partnership paid $800,000 in cash, assumed the existing mortgage of $2.5
million and issued the seller 1.1 million Class A limited partner units in the
partnership as additional consideration. The Class A units have an agreed value
of $1.00 per unit and are entitled to a fixed preferred return of 10% per annum,
paid quarterly. The Class A units may be exchanged for either shares of the
Company's Series G Preferred Stock on or after the second anniversary of the
closing at the rate of one share of Series G Preferred Stock for each 100 Class
A units exchanged, or on or after the third anniversary of the closing, the
Class A units are also exchangeable for shares of the Company's Common Stock.
The Class A units are exchangeable for shares of the Company's Common Stock at
the rate of $1.00 per unit plus any outstanding preferred return divided by .9
times the simple average of the daily closing price of the Company's Common
Stock for the 20 days preceding the date of conversion. The assumed mortgage

F-17

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

bears interest at 12.95% per annum requires quarterly payments of interest only
and matures in June 1998. See NOTE 13. "PREFERRED STOCK."

In October 1997, the Company purchased Dalho land, a 3.4 acre parcel of
undeveloped land in Farmers Branch, Texas, for $300,000 in cash.

Also in October 1997, the Company sold a 11.6 acre tract of Valley Ranch land
for $1.2 million in cash. The net cash proceeds of $990,000, after the payment
of various closing costs associated with the sale, were deposited in a
certificate of deposit for the benefit of the lender, in accordance with the
term loan secured by such land. The certificate of deposit was released to the
lender in December 1997, in conjunction with the payoff of the loan. The Company
recognized a gain of $629,000 on the sale.

In November 1997, the Company sold two tracts of Valley Ranch land, totaling 8
acres, for $577,000 in cash. The net cash proceeds of $451,000, after the
payment of various closing costs associated with the sale, were deposited in a
certificate of deposit for the benefit of the lender, in accordance with the
term loan secured by such land. The certificate of deposit was released to the
lender in December 1997 in conjunction with the payoff of the loan. The Company
recognized a gain of $216,000 on the sale.

Also in November 1997, the Company purchased Hollywood Casino land, a 51.7 acre
parcel of undeveloped land in Farmers Branch, Texas, for $11.1 million. The
Company paid $3.6 million in cash and obtained new mortgage financing of $7.5
million. The mortgage bears interest at 9.25% per annum, requires monthly
payments of interest only and matures in December 1999.

In December 1997, the Company sold a 5.1 acre tract of the Valley Ranch land,
for $430,000 in cash. The net cash proceeds of $353,000, after the payment of
various closing costs associated with the sale, were deposited in a certificate
of deposit for the benefit of the lender, in accordance with the term loan
secured by such land. The certificate of deposit was released to the lender in
December 1997 in conjunction with the payoff of the loan. The Company recognized
a gain of $203,000 on the sale.

Also in December 1997, the Company purchased Valley Ranch III land, a 12.5 acre
parcel of undeveloped land in Irving, Texas, for $2.1 million. The Company paid
$527,000 in cash with the seller providing purchase money financing of the
remaining $1.6 million of the purchase price. The financing bears interest at
10.0% per annum, requires the payment of principal and interest at maturity, and
matures in December 1998.

Further in December 1997, the Company purchased Stagliano land, a 3.2 acre
parcel of undeveloped land in Farmers Branch, Texas, for $500,000 in cash.

In December 1997, the Company sold a 32.0 acre tract of Parkfield land in
Denver, Colorado, for $1.2 million in cash. In accordance with the provisions of
the term loan secured by such parcel, the Company applied the net cash proceeds
of $1.1 million to paydown the term loan in exchange for the lender's release of
its collateral interest in such land. The Company recognized a gain of $372,000
on the sale.

Also in December 1997, the Company exchanged a 43.0 acre tract of Valley Ranch
land for Preston Square, a 35,508 square foot shopping center in Dallas, Texas.
In accordance with the provisions of the term loan securing the Valley Ranch
land, the Company paid $2.8 million to the lender in exchange for the lender's
release of its collateral interest in such land. Simultaneously, the Company
obtained new mortgage financing of $2.5 million secured by the shopping center.
The mortgage bears interest at 8.2% per annum, requires monthly payments of
interest only and matures in December 1999. The Company recognized no gain or
loss on the exchange.

Further in December 1997, the Company sold two parcels of Valley Ranch land,
totaling 25.1 acres, for $3.3 million. The Company received net cash proceeds of
$2.1 million and provided an additional $891,000 in purchase money financing.
The purchase money financing bore interest at 10.0% per annum and matured in
January 1998. The Company received a $624,000 paydown on the purchase money
financing in January with the remainder being deferred until a zoning issue is
resolved. In accordance with the provisions of the term loan secured by such
parcel, the Company applied the net cash proceeds of $2.1 million to payoff the
term loan secured by such parcel, the lender releasing its collateral interest
in the remaining Valley Ranch land. The Company recognized a gain of $1.8
million and deferred an additional $267,000 until the zoning issue is resolved.

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

In December 1997, the Company sold Park Plaza, a 105,507 square foot shopping
center in Manitowoc, Wisconsin, for $4.9 million in cash. The Company received
net cash of $1.6 million, after the payoff of $3.1 million in existing mortgage
debt and the payment of various closing costs associated with the sale. The
Company recognized a gain of $105,000 on the sale.

Also in December 1997, the Company sold Pin Oak land, a 567.6 acre parcel of
undeveloped land in Houston, Texas, for $11.4 million. The Company received net
cash proceeds of $3.5 million and provided an additional $6.9 million of short
term purchase money financing that was paid in full in January 1998. On the
payoff of the purchase money financing the Company received net cash of $1.5
million after the payoff of $5.2 million in underlying mortgage debt, and the
payment of various closing costs associated with the sale. The Company
recognized a gain of $3.7 million on the sale.

In November 1991, the Company transferred the Porticos Apartments to Income
Opportunity Realty Investors, Inc. ("IORI"), an equity investee, in
satisfaction, at the time, of the Company's $3.6 million obligation to IORI. The
Company recorded a deferred gain of $3.0 million on the transfer. In June 1997,
IORI sold the property, and accordingly the Company recognized such previously
deferred gain. See NOTE 6. INVESTMENTS IN EQUITY INVESTEES."

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. During 1997, 9 additional lots
were sold for an aggregate gain of $17,000. At December 31, 1997, one lot
remained to be sold.

In 1996, the Company sold a total of 39.1 acres of land in Las Colinas, Texas in
four separate transactions for a total of $6.8 million. The Company applied the
$6.5 million net cash proceeds to paydown the term loans secured by such land.
The Company recognized gains totaling $3.7 million from such sales.

In 1996, the Company purchased a single family residence, a hotel and a total of
1,368.5 acres of land for a total of $57.5 million. In connection with these
acquisitions, the Company obtained new or seller financing totaling $41.3
million. The mortgages bear interest at rates ranging from 9% to 15% per annum,
required monthly payments of principal and interest totaling $491,479 and
matured from June 1998 to December 1999.

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

Activity in the allowance for estimated losses was as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance January 1, ......................................... $ 3,926 $ 7,254 $ 8,201
Amounts charged off ........................................ (1,528) -- (947)
Writedown of property ...................................... -- (3,328) --
------------ ------------ ------------

Balance December 31, ....................................... $ 2,398 $ 3,926 $ 7,254
============ ============ ============
</TABLE>

NOTE 6. INVESTMENTS IN EQUITY INVESTEES

The Company's investment in equity investees at December 31, 1997, includes (i)
equity securities of three publicly traded real estate investment trusts,
Continental Mortgage and Equity Trust ("CMET"), IORI and Transcontinental Realty
Investors, Inc. ("TCI") (collectively the "REITs"), (ii) units of limited
partner interest of NRLP, (iii) a general partner interest in NRLP and NOLP, the
operating partnership of NRLP, through its 96% limited partner interest in SAMLP
and (iv) interests in real estate joint venture partnerships. Gene E. Phillips,
the Chairman of the Board and a Director of the Company until November 16, 1992,
is a general partner of SAMLP, the general partner of NRLP and NOLP and was a
director and Chief Executive Officer of SAMI until May 15, 1996. Randall M.
Paulson, an Executive Vice President of the Company, serves as the sole director
of SAMI and as President of the REITs, SAMI and Basic Capital Management, Inc.
("BCM"), the Company's advisor. In addition, BCM serves as advisor to the REITs,
and performs certain administrative and management functions for NRLP and NOLP
on behalf of SAMLP.

F-19

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

The Company accounts for its investment in the REITs, NRLP and the joint venture
partnerships using the equity method as more fully described in NOTE 1. "SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - Investments in equity investees." 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 10. "MARGIN BORROWINGS."

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

The Company's investment in entity investees accounted for using the equity
method, at December 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 December 31, 1997 December 31, 1997 December 31, 1997 December 31, 1997
- --------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NRLP 54.4% $ 11,479 $ * $ 83,018
CMET 40.6 14,939 35,745 25,733
IORI 29.7 3,511 7,439 5,176
TCI 30.6 8,378 26,652 20,664
--------- ----------
38,307 $ 134,591
==========
General partner
interest in NRLP and NOLP 6,230
Other 1,314
$ 45,851
</TABLE>

- ----------
* At December 31, 1997, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $198.9 million.
Revaluation equity is defined as the difference between the estimated current
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, 1997.

The Company's investment in entity investees accounted for using the equity
method, at December 31, 1996 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 December 31, 1997 December 31, 1997 December 31, 1997 December 31, 1997
- --------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NRLP 54.4% $ 14,421 $ --* $ 44,997
CMET 40.6 14,141 32,148 18,789
IORI 29.6 2,719 6,625 4,838
TCI 30.5 6,318 24,204 13,131
-------- ---------
37,599 $ 81,755
=========
General partner
interest in NRLP and NOLP 6,607
Other (2,234)
$ 41,972
</TABLE>

- ----------
* At December 31, 1996, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $188.5 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 Company's management continues to believe that the market value of each of
the REITs and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1997, as its liquidity
has permitted.

In April 1996, the Company purchased a 28% general partner interest in Campbell
Center Associates, Ltd. ("Campbell, Ltd."), which in turn has a 56.25% interest
in Campbell Centre Joint Venture, which owns a 413,175 square foot office
building in

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<PAGE> 179

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

Dallas, Texas. The purchase price of the general partner interest was $550,000
in cash and a $500,000 note, which bears interest at 8% per annum, requires
monthly payments of interest only and matures April 2000. In January 1997, the
Company exercised its option to purchase an additional 28% general partner
interest in Campbell, Ltd. The purchase price was $300,000 in cash and a
$750,000 note, which bears interest at 8% per annum, requires monthly payments
of interest only and matures in April 2000. In July 1997, the Company purchased
an additional 9% general partner interest in Campbell, Ltd. for $868,000 in
cash.

In June 1996, a newly formed limited partnership, of which the Company is the
general partner, purchased 580 acres of undeveloped land in Collin County, Texas
for $5.7 million in cash. The Company contributed $100,000 in cash to the
partnership with the remaining $5.6 million being contributed by the limited
partner. The partnership agreement designates the Company as the managing
general partner. In September 1996, the partnership obtained financing of $2.8
million secured by the 580 acres of land and personal guarantee of the limited
partner. The Partnership agreement also provides that the limited partner
receive a 12% preferred cumulative return on his investment before any sharing
of partnership profits occurs. In April 1997, the partnership sold a 35.0 acre
tract for $1.3 million in cash. The net sales proceeds of $1.2 million were
distributed to the limited partner in accordance with the partnership agreement.
The partnership recognized a gain of $884,000 on the sale. In July 1997, the
Partnership sold a 24.6 acre tract for $800,000 in cash. In accordance with the
terms of the term loan secured by such property, $197,000 of the net sales
proceeds were used to paydown such term loan. The remaining $545,000 was
distributed to the limited partner in accordance with the partnership agreement.
The partnership recognized a gain of $497,000 on the sale. In September 1997,
the partnership sold a 77.2 acre tract for $1.5 million in cash. In accordance
with the terms of the term loan secured by such property, the net sales proceeds
were used to paydown such term loan. The partnership recognized a gain of
$704,000 on the sale. In October 1997, the partnership sold a 96.5 acre tract
for $1.7 million in cash. In accordance with the terms of the term loan secured
by such property, $548,000 of the net sales proceeds were used to paydown such
term loan and the remaining $1.1 million being distributed to the limited
partner in accordance with the partnership agreement. The partnership recognized
a gain of $691,000 on the sale. In December 1997, the partnership sold a 94.4
acre tract for $2.5 million in cash. Of the net sales proceeds, $1.8 million was
distributed to the limited partner and $572,000 was distributed to the Company
as general partner in accordance with the partnership agreement. The partnership
recognized a gain of $1.4 million on the sale. In January 1998, the partnership
sold a 155.4 acre tract for $2.9 million. The partnership received $721,000 in
cash and provided purchase money financing of an additional $2.2 million. Of the
net sales proceeds, $300,000 was distributed to the limited partner and $300,000
was distributed to the Company as general partner in accordance with the
partnership agreement. The purchase money financing bears interest at 12% per
annum, requires monthly payments of interest only and matures in July 1998. The
partnership recognized a gain of $1.2 million on the sale.

In September 1997, a newly formed limited partnership, of which the Company is a
1% general partner and 21.5% limited partner, purchased a 422.4 acre parcel of
undeveloped land in Denton County, Texas, for $16.0 million in cash. The Company
contributed $3.6 million in cash to the partnership with the remaining $12.4
million being contributed by the other limited partners. The partnership
agreement designates the Company as the managing general partner. In September
1997, the partnership obtained financing of $6.5 million secured by the 422.4
acres of land. The mortgage bears interest at 10% per annum, requires quarterly
payments of interest only and matures in September 2001. The net financing
proceeds were distributed to the partners, the Company receiving $2.9 million of
its initial investment. The partnership agreement also provides that the limited
partners receive a 12% preferred cumulative return on their investment before
any sharing of partnership profits occurs. One of the limited partners in the
partnership is also a limited partner in a partnership that owns approximately
15.6% of the Company's outstanding shares of Common Stock. See NOTE 11. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."

In January 1992, the Company entered into a partnership agreement with an entity
affiliated with a limited partner in a partnership that owns approximately 15.6%
of the Company's outstanding shares of Common Stock, that acquired 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, 197 of the residential lots had been sold. During 1997, an additional 17
lots were sold with 73 lots remaining to be sold at December 31, 1997. During
1997, each partner received $21,000 in return of capital distributions and
$12,000 in profit distributions.

F-22

<PAGE> 180

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

Set forth below are summary financial data for equity investees owned over 50%:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Property and notes receivable, net ......................... $ 236,367 $ 240,552
Other assets ............................................... 43,213 59,409
Notes payable .............................................. (339,102) (352,441)
Other liabilities .......................................... (17,311) (19,294)
------------ ------------
Equity ..................................................... $ (76,833) $ (71,774)
============ ============
</TABLE>

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ................................................... $ 124,521 $ 124,044 $ 110,892
Depreciation ............................................... (10,418) (11,148) (10,268)
Interest ................................................... (34,481) (34,640) (34,956)
Operating expenses ......................................... (79,463) (78,043) (69,572)
------------ ------------ ------------

Income (loss) before gains on sale of real estate and
extraordinary gains ...................................... 159 213 (3,904)

Gains on sale of real estate ............................... 8,356 61 7,701
------------ ------------ ------------
Net income ................................................. $ 8,515 $ 274 $ 3,797
============ ============ ============
</TABLE>

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

The Company's equity share of:

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income (loss) before gains on sale of real estate ..... $ 817 $ 270 $ (1,767)
Gains on sale of real estate .......................... 3,022 -- 1,884
------------ ------------ ------------
Net income ............................................ $ 3,839 $ 270 $ 117
============ ============ ============
</TABLE>

Set forth below are summary financial data for equity investees owned less than
50%:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Property and notes receivable, net .................... $ 631,825 $ 501,097
Other assets .......................................... 80,789 57,877
Notes payable ......................................... (483,064) (358,203)
Other liabilities ..................................... (28,326) (19,849)
------------ ------------
Equity ................................................ $ 201,224 $ 180,922
============ ============
</TABLE>

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Depreciation .......................................... (17,429) (14,408) (13,950)
Provision for losses .................................. (1,337) 844 (541)
Interest .............................................. (38,537) (30,401) (28,102)
Operating expenses .................................... (85,387) (69,698) (65,471)
------------ ------------ ------------
(Loss) before gains on sale of real estate and
extraordinary gains ................................ (13,159) (12,417) (13,334)
Gains on sale of real estate .......................... 34,297 11,701 5,822
Extraordinary gains ................................... -- 1,068 1,437
------------ ------------ ------------
Net income (loss) ..................................... $ 21,138 $ 352 $ (6,075)
============ ============ ============
</TABLE>

F-23

<PAGE> 181

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

The Company's equity share of:

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
(Loss) before gains on sale of real estate and
extraordinary gains ................................ $ (3,703) $ (2,911) $ (3,356)
Gains on sale of real estate .......................... 4,645 2,463
Extraordinary gains ................................... 10,524 381 783
------------ ------------ ------------
Net income (loss) ..................................... $ 6,821 $ 2,115 $ (110)
============ ============ ============
</TABLE>

The Company's cash flow from the REITs and NRLP is dependent on the ability of
each of the entities to make distributions. CMET and IORI have been making
quarterly distributions since the first quarter of 1993, NRLP since the fourth
quarter of 1993 and TCI since the fourth quarter of 1995. In 1997, the Company
received distributions totaling $1.4 million from the REITs and $1.4 million
from NRLP and accrued an additional $6.7 million in NRLP and TCI distributions
that were not received until January 1998. In 1996, the Company received total
distributions from the REITs of $2.1 million and $6.9 million from NRLP. At
December 31, 1995, the Company accrued $3.3 million in NRLP distributions which
were received January 2, 1996.

The Company's investments in the REITs and NRLP were initially acquired in 1989.
In 1997, the Company purchased an additional $172,000 of equity securities of
the REITs and NRLP.

NOTE 7. ACQUISITION OF PIZZA WORLD SUPREME, INC.

In April 1996, a newly formed subsidiary of the Company purchased, for $10.7
million in cash, 80% of the common stock of Pizza World Supreme, Inc. ("PWSI"),
which in turn had acquired 26 operating pizza parlors in various communities in
California's San Joaquin Valley. Concurrent with the purchase, the Company
granted to an individual an option to purchase 36.25% of the Company's
subsidiary at any time for the Company's net investment in such subsidiary.
Additionally, the Company held negotiations with underwriters to take such
subsidiary public. The Company believed that such option would be exercised and
further, that the subsidiary would become publicly held approximately one year
from its date of acquisition. Accordingly, the Company believed its control of
such subsidiary was temporary and therefore accounted for such subsidiary under
the equity method through April 1997. In May 1997, the Company acquired the
remaining 20% of PWSI for $5.0 million and discontinued equity accounting. The
sellers provided purchase money financing in the form of two $2.5 million term
loans. The term loans bear interest at 8% per annum, require quarterly payments
of interest only and mature in May 2007.

NOTE 8. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

In 1994, the Company began purchasing equity securities of entities other than
those of the REITs and NRLP to diversify and increase the liquidity of its
margin accounts. In 1997, the Company purchased $15.1 million and sold $10.6
million of such securities. These equity securities are considered a trading
portfolio and are carried at market value. At December 31, 1997, the Company
recognized an unrealized decline in the market value of the equity securities in
its trading portfolio of $850,000. In 1997, the Company realized a net gain of
$154,000 from the sale of trading portfolio securities and received $107,000 in
dividends. At December 31, 1996, the Company recognized an unrealized decline in
the market value of the equity securities in its trading portfolio of $486,000.
In 1996, the Company realized a net gain of $29,000 from the sale of trading
portfolio securities and received $163,000 in dividends. At December 31, 1995,
the Company recognized an unrealized decline in the market value of the equity
securities in its trading portfolio of $998,000. In 1995, the Company realized a
net gain of $349,000 from the sale of trading portfolio securities and received
$852,000 in dividends and $238,000 in return of capital distributions on such
securities. Unrealized and realized gains and losses in the trading portfolio
are included in other income in the accompanying Consolidated Statements of
Operations.

F-24

<PAGE> 182

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

NOTE 9. NOTES AND INTEREST PAYABLE

Notes and interest payable consisted of the following:

<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Notes payable
Mortgage loans............................... $ 84,050 $ 96,654 $ 40,680 $ 68,385
Borrowings from financial institutions....... 170,491 153,369 78,812 48,929
Notes payable to affiliates.................. 7,342 4,570 1,658 4,176
-------------- ------------ ------------ -------------
$ 261,883 254,593 $ 121,150 121,490
============== ============
Interest payable (including $4,836 in 1997
and $4,798 in 1996 to affiliates)......... 7,393 6,373
------------ -------------
$ 261,986 $ 127,863
============ =============

Scheduled principal payments on notes payable are due as follows:

1998....................................................... $ 9,049
1999....................................................... 28,400
2000....................................................... 17,771
2001 ...................................................... 29,564
2002....................................................... 8,083
Thereafter................................................. 81,726
------------
$ 254,593
============
</TABLE>

Stated interest rates on notes payable ranged from 6.0% to 15% at December 31,
1997, and mature in varying installments between 1998 and 2007. At December 31,
1997, notes payable were collateralized by mortgage notes receivable with a net
carrying value of $22.7 million and by deeds of trust on real estate with a net
carrying value of $302.3 million. Excluded from interest expense in the
accompanying Consolidated Statement of Operations is capitalized interest of
$68,000 in 1997.

In May 1997, the Company financed a previously unencumbered 10.6 acre tract of
BP Las Colinas land for $3.1 million. The mortgage bears interest at 9.5% per
annum, requires monthly payments of interest only and matures in December 1999.

In May 1997, the Company obtained a second lien mortgage of $3.0 million secured
by the Pin Oak land. The mortgage bears interest at 12.5% per annum compounded
monthly, and matures in February 1999. In January 1998, the Palm Dessert land
was substituted for the Pin Oak land as collateral for the loan. See NOTE 11.
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

In June 1997, the Company obtained a second lien mortgage of $3.0 million
secured by the Lewisville land. The mortgage bears interest at 12.5% per annum,
compounded monthly and matures in February 1999. See NOTE 11. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."

In June 1997, the Company refinanced the Valwood land for $15.8 million. The
mortgage bears interest at the prime rate plus 4.5%, currently 13% per annum,
requires monthly payments of interest only and matures in June 1998. The Company
received net cash of $4.9 million, after the payoff of $6.2 million in existing
mortgage debt secured by the property, an additional $3.0 million being applied
to payoff the Jefferies land loan and $1.4 million being applied to paydown the
Las Colinas I land term loan.

In July 1997, the Company obtained a third lien mortgage of $2.0 million secured
by the Pin Oak land. The mortgage bore interest at 12.5% per annum, compounded
monthly and matured in February 1998. The mortgage was paid in full in January
1998. See NOTE 11. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

F-25
<PAGE> 183

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

In September 1997, the Company refinanced the Las Colinas I land Double O tract
for $7.3 million. The Company received net refinancing proceeds of $2.1 million,
after the payoff of $5.0 million in existing mortgage debt. The mortgage bears
interest at the prime rate plus 4.5%, currently 13% per annum, requires monthly
payments of interest only and matures in October 1998.

In October 1997, the Company refinanced the Oaktree Village Shopping Center for
$1.5 million. The Company received no net refinancing proceeds after the payoff
of $1.4 million in existing mortgage debt and the payment of various closing
costs associated with the financing. The note bears interest of 8.48% per annum,
requires monthly payments of principal and interest of $13,000 and matures in
November 2007.

Also in October 1997, the Company refinanced the Denver Merchandise Mart for
$25.0 million. The Company received net refinancing proceeds of $10.2 million,
after the payoff of $14.8 million in existing mortgage debt and the payment of
various closing costs associated with the financing. The note bears interest at
8.3% per annum, requires monthly payments of principal and interest and matures
in October 2012.

In November 1997, the Company obtained mortgage financing of $5.4 million
secured by 33.9 acres of previously unencumbered Valwood land, Lacy Longhorn
land, Thompson land, and Tomlin land. The Company received net financing
proceeds of $4.8 million after the payment of various closing costs associated
with the financing. The mortgage bears interest at 13.5% per annum, requires
monthly payments of interest only and matures in November 1998.

In December 1997, the Company refinanced the Inn at the Mart in Denver,
Colorado, for $4.0 million. The Company received net refinancing proceeds of
$1.4 million, after the payoff of $2.0 million in existing mortgage debt. The
mortgage bears interest at 7.85% per annum, requires monthly payments of
principal and interest of $35,000 and matures in January 2013.

In 1996, the Company purchased a single family residence, a hotel and a total of
1,368.5 acres of land for a total of $57.5 million. In connection with these
acquisitions, the Company obtained new or seller financing totaling $41.3
million. The mortgages bear interest at rates ranging from 9% to 15% per annum,
require monthly payments of principal and interest totaling $491,479 and mature
from June 1998 to December 1999.

Also in 1996, the Company refinanced the mortgage debt secured by a wraparound
mortgage note receivable, the Denver Merchandise Mart and an office building and
obtained mortgage financing for two previously unencumbered hotels, in the total
amount of $39.8 million. The Company received net cash of $23.0 million after
the payoff of $10.4 million in existing mortgage debt and the payment of various
costs associated with the financings. The mortgages bore interest rates from
9.5% to 16.5% per annum, required monthly payments of principal and interest
totaling $404,500 and matured October 1997 to September 2001.

Notes payable to affiliates at December 31, 1997 and 1996 include a $4.2 million
note due to NRLP as payment for SAMLP's general partner interest in NRLP. The
note bears interest at 10% per annum compounded semi-annually and is due at the
earlier of September 2007, the liquidation of NRLP or the withdrawal of SAMLP as
general partner of NRLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

NOTE 10. MARGIN BORROWINGS

The Company has margin arrangements with various brokerage firms which provide
for borrowings 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 borrowings were $53.3
million at December 31, 1997, and $40.0 million at December 31, 1996, 39.7% and
34.5%, respectively, of the market values of such equity securities at such
dates.

In August 1996, the Company consolidated its existing NRLP margin debt held by
various brokerage firms into a single loan of $20.3 million. In July 1997, the
lender advanced an additional $3.7 million, increasing the loan balance to $24.0
million. The loan is secured by the Company's NRLP units with a market value of
at least 50% of the principal balance of the loan. As of December 31, 1997,
3,349,169 NRLP units with a market value of $80.8 million were pledged as
security for such loan.

F-26

<PAGE> 184

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

NOTE 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In August 1996, the Company obtained a $2.0 million loan from a financial
institution secured by a pledge of equity securities of the REITs owned by the
Company and Common Stock of the Company owned by BCM, with a market value at the
time of $4.0 million. The Company received $2.0 million in net cash after the
payment of closing costs associated with the loan. The loan was paid in full by
the proceeds of a new $4.0 million loan from another financial institution
secured by a pledge of equity securities of the REITs owned by the Company and
Common Stock of the Company owned by BCM with a market value at the time of
$10.4 million. The Company received $2.0 million in net cash after the payoff of
the $2.0 million loan.

In September 1996, the August 1996 lender made a second $2.0 million loan. The
second loan is also secured by a pledge of equity securities of the REITs owned
by the Company and Common Stock of the Company owned by BCM with a market value
of $9.1 million. The Company received $2.0 million in net cash after the payment
of closing costs associated with the loan. The loan matures in July 1998.

In January 1998, the December 1997 lender made a second $2.0 million loan. This
loan is secured by a pledge of Common Stock in the Company owned by BCM with a
market value at the time of $4.7 million. The Company received $2.0 million in
net cash.

In May, June and July 1997, the Company obtained a total of $8.0 million in
mortgage loans from entities and trusts affiliated with the limited partner in a
partnership that owns approximately 15.6% of the Company's outstanding shares of
Common Stock. See NOTE 9. "NOTES AND INTEREST PAYABLE." In January 1998, one of
the loans in the amount of $2.0 million was paid in full. In September 1997, the
limited partner also became a 22.5% limited partner in a newly formed limited
partnership of which the Company is a 1% general partner and a 21.5% limited
partner. See NOTE 6. "INVESTMENTS IN EQUITY INVESTEES," NOTE 3. "NOTES AND
INTEREST PAYABLE" and NOTE 4. "REAL ESTATE."

NOTE 12. DIVIDENDS

In June 1996, the Company's Board of Directors resumed the payment of dividends
on the Company's Common Stock. The Company paid common dividends totaling $2.0
million or $.20 per share in 1997 and dividends totaling $1.5 million or $.15
per share in 1996. The Company reported to the Internal Revenue Service that
100% of the dividends paid in 1997 represented ordinary income and 100% of the
dividends paid in 1996 represented a return of capital.

NOTE 13. PREFERRED STOCK

The Company's Series B 10% Cumulative Convertible Preferred Stock consists of a
maximum of 4,000 shares with a par value of $2.00 per share and a liquidation
preference of $100.00 per share. Dividends are payable at the rate of $10.00 per
year or $2.50 per quarter to stockholders of record on the 15th day of each
March, June, September and December when and as declared by the Company's Board
of Directors. The Series B Preferred Stock is convertible between May 8, 1998
and June 8, 1998, into Common Stock of the Company at 90% of the average closing
price of the Company's Common Stock on the prior 30 trading days. At December
31, 1997, 4,000 shares of Series B Preferred Stock were issued and outstanding.

The Company's Series C 10% Cumulative Convertible Preferred Stock consists of a
maximum of 16,681 shares with a par value of $2.00 per share and a liquidation
preference of $100.00 per share. Dividends are payable at the rate of $10.00 per
year or $2.50 per quarter to stockholders of record on the 15th day of each
March, June, September and December when and as declared by the Company's Board
of Directors. The Series C Preferred Stock is convertible between November 25,
1998 and February 23, 1999, into Common Stock of the Company at 90% of the
average closing price of the Company's Common Stock on the prior 30 trading
days. At December 31, 1997, 16,681 shares of Series C Preferred Stock were
issued and outstanding.

The Company's Series D 9.50% Cumulative Preferred Stock consists of a maximum of
91,000 shares with a par value of $2.00 per share and a liquidation preference
of $20.00 per share. Dividends are payable at the rate of $1.90 per year of
$.475 per quarter to stockholders of record on the 15th day of each March, June,
September and December when and as declared by the Company's Board of Directors.
The Class A limited partner units of Ocean Beach Partners, L.P. may be exchanged
for Series D Preferred Stock at the rate of 20 Class A units for each share of
Series D Preferred Stock. No more than one-third of the Class

F-27

<PAGE> 185

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

A units held may be exchanged prior to May 31, 2001. Between June 1, 2001 and
May 31, 2006 all unexchanged Class A units are exchangeable. At December 31,
1997, none of the Series D Preferred Stock was issued.

The Company's Series E 10% Cumulative Convertible Preferred Stock consists of a
maximum of 80,000 shares with a par value of $2.00 per share and a liquidation
preference of $100.00 per share. Dividends are payable at the rate of 10.00 per
year or $2.50 per quarter to stockholders of record on the 15th day of each
March, June, September and December when and as declared by the Company's Board
of Directors for periods prior to November 4, 1999 and $11.00 per year, $2.75
per quarter thereafter. The Series E Preferred Stock is reserved for the
conversion of the Class A limited partner units of Valley Ranch, L.P. Such Class
A units may be exchanged for Series E Preferred Stock at the rate of 100 Class A
units for each share of Series E Preferred Stock. Beginning November 4, 1998,
the Series E Preferred Stock may be converted into Common Stock of the Company
at 80% of the average closing price of the Company's Common Stock on the prior
20 trading days. Up to 37.50% of the Series E Preferred Stock may be converted
between November 4, 1998 and November 3, 1999. Between November 4, 1999 and
November 3, 2001 an additional 12.50% of the original Series E Preferred Stock
may be converted, and the remainder may be converted on or after November 4,
2001. At December 31, 1997, none of the Series E Preferred Stock was issued.

The Company's Series F 10% Cumulative Convertible Preferred Stock consists of a
maximum of 7,500,000 shares with a par value of $2.00 per share and a
liquidation preference of $10.00 per share. Dividends are payable at the rate of
$1.00 per year or $.25 per quarter to stockholders of record on the 15th day of
each March, June, September and December when and as declared by the Company's
Board of Directors accruing cumulatively from August 16, 1998 and commencing on
October 15, 1998. The Series F Preferred Stock may be converted, after August
15, 2003, into Common Stock of the Company at 90% of the market value of the
Company's Common Stock for the 20 trading days prior to conversion. At December
31, 1997, 2,000,000 shares of Series F Preferred Stock were issued and
outstanding.

The Company's Series G 10% Cumulative Convertible Preferred Stock consists of a
maximum of 11,000 shares with a par value of $2.00 per share, and a liquidation
preference of $100.00 per share. Dividends are payable at the rate of $10.00 per
year or $2.50 per quarter to stockholders of record on the 15th day of each
March, June, September and December when and as declared by the Company's Board
of Directors. The Series G Preferred Stock is reserved for the conversion of the
Class A limited partner units of Grapevine American, L.P. The Class A units may
be exchanged for Series G Preferred Stock at the rate of 100 Class A units for
each share of Series G Preferred Stock, on or after October 6, 1999. The Series
G Preferred Stock may be converted, after October 6, 2000, into Common Stock of
the Company at 90% of the market value of the Company's Common Stock for the
twenty trading days prior to conversion. At December 31, 1997, none of the
Series G Preferred Stock was issued.

NOTE 14. ADVISORY AGREEMENT

Although the Company's Board of Directors is directly responsible for managing
the affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by BCM, a contractual advisor
under the supervision of the Company's Board of Directors. The duties of the
advisor include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage loan investment and sales opportunities as
well as financing and refinancing sources for the Company. BCM as advisor also
serves as a consultant in connection with the Company's business plan and
investment policy decisions made by the Company's Board of Directors.

BCM has been providing advisory services to the Company since February 6, 1989.
BCM is a company owned by a trust for the benefit of the children of Gene E.
Phillips. Mr. Phillips served as Chairman of the Board and as a Director of the
Company until November 16, 1992. Mr. Phillips also served as a director of BCM
until December 22, 1989, and as Chief Executive Officer of BCM until September
1, 1992. Mr. Phillips serves as a representative of the trust for the benefit of
his children that owns BCM and, in such capacity, has substantial contact with
the management of BCM and input with respect to BCM's performance of advisory
services to the Company. Ryan T. Phillips, a Director of the Company until June
6, 1996, is a director of BCM and a trustee of the trust that owns BCM. Karl L.
Blaha, President and Director of the Company serves as Executive Vice President
Commercial Asset Management of BCM. Oscar W. Cashwell, a Director of the
Company, served as Executive Vice President of BCM until January 10, 1997.

The Advisory Agreement provides that BCM shall receive base compensation at the
rate of 0.125% per month (1.5% on an annualized basis) of the Company's Average
Invested Assets. On October 23, 1991, based on the recommendation of BCM, the

F-28

<PAGE> 186

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

Company's advisor, the Company's Board of Directors approved a reduction in
BCM's base advisory fee by 50% effective October 1, 1991. This reduction remains
in effect until the Company's earnings for the four preceding quarters equals or
exceeds $.50 per share.

In addition to base compensation, the Advisory Agreement provides that BCM, or
an affiliate of BCM, receive an acquisition fee for locating, leasing or
purchasing real estate for the Company; a disposition fee for the sale of each
equity investment in real estate; a loan arrangement fee; an incentive fee equal
to 10% of net income for the year in excess of a 10% return on stockholders'
equity, and 10% of the excess of net capital gains over net capital losses, if
any; and a mortgage placement fee, on mortgage loans originated or purchased.

The Advisory Agreement further provides that BCM shall bear the cost of certain
expenses of its employees not directly identifiable to the Company's assets,
liabilities, operations, business or financial affairs; and miscellaneous
administrative expenses relating to the performance by BCM of its duties under
the Advisory Agreement.

If and to the extent that the Company shall request BCM, or any director,
officer, partner or employee of BCM, to render services to the Company other
than those required to be rendered by BCM under the Advisory Agreement, such
additional services, if performed, will be compensated separately on terms
agreed upon between such party and the Company from time to time. The Company
has requested that BCM perform loan administration functions, and the Company
and BCM have entered into a separate agreement, as described below.

The Advisory Agreement automatically renews from year to year unless terminated
in accordance with its terms. The Company's management believes that the terms
of the Advisory Agreement are at least as fair as could be obtained from
unaffiliated third parties.

Since October 4, 1989, BCM has acted as loan administration/servicing agent for
the Company, under an agreement terminable by either party upon thirty days'
notice, under which BCM services the Company's mortgage notes and receives as
compensation a monthly fee of .125% of the month-end outstanding principal
balances of the mortgage notes serviced.

NOTE 15. PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under its management. Carmel,
Ltd. subcontracts with other entities for the property-level management services
to the Company at various rates. The general partner of Carmel, Ltd. is BCM. The
limited partners of Carmel, Ltd. are (i) First Equity Properties, Inc. ("First
Equity"), which is 50% owned by BCM, (ii) Gene E. Phillips and (iii) a trust for
the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management of the Company's hotels, shopping centers, its office
building and the Denver Merchandise Mart to Carmel Realty, Inc. ("Carmel
Realty"), which is a company owned by First Equity. Carmel Realty is entitled to
receive property and construction management fees and leasing commissions in
accordance with the terms of its property-level management agreement with
Carmel, Ltd.

F-29

<PAGE> 187

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

NOTE 16. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.

Fees and cost reimbursements to BCM and its affiliates were as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Fees
Advisory and mortgage servicing .................. $ 2,657 $ 1,539 $ 1,195
Loan arrangement ................................. 592 806 95
Brokerage commissions ............................... 7,586 1,889 905
Property and construction management and leasing
commissions* ..................................... 865 892 1,200
-------- -------- --------
$ 11,700 $ 5,126 $ 3,395
======== ======== ========

Cost reimbursements .............................. $ 1,809 $ 691 $ 516
======== ======== ========
</TABLE>

* Net of property management fees paid to subcontractors, other than Carmel
Realty.

NOTE 17. INDUSTRY SEGMENTS

<TABLE>
<CAPTION>
Other
Real Pizza
1997 Hotels Estate Parlor Total
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ............................. $ 12,708 $ 16,367 $ 17,926 $ 47,001
Income (loss) before income taxes .... 240 (4,247) 1,579 (2,428)
Identifiable assets .................. 49,371 360,629 23,799 433,799
Depreciation and amortization ........ 779 1,873 686 3,338
Capital expenditures ................. 905 10,088 6,693 17,686
</TABLE>

NOTE 18. 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.
At December 31, 1997, the Company had a tax net operating loss carryforwards of
$21.0 million expiring through 2011.

At December 31, 1997, the Company has a deferred tax benefit of $8.0 million due
to tax deductions available to it in future years. However, due to, among other
factors, the Company's inconsistent earnings history, the Company was unable to
conclude that the future realization of such deferred tax benefit, which
requires the generation of taxable income, was more likely than not.
Accordingly, a valuation allowance for the entire amount of the deferred tax
benefit has been recorded.

The components of tax expense are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income tax provision
Current....................... $ -- $ -- $ 2
======== ======== ========
</TABLE>

F-30

<PAGE> 188

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

NOTE 19. EXTRAORDINARY GAIN

In 1996, the Company recognized an extraordinary gain of $381,000 representing
its equity share of TCI's extraordinary gain from the early payoff of debt and
CMET's extraordinary gain from an insurance settlement.

In 1995, the Company recognized an extraordinary gain of $783,000 representing
its equity share of TCI's extraordinary gain from early payoff of debt.

NOTE 20. RENTS UNDER OPERATING LEASES

The Company's operations include the leasing of an office building, a
merchandise mart and shopping centers. The leases thereon expire at various
dates through 2006. The following is a schedule of minimum future rents under
non-cancelable operating leases as of December 31, 1997:

<TABLE>
<S> <C>
1998 .......... $ 3,747
1999 .......... 3,427
2000 .......... 2,773
2001 .......... 2,231
2002 .......... 1,875
Thereafter .... 10,746
-------
$24,799
=======
</TABLE>

PWSI conducts the majority of its operations from leased facilities which
includes an office, warehouse, and sixty-one pizza parlor locations for which a
lease was signed and the pizza parlor was either open at December 31, 1997 or
scheduled to open thereafter. The leases expire over the next twelve years. PWSI
also leases vehicles under operating leases. the following is a schedule of
minimum future rent commitments under operating leases as of December 31, 1997:

<TABLE>
<S> <C>
1998 .......... $ 2,133
1999 .......... 2,176
2000 .......... 2,007
2001 .......... 1,806
2002 .......... 1,773
Thereafter .... 9,387
-------
$19,282
=======
</TABLE>

Total facilities and automobile rent expense relating to these leases was $1.3
million in 1997.

NOTE 21. COMMITMENTS AND CONTINGENCIES

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.

F-31

<PAGE> 189

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

NOTE 22. QUARTERLY RESULTS OF OPERATIONS

The following is a tabulation of the Company's quarterly results of operations
for the years 1997 and 1996 (unaudited):

(Loss) from operations ............. (4,296) (6,293) (9,257) (13,538)
Equity in income of investees ...... 280 4,970 (145) 5,555
Gains on sale of real estate ....... 4,287 3,863 3,205 8,941
Extraordinary gain ................. -- -- -- --
---------- --------- ------------- ------------
Net income (loss) .................. 271 2,540 (6,197) 1,369

Preferred dividend requirement ..... (50) (49) (49) (58)
---------- --------- ------------- ------------
Net income (loss) applicable to
common shares ................... $ 221 $ 2,491 $ (6,246) $ 900
========== ========= ============= ============

Earnings per share
Net income (loss) .................. $ .02 $ .21 $ (.52) $ .07
========== ========= ============= ============
</TABLE>

<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
1997 March 31, June 30, September 30, December 31,
- ---------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue .................................... $ 6,790 $ 5,346 $ 7,306 $ 7,537
Expense .................................... 8,255 8,555 9,279 12,488
---------- --------- ------------- ------------
(Loss) from operations ..................... (1,465) (3,209) (1,973) (4,951)
Equity in income of investees .............. 678 271 661 394
Gains on sale of real estate ............... 559 547 1,961 592
Extraordinary gain ......................... 13 247 121 --
---------- --------- ------------- ------------
Net income (loss) .......................... (215) (2,144) 770 (3965)

Preferred dividend requirement ............. -- (17) (48) (48)
---------- --------- ------------- ------------
Net income (loss) applicable to
common shares ........................... $ (215) $ (2,161) $ 722 $ (4,013)
========== ========= ============= ============

Earnings per share
Income (loss) before extraordinary gain .... $ (.02) $ (.19) $ .05 $ (.28)
Extraordinary gain ......................... -- .02 .01 --
---------- --------- ------------- ------------
Net income (loss) .......................... $ (.02) $ (.17) $ .06 $ (.28)
========== ========= ============= ============
</TABLE>

NOTE 23. SUBSEQUENT EVENTS

In January 1998, the Company purchased El Dorado Parkway land, a 8.5 acre parcel
of undeveloped land in McKinney, Texas, for $952,000. The Company paid $307,000
in cash and assumed the existing mortgage of $164,000 with the seller providing
purchase money financing of the remaining $481,000 of the purchase price. The
assumed mortgage bears interest at 10% per annum, requires semiannual payments
of principal and interest of $18,000 and matures in May 2005. The financing
bears interest at 8% per annum, requires semiannual principal and interest
payments of $67,000 and matures in January 2002.

F-32

<PAGE> 190

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

Also in January 1998, the Company purchased Valley Ranch IV land, a 12.3 acre
parcel of undeveloped land in Irving, Texas, for $2.0 million. The Company paid
$500,000 in cash with the seller providing purchase money financing of the
remaining $1.5 million of the purchase price. The financing bears interest at
10% per annum, requires quarterly payments of interest only and matures in
December 2000.

Further in January 1998, the Company purchased JHL Connell land, a 7.7 acre
parcel of undeveloped land in Carrollton, Texas, for $1.3 million in cash.

In February 1998, the Company purchased Scoggins land, a 314.5 acre parcel of
undeveloped land in Tarrant County, Texas, for $3.0 million. The Company paid
$1.5 million in cash and obtained new mortgage financing of $1.5 million. The
mortgage bears interest at 14% per annum, requires quarterly payments of
interest only, requires a principal paydown of $300,000 in May 1998, and matures
in February 1999.

Also in February 1998, the Company purchased Bonneau land, a 8.4 acre parcel of
undeveloped land in Dallas County, Texas, for $1.0 million. The Company obtained
new mortgage financing of $1.0 million. The mortgage bears interest at 18.5% per
annum with the principal and interest being due at maturity in February 1999.

Further in February 1998, the Company financed the previously unencumbered
Kamperman land in the amount of $1.6 million. The Company received net financing
proceeds of $1.5 million after the payment of various closing costs associated
with the financing. The mortgage bears interest at 9.0%, requires monthly
payments of interest only and matures in February 2000.

In February 1998, the Company refinanced the Vineyards land in the amount of
$3.4 million. The Company received net refinancing proceeds of $2.9 million,
after the payoff of existing mortgage debt of $540,000. The note bears interest
at 9.0% per annum, requires monthly payments of interest only and matures in
February 2000.

Also in February 1998, the Company financed the unencumbered Valley Ranch land
in the amount of $4.3 million. The Company received net financing proceeds of
$4.1 million after the payment of various closing costs associated with the
financing. The mortgage bears interest at 9.0% per annum, requires monthly
payments of interest only and matures in February 2000.

In November 1994, the Company and an affiliate of BCM, sold five apartment
complexes to a newly formed limited partnership in exchange for $3.2 million in
cash, a 27% limited partner interest in the partnership and two mortgage notes
receivable, secured by one of the properties sold. The Company had the option to
reacquire the properties at any time after September 1997 for their original
sales prices, after the buyer received a 12% return on its investment.
Accordingly, the Company recorded a deferred gain of $5.6 million which was
offset against the Company's investment in the partnership. In February 1998,
the Company reacquired three of the properties for $7.7 million. The Company
paid $4.0 million in cash and assumed the existing mortgage of $3.7 million.
Simultaneously the Company refinanced the three properties for a total of $7.8
million, the Company receiving net cash of $3.9 million after the payoff of $3.7
million in existing mortgage debt and the payment of various costs associated
with the financing. The new mortgages bear interest at 9.5% per annum, require
monthly principal and interest payments of a total of $66,000 and mature in
February 2008. In addition, the Company received a refund of $230,000 from
Carmel Realty, representing the commission the Company had paid on the sale of
the properties in 1994.

In March 1998, the Company financed the previously unencumbered Stagliano and
Dalho land in the amount of $800,000 with the lender on the Bonneau land,
described above. The Company received net financing proceeds of $790,000 after
the payment of various closing costs associated with the financing. The mortgage
bears interest at 18.5% per annum with principal and interest due at maturity in
February 1999. The Company's JHL Connell land is also pledged as additional
collateral for this loan.

F-33

<PAGE> 191

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(dollars in thousands)
<S> <C> <C>
Assets

Notes and interest receivable
Performing .......................................... $ 466 $ 9,300
Nonperforming ....................................... 499 18,624
-------- --------
965 27,924

Less - allowance for estimated losses .................. (667) (2,398)
-------- --------
298 25,526

Real estate held for sale, net of accumulated
depreciation ($5,098 in 1997) ....................... 255,836 178,938

Real estate held for investment, net of accumulated
depreciation ($9,199 in 1998 and $5,380 in 1997) .... 216,141 123,515

Pizza parlor equipment, net of accumulated
depreciation ($1,439 in 1998 and $905 in 1997) ...... 7,401 6,693

Marketable equity securities, at market value .......... 7,734 6,205
Cash and cash equivalents .............................. 2,021 5,347
Investments in equity investees ........................ 66,097 45,851
Intangibles, net of accumulated amortization
($1,049 in 1998 and $704 in 1997) ................... 15,020 15,230
Other assets ........................................... 25,864 26,494
-------- --------

$596,412 $433,799
======== ========
</TABLE>

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

F-34

<PAGE> 192

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED

<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(dollars in thousands, except per share)
<S> <C> <C>
Liabilities and Stockholders' Equity

Liabilities
Notes and interest payable ($12,200 in 1998 and
$11,400 in 1997 to affiliates) .......................... $ 384,096 $ 261,986
Margin borrowings ............................................ 42,212 53,376
Accounts payable and other liabilities (including
$38,209 in 1998 and $22,825 in 1997 to
affiliate) .............................................. 51,615 34,442
------------- ------------

477,923 349,804

Minority interest ............................................ 52,268 20,542

Redeemable Preferred Stock
Series C, 16,681 shares in 1998 (at liquidation
preference) ............................................. 1,668 --

Commitments and contingencies

Stockholders' equity
Preferred Stock, $2.00 par value, authorized
20,000,000 shares, issued and outstanding
Series B, 4,000 shares in 1997 ...................... -- 8
Series C, 16,681 shares in 1997 ..................... -- 33
Series F, 3,350,000 shares in 1998 and 2,000,000
in 1997 (liquidation preference $33,500) ...... 6,100 4,000
Series G, 1,000 shares in 1998)
(liquidation preference $100) ................. 2 --
Common stock, $.01 par value; authorized
100,000,000 shares, issued 13,492,800 shares
in 1998 and 13,479,348 in 1997 .......................... 135 135
Paid-in capital .............................................. 84,185 84,943
Accumulated (deficit) ........................................ (25,841) (25,638)
Treasury stock at cost, 2,737,216 shares in 1998
and 2,767,427 shares in 1997 ............................ (28) (28)
------------- ------------

64,553 63,453
------------- ------------

$ 596,412 $ 433,799
============= ============
</TABLE>

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

F-35

<PAGE> 193

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues
Sales ........................... $ 7,259 $ 8,647 $ 21,344 $ 10,828
Rents ........................... 15,531 7,804 45,098 18,725
Interest ........................ 15 471 169 2,769
Other ........................... 486 (1,883) (454) (117)
----------- ----------- ----------- -----------
23,291 15,039 66,157 32,205
----------- ----------- ----------- -----------

Expenses
Cost of sales ................... 6,324 6,984 18,329 8,672
Property operations ............. 12,032 5,030 34,192 13,501
Interest ........................ 12,396 8,351 35,676 20,425
Advisory and servicing fees
to affiliate ................. 1,058 630 2,767 1,639
Incentive compensation to
affiliate .................... -- -- -- 299
General and administrative ...... 1,712 2,303 5,939 4,654
Depreciation and
amortization ................. 1,496 755 4,683 1,902
Provision for loss .............. 3,000 -- 3,000 --
Minority interest ............... 658 243 1,591 959
----------- ----------- ----------- -----------
38,676 24,296 106,177 52,051
----------- ----------- ----------- -----------

(Loss) from operations ............. (15,385) (9,257) (40,020) (19,846)

Equity in income (losses)
of investees .................... 6,099 (145) 27,429 5,106
Gains on sale of real estate ....... 5,718 3,205 14,692 11,354
----------- ----------- ----------- -----------

Net income (loss) .................. (3,568) (6,197) 2,101 (3,386)

Preferred dividend requirement ..... (502) (49) (595) (151)
----------- ----------- ----------- -----------

Net income (loss) applicable
to Common shares ................ $ (4,070) $ (6,246) $ 1,506 $ (3,537)
=========== =========== =========== ===========

Earnings per share

Net income (loss) applicable
to Common Shares ............. $ (.38) $ (.21) $ .14 $ (.29)
=========== =========== =========== ===========

Weighted average Common shares
used in computing earnings
per share ....................... 10,755,584 11,975,921 10,741,137 12,041,252
=========== =========== =========== ===========
</TABLE>

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

F-36

<PAGE> 194

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
Series B Series C Series F Series G
Preferred Preferred Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Stock Stock Capital (Deficit) Equity
--------- --------- --------- --------- -------- -------- ------- ----------- -------------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1998 ................. $ 8 $ 33 $ 4,000 $ -- $ 135 $ (28) $84,943 $ (25,638) $ 63,453

Dividends
Common Stock ($.15
per share) ........ -- -- -- -- -- -- -- (1,710) (1,710)
Series B Preferred
Stock ($2.50 per
share) ............ -- -- -- -- -- -- -- (54) (54)
Series C Preferred
Stock ($7.50 per
share) ............ -- -- -- -- -- -- -- (125) (125)
Series F Preferred
Stock ($.50 per
share) ............ -- -- -- -- -- -- -- (411) (411)
Series G Preferred
Stock ($5.00 per
share) ............ -- -- -- -- -- -- -- (5) (5)
Issuance of Series G
Preferred Stock ...... -- -- -- 2 -- -- 98 -- 100
Issuance of Series F
Preferred Stock ...... -- -- 2,100 -- -- -- 529 -- 2,629
Sale of Common Stock
under dividend
reinvestment plan .... -- -- -- -- -- -- 197 -- 197
Conversion of Series B
Preferred Stock to
Common Stock ......... (8) -- -- -- -- -- 53 1 46
Preferred Stock called
for redemption ....... -- (33) -- -- -- -- (1,635) -- (1,668)

Net income ................. -- -- -- -- -- -- -- 2,101 2,101
--------- --------- --------- --------- -------- -------- ------- ----------- -------------

Balance, September 30,
1998 ................. $ -- $ -- $ 6,100 $ 2 $ 135 $ (28) $84,185 $ (25,841) $ 64,553
========= ========= ========= ========= ======== ======== ======= =========== =============
</TABLE>

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

F-37

<PAGE> 195

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities (dollars in thousands)
Pizza parlor sales collected ...................... $ 21,252 $ 10,828
Rents collected ................................... 44,350 16,972
Interest collected ................................ 381 2,624
Distributions from equity investees' operating
cash flow ....................................... 9,246 1,905
Payments for pizza parlor operations .............. (20,045) (8,672)
Payments for property operations .................. (31,325) (9,025)
Interest paid ..................................... (23,928) (12,723)
Advisory and servicing fees paid to affiliate ..... (2,767) (1,938)
General and administrative expenses paid .......... (5,856) (4,765)
Other ............................................. (3,071) (717)
-------- --------
Net cash (used in) operating activities ......... (11,763) (5,511)

Cash Flows From Investing Activities
Collections on notes receivable ................... 7,901 3,062
Funding of notes receivable ....................... (381) (3,688)
Proceeds from sale of real estate ................. 44,140 18,567
Proceeds from sale of marketable equity
securities ...................................... 4,570 6,019
Proceeds from sale of notes receivable ............ -- 18,342
Purchases of marketable equity securities ......... (7,605) (11,779)
Investment in real estate entities ................ (5,034) (3,523)
Distributions from equity investees' investing
activities ..................................... 16,427 --
Acquisition of real estate ........................ (91,308) (67,620)
Earnest money deposits ............................ 565 (12,277)
Real estate improvements .......................... (7,267) (5,505)
Fixed assets purchased ............................ (787) (5,809)
-------- --------
Net cash (used in) investing activities ........... (38,779) (64,211)

Cash Flows From Financing Activities
Proceeds from notes payable ....................... 135,696 91,141
Payments on notes payable ......................... (77,077) (47,150)
Deferred borrowing costs .......................... (8,214) (3,294)
Net advances from affiliates ...................... 15,330 23,632
Margin borrowings, net ............................ (14,998) 8,890
Common dividends paid ............................. (1,710) (1,520)
Preferred dividends paid .......................... (418) (72)
Distributions to minority interest holders ........ (1,590) (1,128)
Sale of Common Stock under dividend
reinvestment plan .............................. 197 --
-------- --------
Net cash provided by financing activities ....... 47,216 70,499

Net increase (decrease) in cash and cash
equivalents .................................... $ (3,326) $ 777
Cash and cash equivalents, beginning of period ...... 5,347 1,254
-------- --------

Cash and cash equivalents, end of period ............ $ 2,021 $ 2,031
======== ========
</TABLE>

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

F-38

<PAGE> 196

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
Reconciliation of net income (loss) to net cash
(used in) operating activities
Net income (loss)........................................ $ 2,101 $ (3,386)
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities
Depreciation and amortization........................ 4,683 1,570
Amortization of deferred borrowing cost.............. 5,471 332
Provision for loss................................... 3,000 --
Gain on sale of real estate.......................... (14,692) (11,354)
Distributions from equity investees' operating
cash flow....................................... 9,246 1,905
Equity in (income) losses of investees............... (27,430) (5,106)
(Increase) decrease in marketable equity
securities...................................... (1,529) 470
Decrease in interest receivable...................... 333 3
Decrease in other assets............................. 3,336 9,681
Increase in accrued interest payable................. 1,179 520
Increase (decrease) in accounts payable and
other liabilities............................... 1,760 (205)
Other................................................ 779 59
-------- --------

Net cash (used in) operating activities............ $(11,763) $ (5,511)
======== ========

Schedule of noncash investing and financing activities

Stock dividends on Series C Preferred Stock.............. -- $ 82
Notes payable from acquisition of real estate............ 17,119 33,746
Notes payable from acquisition of minority
interest............................................. -- 5,000
Notes receivable canceled on reacquisition of
property............................................. 1,300 --
Note receivable from sale of real estate................. -- 800
Issuance of Series F Preferred Stock..................... 2,100 --
Dividend obligation on conversion of Series F
Preferred Stock...................................... 134 --
Current value of properties acquired through
foreclosure on notes receivable with a carrying
value of $22,715 in 1998 and $14,485 in 1997......... 22,715 20,226
Notes payable from property acquired through
foreclosure.......................................... 11,867
Issuance of Series G Preferred Stock..................... 100 --
Investment in properties reacquired...................... 5,270 --
Dividend obligation discharged on conversion of
Series B Preferred Stock............................. 44 --
</TABLE>

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

F-39

<PAGE> 197

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
Acquisition of Pizza World Supreme, Inc.

Carrying value of intangibles ................... $ -- $ 15,641
Carrying value of pizza parlor equipment ........ -- 3,998
Carrying value of note receivable retired ....... -- 13,387
Carrying value of accounts payable and other
liabilities ................................. -- 1,314

Acquisition of IGI Properties

Carrying value of mortgages assumed ............. 43,421 --
Issuance of Class A partnership units ........... 6,568 --
Carrying value of other assets .................. (441) --
Carrying value of accounts payable and other
liabilities ................................. 292 --
Investment in partnerships ...................... 1,980 --
</TABLE>

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

F-40
<PAGE> 198

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 nine month period ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997 (the "1997 Form 10-K").

Certain balances for 1997 have been reclassified to conform to the 1998
presentation.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

The Company owns a 96% limited partner interest in Syntek Asset Management, L.P.
("SAMLP"). 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 also a general partner of SAMLP. As of September 30, 1998, the Company
owned approximately 54.4% of the outstanding limited partner units of NRLP.

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 $49.6 million at September 30, 1998,
before reduction for the principal balance ($4.2 million at September 30, 1998)
and accrued interest ($8.1 million at September 30, 1998) on the note receivable
from SAMLP for its original capital contribution to the partnership.

On December 15, 1997, NRLP, SAMLP, the NRLP oversight committee, Joseph B.
Moorman, Invenex and the Counsel for the plaintiff class members executed an
Agreement for Establishment of a Class Distribution Fund and Election of
Successor General Partner (the "Resolution Agreement")which provided for the
nomination of an entity affiliated with SAMLP to be the successor general
partner of NRLP and NOLP, for the establishment of a fund for the benefit of the
plaintiff class members consisting of cash and properties owned by NOLP and for
the resolution of all related matters under the Settlement Agreement.

F-41

<PAGE> 199
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

as an alternative to the Resolution Agreement. On July 27, 1998, Invenex
withdrew the proposal for approval of the Resolution Agreement. On August 4,
1998, the Supervising Judge entered an order granting preliminary approval of
the Cash Distribution Agreement. On September 9, 1998, a notice was mailed to
the plaintiff class members describing the Cash Distribution Agreement. On
October 16, 1998, a hearing was held to consider any objections to the Cash
Distribution Agreement. On October 23, 1998, the Supervising Judge entered an
order granting final approval of the Cash Distribution Agreement. The
Supervising Judge also entered orders requiring NRLP to pay $404,000 in
attorney's fees to Joseph B. Moorman's legal counsel, $30,000 to Joseph B.
Moorman and $404,000 in attorney's fees to Robert A. McNeil's legal counsel.

Pursuant to the order $11.4 million will be deposited by NRLP into an escrow
account. The actual distribution of the cash to the plaintiff class members will
occur immediately following the election and taking office of the successor
general partner. The distribution of the cash shall be made to the plaintiff
class members pro rata based upon the formation of NRLP in 1987. The
distribution of cash will be under the control of an independent settlement
administrator.

The proposal to elect the successor general partner will be submitted to the
unitholders of NRLP for a vote. All units of NRLP owned by affiliates of SAMLP
(approximately 61.5% of the outstanding units of NRLP as of October 30, 1998)
will be voted pro rata with the vote of the other limited partners.

Upon approval by the NRLP 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 first quarter of 1999. Upon the election and
taking office of the successor general partner and the distribution of the cash
to the plaintiff class members, the Settlement Agreement and the NRLP oversight
committee shall be terminated.

Under the Cash Distribution Agreement, SAMLP has agreed to waive its right under
the Settlement Agreement to receive any payment from NRLP for its Redeemable
General Partner Interest upon its resignation and the election of a successor
general partner. In addition, pursuant to the Cash Distribution Agreement, the
NRLP partnership agreement will be amended to provide that, upon voluntary
resignation of the general partner, the resigning general partner shall not be
entitled to the repurchase of its general partner interest under Paragraph 17.9
of the NRLP partnership agreement.

Under the Cash Distribution Agreement, the successor general partner will assume
liability for the note from SAMLP for its capital contribution to NRLP. In
addition, the successor general partner will assume liability for a note which
will require the repayment to NRLP of the $11.4 million paid by NRLP under the
Cash Distribution Agreement plus the $808,000 in court ordered attorney's fees
and the $30,000 paid to Joseph B. Moorman. This note will require repayment over
a ten-year period, bear interest and be guaranteed by the Company, which (as of
September 30, 1998) is the owner of a 96% limited partner interest in SAMLP and
approximately 54.4% of the outstanding units of NRLP.

NRLP Management Corp., a wholly-owned subsidiary of the Company, is to be
nominated as successor general partner. If elected, in addition to assuming the
above liabilities it will incur a charge against its earnings for the monies
paid by NRLP under the Supervising Judge's orders. As the units of NRLP owned by
affiliates of SAMLP will be voted pro rata with the vote of the unaffiliated
limited partners there is no assurance that NRLP Management Corp. will be
elected the successor general partner. In the event that the Cash Distribution
Agreement does not become effective, then the parties shall be restored to their
positions of December 14, 1997, and the Settlement Agreement shall remain in
full force and effect.

NOTE 3. NOTES AND INTEREST RECEIVABLE

In December 1997, the Company sold the Pin Oak land, a 567.6 acre parcel of
undeveloped land in Houston, Texas, for $11.4 million. The Company received net
cash of $3.5 million, and provided an additional $6.9 million in short term
seller financing that was paid in full in January 1998. On the payoff of the
seller financing the Company received net cash of $1.5 million after paying off
$5.2 million in underlying mortgage debt and the payment of various closing
costs.

F-42

<PAGE> 200
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In August 1990, the Company obtained the Continental Hotel and Casino in Las
Vegas, Nevada, through foreclosure subject to first and second lien mortgages
totaling $10.0 million. In June 1992, the Company sold the hotel and casino for,
among other consideration, a $22.0 million wraparound mortgage note receivable.
In March 1997, the wraparound note was modified and extended in exchange for,
among other things, the borrower's commitment to invest $2.0 million in
improvements to the hotel and casino within four months of the March 1997
modification and an additional $2.0 million prior to December 1997. The borrower
stopped making mortgage payments in April 1997, and did not make the required
improvements. In December 1997, the borrower filed for bankruptcy protection. In
February 1998, a hearing was held to allow the Company to foreclose on the hotel
and casino. At the hearing, the court ruled that the borrower had 90 days to
submit a reorganization plan and beginning March 2, 1998, required the borrower
to make monthly payments of $175,000 to the Company. The Company received only
the first such payment. The Company's wraparound mortgage note receivable had a
principal balance of $22.7 million at March 31, 1998. In April 1998, the
bankruptcy court allowed the Company to foreclose on its mortgage note
receivable. The Company did not incur a loss on foreclosure as the fair value of
the property exceeded the carrying value of the Company's mortgage note
receivable. Not having a Nevada gaming license, the Company has hired a licensed
operator to run the hotel and casino. The property has yet to breakeven.

NOTE 4. REAL ESTATE

In January 1998, the Company purchased the El Dorado Parkway land, a 8.5 acre
parcel of undeveloped land in McKinney, Texas, for $952,000. The Company paid
$307,000 in cash, assumed the existing mortgage of $164,000 and obtained seller
financing of the remaining $481,000 of the purchase price. The mortgage bears
interest at 10% per annum, requires semiannual payments of principal and
interest of $18,000 and matures in May 2005. The seller financing bears interest
at 8% per annum, requires semiannual payments of principal and interest of
$67,000 and matures in January 2002. The Company paid a real estate brokerage
commission of $57,000 to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of
Basic Capital Management, Inc. ("BCM"), the Company's advisor.

Also in January 1998, the Company purchased the Valley Ranch IV land, a 12.3
acre parcel of undeveloped land in Irving, Texas, for $2.0 million. The Company
paid $500,000 in cash and obtained seller financing of the remaining $1.5
million of the purchase price. The seller financing bears interest at 10% per
annum, requires quarterly payments of interest only and matures in December
2000. The Company paid a real estate brokerage commission of $123,000 to Carmel
Realty.

Further in January 1998, the Company purchased the JHL Connell land, a 7.7 acre
parcel of undeveloped land in Carrollton, Texas, for $1.3 million in cash. The
Company paid a real estate brokerage commission of $39,000 to Carmel Realty.

In February 1998, the Company purchased the Scoggins land, a 314.5 acre parcel
of undeveloped land in Tarrant County, Texas, for $3.0 million. The Company paid
$1.5 million in cash and obtained new mortgage financing of $1.5 million. The
mortgage bears interest at 14% per annum, requires quarterly payments of
interest only, required a principal reduction payment of $300,000 in May 1998,
and matures in February 1999. The Company paid a real estate brokerage
commission of $91,000 to Carmel Realty.

Also in February 1998, the Company purchased the Bonneau land, a 8.4 acre parcel
of undeveloped land in Dallas County, Texas, for $1.0 million. The Company
obtained new mortgage financing of $1.0 million. The mortgage bears interest at
18.5% per annum with principal and interest due at maturity in February 1999.
The Company's JHL Connell land is pledged as additional collateral for this
loan. The Company paid a real estate brokerage commission of $30,000 to Carmel
Realty.

Further in February 1998, the Company financed its unencumbered Kamperman land
in the amount of $1.6 million. The Company received net cash of $1.5 million
after the payment of various closing costs. The mortgage bears interest at 9.0%
per annum, requires monthly payments of interest only and matures in February
2000. The Company paid a mortgage brokerage and equity refinancing fee of
$16,000 to BCM.

F-43

<PAGE> 201
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In February 1998, the Company refinanced the Vineyards land in the amount of
$3.4 million. The Company received net cash of $2.9 million, after paying off
existing mortgage debt of $540,000. The new mortgage bears interest at 9.0% per
annum, requires monthly payments of interest only and matures in February 2000.
The Company paid a mortgage brokerage and equity refinancing fee of $34,000 to
BCM.

Also in February 1998, the Company financed its unencumbered Valley Ranch land
in the amount of $4.3 million. The Company received net cash of $4.1 million
after the payment of various closing costs. The mortgage bears interest at 9.0%
per annum, requires monthly payments of interest only and matures in February
2000. The Company paid a mortgage brokerage and equity refinancing fee of
$43,000 to BCM.

In November 1994, the Company and an affiliate of BCM, sold five apartment
complexes to a newly formed limited partnership in exchange for $3.2 million in
cash, a 27% limited partner interest in the acquiring partnership and two
mortgage notes receivable, secured by one of the properties sold. The Company
had the option to reacquire the properties at any time after September 1997 for
their original sales prices, after the buyer received a 12% return on its
investment. Accordingly, the Company recorded a deferred gain on the sale of
$5.6 million which was offset against the Company's investment in the
partnership. In February 1998, the Company reacquired three of the properties,
one of which was security for the notes receivable, for $7.7 million. The
Company paid $4.0 million in cash and assumed the mortgages totaling $3.7
million. Simultaneously the Company refinanced the three properties for a total
of $7.8 million, the Company receiving net cash of $3.9 million after paying off
the $3.7 million of mortgage debt and the payment of various closing costs. The
new mortgages bear interest at 9.5% per annum, require monthly principal and
interest payments of a total of $66,000 and mature in February 2008. In
conjunction with reacquiring the properties, the Company received from Carmel
Realty a refund of the $230,000 in real estate commissions the Company had paid
on the sale of the three properties. In June 1998, the Company reacquired the
remaining two properties for $8.6 million. The Company paid $2.1 million in cash
and assumed the existing mortgages totaling $6.6 million. The mortgages bear
interest at 8.73% per annum, require monthly principal and interest payments of
a total of $57,000 and mature in January 2019. The Company also received from
Carmel Realty a refund of the $323,000 real estate commission the Company had
paid on the sale of these properties.

In March 1998, the Company financed its unencumbered Stagliano and Dalho land in
the amount of $800,000 with the lender on the Bonneau land, described above. The
mortgage bears interest at 18.5% per annum with principal and interest due at
maturity in February 1999. The Company's JHL Connell land is also pledged as
additional collateral for this loan. The Company paid a mortgage brokerage and
equity refinancing fee of $8,000 to BCM.

Also in March 1998, the Company purchased the Desert Wells land, a 420 acre
parcel of undeveloped land in Palm Desert, California, for $12.0 million. The
Company paid $400,000 in cash, obtained new mortgage financing of $10.0 million
and obtained seller financing of the remaining $1.6 million of the purchase
price. The mortgage bears interest at a variable rate, currently 14% per annum,
requires monthly payments of interest only and matures in March 1999. The seller
financing bore interest at 10% per annum, required monthly payments of interest
only and matured in July 1998. The seller financing was paid in full at
maturity. The Company paid a real estate brokerage commission of $720,000 to
Carmel Realty.

Further in March 1998, the Company refinanced the mortgage debt secured by its
McKinney Corners and Dowdy land in the amount of $20.7 million. The Company
received net cash of $5.9 million after paying off $2.5 million in existing
mortgage debt, the paydown of $10.2 million on the Las Colinas I term loan and
the payment of various closing costs. The Company also pledged 800,000 shares of
its Series F Cumulative Convertible Preferred Stock as additional security for
the loan. The new mortgage bears interest at 12% per annum, requires monthly
payments of interest only and matures in March 1999. BCM has guaranteed
repayment of the loan. The Company paid a mortgage brokerage and equity
refinancing fee of $207,000 to BCM.

On September 3, 1998, the lender notified the Company of certain events, of a
non-monetary nature, that in the lender's opinion, constitute events of default
under debt agreement. The lender required that the Company correct such
non-monetary defaults to its satisfaction with in 10 days. On November 4, 1998,
the Company was served with the complaint filed by the lender, against the
Company and BCM as guarantor in Superior Court of New Jersey, Law

F-44

<PAGE> 202
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Division - Morris County. Among other things the complaint demands repayment of
the loan. The Company has held negotiations with the lender in an effort to
resolve this dispute and reinstate the loan. To date, such negotiations have not
been successful. If the negotiations continue to be unsuccessful, the Company
expects to be able to either refinance the loan or sell the collateral property
and pay off the loan. Currently, a sufficient amount of the collateral property
is under contract to pay off the loan prior to December 31, 1998. There is,
however, no assurance that such sales contracts will close.

In April 1998, the Company purchased the Yorktown land, a 325.8 acre parcel of
undeveloped land in Harris County, Texas, for $7.4 million. The Company paid
$3.0 million in cash and obtained seller financing of the remaining $4.4 million
of the purchase price. The seller financing bears interest at 8.5% per annum,
requires monthly payments of interest only and matures in November 1998. At
maturity, the Company made a $450,000 principal paydown and the lender extended
the loan's maturity to February 2, 1999. All other terms of the loan remained
unchanged. The Company paid a real estate brokerage commission of $223,000 to
Carmel Realty.

Also in April 1998, the Company sold a 77.7 acre tract of its Lewisville land
parcel, for $6.8 million in cash. The Company received net cash of $358,000
after paying off first and second lien mortgages totaling $5.9 million and the
payment of various closing costs. The Company paid a real estate brokerage
commission of $203,000 to Carmel Realty. The Company recognized a gain of $2.0
million on the sale. See NOTE 10. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."

Further in April 1998, the Company obtained a second lien mortgage of $2.0
million secured by its BP Las Colinas land from the limited partner in a
partnership that owns approximately 15.6% of the outstanding shares of the
Company's Common Stock. The second lien mortgage which was paid at maturity,
bore interest at 12% per annum, with principal and interest due at maturity in
October 1998. See NOTE 10. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

In April 1998, the Company refinanced the mortgage debt secured by its Parkfield
land in the amount of $7.3 million. The Company received net cash of $1.2
million after paying off $5.0 million in existing mortgage debt and the payment
of various closing costs. The new mortgage bears interest at 9.5% per annum,
requires monthly payments of interest only and matures in April 2000. The
Company paid a mortgage brokerage and equity refinancing fee of $73,000 to BCM.

In May 1998, but effective April 1, 1998, the Company completed the purchase, in
a single transaction, of 29 apartment complexes (collectively, the "IGI
Properties") totaling 2,441 units in Florida and Georgia for $55.8 million. The
Company acquired the properties through three newly-formed Texas limited
partnerships. The partnerships paid a total of $6.1 million in cash, assumed
$43.4 million in existing mortgage debt and issued a total of $6.6 million in
Class A limited partner units in the acquiring entities, having the Company as
the Class B Limited Partner and a newly-formed wholly-owned subsidiary of the
Company, as the Managing General Partner. The Class A limited partners are
entitled to an annual preferred return of $.08 per unit in 1998, $.09 per unit
in 1999 and $.10 per unit in 2000 and thereafter. The units are exchangeable at
anytime after April 1, 1999, into shares of the Company's Series F Cumulative
Convertible Preferred Stock on the basis of ten units for one share of Preferred
Stock. The mortgages bear interest at rates ranging between 7.86% and 11.22% per
annum, require monthly principal and interest payments totaling $384,000 and
mature between July 1, 2000 and September 1, 2017. The Company paid a real
estate brokerage commission of $1.7 million to Carmel Realty.

Also in May 1998, the Company sold a 15.4 acre tract of its Valley Ranch land
parcel, for $1.2 million in cash. The Company received net cash of $41,000 after
paying down by $1.1 million the mortgage secured by such land parcel and the
payment of various closing costs. The Company paid a real estate brokerage
commission of $37,000 to Carmel Realty. The Company recognized a gain of
$663,000 on the sale.

Further in May 1998, the Company purchased the FRWM Cummings land, a 6.4 acre
parcel of undeveloped land in Farmers Branch, Texas, for $1.2 million in cash.
The Company paid a real estate brokerage commission of $36,000 to Carmel Realty.

F-45

<PAGE> 203
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In May 1998, the Company sold a 21.3 acre tract of its Parkfield land parcel,
for $1.3 million in cash. The Company received net cash of $40,000 after paying
down by $1.1 million the mortgage secured by such land parcel and the payment of
various closing costs. The Company paid a real estate brokerage commission of
$38,000 to Carmel Realty. The Company recognized a gain of $670,000 on the sale.

Also in May 1998, the Company refinanced the mortgage debt secured by its Scout
and Scoggins land in the amount of $10.4 million under the Las Colinas I term
loan. The Company received net cash of $6.6 million after paying off $1.4
million in mortgage debt on the Scout land and $1.5 million in mortgage debt on
the Scoggins land, a pay down of $250,000 on the Keller land mortgage, and the
payment of various closing costs. The Company also pledged 250,000 shares of its
Common Stock and BCM, the Company's advisor, pledged 177,000 shares of the
Company's Common Stock as additional collateral on the mortgage.

In June 1998, the Company sold a 21.6 acre tract of its Chase Oaks land parcel,
for $3.3 million in cash. The Company received net cash of $517,000 after paying
down by $2.0 million the mortgage secured by such land parcel and the payment of
various closing costs. The Company paid a real estate brokerage commission of
$99,000 to Carmel Realty. The Company recognized a gain of $848,000 on the sale.

Also in June 1998, the Company sold a 150.0 acre tract of its Rasor land parcel,
for $6.8 million in cash. The Company received net cash of $1.6 million after
paying down by $5.0 million the mortgage secured by such land parcel and the
payment of various closing costs. The Company paid a real estate brokerage
commission of $203,000 to Carmel Realty. The Company recognized a gain of
$789,000 on the sale.

Further in June 1998, the Company sold its entire 315.2 acre Palm Desert land
parcel, for $17.2 million in cash. The Company received net cash of $9.2 million
after paying off $7.2 million in mortgage debt and the payment of various
closing costs. The Company paid a real estate brokerage commission of $517,000
to Carmel Realty. The Company recognized a gain of $3.9 million on the sale.

In July 1998, the Company purchased the Thompson II land, a 3.5 acre parcel of
undeveloped land in Dallas County, Texas, for $471,000 in cash. The Company paid
a real estate brokerage commission of $14,000 to Carmel Realty.

Also in July 1998, the Company purchased the Katrina land, a 454.8 acre parcel
of undeveloped land in Palm Desert, California, for $38.2 million. The purchase
was made by a newly formed partnership of which a wholly-owned subsidiary of the
Company is the general partner and Class B limited partner. The partnership
issued $23.2 million Class A limited partnership units and obtained new mortgage
financing of $15.0 million. The mortgage bears interest at 15.5% per annum,
requires monthly payments of interest only and matures in July 1999. The Class A
limited partners are entitled to an annual preferred return of $.07 per unit in
1998, $.08 per unit in 1999, $.09 per unit in 2000 and $.10 per unit in 2001 and
thereafter. The Class A units may be converted into a total of 231,750 shares of
the Company's Series H Preferred Stock anytime after July 13, 1999, on the basis
of 100 Class A units for each share of Series H Cumulative Convertible Preferred
Stock. A portion of the Preferred Stock may be converted into the Company's
Common Stock using a 90% factor starting in December 2000. The Company paid a
real estate brokerage commission of $1.1 million to Carmel Realty.

Further in July 1998, the Company purchased the Walker land, a 132.6 acre parcel
of undeveloped land in Dallas County, Texas, for $12.5 million in cash. Also in
July, the Company obtained mortgage financing of $13.3 million secured by the
Walker land. The Company received net financing proceeds of $12.8 million after
the payment of various closing costs associated with the financing. The mortgage
bears interest at 15.5% per annum, requires monthly payments of interest only
and matures July 1999. The mortgage is also secured by the FRWM Cummings land.
The Company paid a real estate brokerage commission of $375,000 to Carmel
Realty.

In July 1998, the Company sold a 2.5 acre tract of the Las Colinas I land, for
$1.6 million in cash. The Company received net cash of $721,000 after paying
down by $750,000 the Las Colinas I term loan secured by such land parcel and the
payment of various closing costs. The Company paid a real estate brokerage
commission of $48,000 to Carmel Realty. The Company recognized a gain of
$869,000 on the sale.

F-46

<PAGE> 204
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In August 1998, the Company financed its unencumbered Keller land in the amount
of $5.0 million under the Las Colinas I term loan. The Company received net
financing proceeds of $4.9 million after the payment of various closing costs.

In September 1998, a newly formed limited partnership, in which the Company has
a combined 95% general and limited partnership interest, purchased the Messick
land, a 72.0 acre parcel of undeveloped land in Palm Springs, California, for
$3.5 million. The Company paid $1.0 million in cash and obtained seller
financing of the remaining $2.5 million of the purchase price. The seller
financing bears interest at 8.5% per annum, requires quarterly payments of
interest only, principal payments of $300,000 in July 1999 and July 2000, and
matures in July 2001. The Company paid a real estate brokerage commission of
$105,000 to Carmel Realty.

Also in September 1998, the Company sold a 60.0 acre tract of its Parkfield land
parcel, for $1.5 million in cash. The Company received net cash of $21,000 after
the payoff the $1.4 million mortgage secured by such land parcel and the payment
of various closing costs. The Company paid a real estate brokerage commission of
$45,000 to Carmel Realty. The Company recognized a gain of $43,000 on the sale.

Further in September 1998, the Company purchased the HSM land, a 6.2 acre parcel
of undeveloped land in Farmers Branch, Texas, for $2.2 million in cash. The
Company paid a real estate brokerage commission of $95,000 to Carmel Realty.

In September 1998, the Company sold the remaining 10.5 acres of its BP Las
Colinas land for $4.7 million in cash. The Company received net cash of $1.8
million after paying off $2.7 million in mortgage debt and the payment of
various closing costs. The Company paid a real estate brokerage commission of
$140,000 to Carmel Realty. The Company recognized a gain of $3.4 million on the
sale.

Also in September 1998, the Company purchased the Vista Ridge land, a 160 acre
parcel of undeveloped land in Lewisville, Texas, for $15.6 million. The Company
paid $3.1 million in cash and obtained new mortgage financing of $12.5 million.
The mortgage bears interest at 15.5% per annum, requires monthly interest only
payments at a rate of 12.5% per annum and matures in July 1999. The Company paid
a real estate brokerage commission of $235,000 to Carmel Realty.

Further in September 1998, the Company sold its entire 30.0 acre Kamperman land
parcel for $2.4 million in cash. The Company received net cash of $584,000 after
paying down by $1.6 million the Las Colinas I term loan secured by such parcel
and the payment of various closing costs. The Company paid a real estate
brokerage commission of $72,000 to Carmel Realty. The Company recognized a gain
of $969,000 on the sale.

In September 1998, the Company sold a 1.1 acre tract of its Santa Clarita land
parcel for $543,000 in cash. The Company received net cash of $146,000 after
paying down by $350,000 the Las Colinas I term loan secured by such tract and
the payment of various closing costs. The Company paid a real estate brokerage
commission of $16,000 to Carmel Realty. The Company recognized a gain of
$409,000 on the sale.

Also in September 1998, the Company purchased the Marine Creek land, a 54.2 acre
parcel of undeveloped land in Fort Worth, Texas, for $2.2 million in cash. The
Company paid a real estate brokerage commission of $134,000 to Carmel Realty.

Further in September 1998, the Company obtained second lien financing of $5.0
million secured by its Katy land from the limited partner in a partnership that
owns approximately 15.6% of the outstanding shares of the Company's Common
Stock. The second lien mortgage bears interest at 12.5% per annum, compounded
monthly, with principal and interest due at maturity in January 1999. See NOTE
10. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

During the third quarter of 1998, the Company recorded a provision for loss of
$3.0 million to write down its Valley Ranch land to its estimated realizable
value less estimated costs of sale. Such write down was necessitated by an
increase in the acreage designated as flood plain.

F-47

<PAGE> 205
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 5. INVESTMENT IN EQUITY INVESTEES

Real estate entities. The Company's investment in real estate entities at
September 30, 1998, includes (1) 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"), (2) units of limited partner
interest of NRLP, (3) a general partnership interest in NRLP and NOLP, the
operating partnership of NRLP, through the Company's 96% limited partner
interest in SAMLP, (4) a general partnership interest in Garden Capital, L.P.
("GCLP") and its operating partnerships, and (5) 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,
NOLP and GCLP.

Effective August 1998, a wholly-owned subsidiary of the Company, acquired the
.7% managing general partner interest of Garden Capital, Inc. in GCLP and the 1%
managing general partner interest of Garden Capital Incorporated in 50 single
asset limited partnerships in which GCLP is the 99% limited partner. NOLP owns a
99.3% limited partner interest in GCLP. GCLP was formed in November 1992, to
facilitate the refinancing of 52 of NOLP's apartment complexes. The Company
issued 250,000 shares of its Series F Cumulative Convertible Preferred Stock in
exchange for the partnership interests.

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 and NOLP. 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 8. "MARGIN BORROWINGS."

The Company's investment in real estate entities, accounted for using the equity
method, at September 30, 1998, 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 September 30, 1998 September 30, 1998 September 30, 1998 September 30, 1998
- -------- ------------------ ------------------ ------------------ ------------------

<S> <C> <C> <C> <C>
NRLP 54.4% $ 23,239 $ * $ 70,114
CMET 41.0 15,875 35,713 26,285
IORI 30.2 3,261 7,239 3,744
TCI 31.2 10,590 28,849 15,765
------------------ ------------------
52,965 $ 115,908
==================

<CAPTION>
<S> <C>
General partner interest in
NRLP, NOLP and GCLP 7,676
Other equity investees 5,456
------------------
$ 66,097
==================
</TABLE>
- --------------------

* At September 30, 1998, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity at December 31, 1997, was
$198.9 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, 1997.

F-48

<PAGE> 206
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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 1998. Set forth below is
summarized results of operations for the Company's equity investees for the nine
months ended September 30, 1998:

Equity investees owned over 50%:

<TABLE>
<S> <C>
Revenues.................................... $ 85,661
Property operating expenses................. 61,207
Depreciation................................ 7,136
Interest expense............................ 24,939
------------
(Loss) from operations...................... (7,621)

Gain on sale of real estate................. 42,410
------------
Net income.................................. $ 34,789
============
</TABLE>
The Company's share of over 50% owned equity investees' operations was a loss of
$4.1 million for the nine months ended September 30, 1998. The Company's share
of equity investees' gains on sale of real estate was $25.1 million for the nine
months ended September 30, 1998.

Equity investees owned less than 50%:

<TABLE>
<S> <C>
Revenues.................................... $ 100,605
Equity in income of partnerships............ 647
Property operating expenses................. 68,391
Depreciation................................ 15,529
Interest expense............................ 37,529
Provision for loss.......................... 154
------------
(Loss) from operations...................... (20,351)

Gain on sale of real estate................. 18,085
------------
Net (loss).................................. $ (2,266)
============
</TABLE>

The Company's share of less than 50% owned equity investees' loss from
operations was $1.0 million for the nine months ended September 30, 1998. The
Company's share of equity investees' gains on sale of real estate was $7.4
million for the nine months ended September 30, 1998.

The Company's cash flow from the REITs and NRLP is dependent on the ability of
each of the entities to make distributions. CMET and IORI have paid regular
quarterly distributions since the first quarter of 1993, NRLP since the fourth
quarter of 1993 and TCI since the fourth quarter of 1995. In the first nine
months of 1998, the Company received distributions totaling $9.2 million from
the REITs and NRLP, including $6.7 million in distributions that were accrued at
December 31, 1997.

In the first nine months of 1998, the Company purchased a total of $357,000 of
equity securities of the REITs and NRLP.

In January 1992, the Company entered into a partnership agreement with an entity
affiliated with the limited partner in a partnership that owns approximately
15.6% 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, 1997, 214 residential lots had been sold. In the first nine months of 1998,
an additional 48 lots were sold. At September 30, 1998, 25 lots remained to be
sold. In 1998, the partnership recorded a gain of $433,000 on such lot sales.

F-49

<PAGE> 207
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In June 1996, a newly formed limited partnership, of which the Company is a 1%
general partner, purchased 580 acres of undeveloped land in Collin County,
Texas. In January 1998, the partnership sold a 155.4 acre tract of such land
parcel for $2.9 million. The partnership received $721,000 in cash and provided
seller financing of an additional $2.2 million. Of the net sales proceeds,
$300,000 was distributed to the limited partner and $300,000 was distributed to
the Company as general partner in accordance with the partnership agreement. The
seller financing bore interest at 12% per annum, required monthly payments of
interest only and matured in July 1998. The seller financing was paid off at
maturity, with the net proceeds being distributed; $1.1 million to the limited
partner and $1.1 million to the Company as general partner. The partnership
recognized a gain of $1.2 million on the sale. In September 1998, the
partnership sold the remaining 96.5 acres for $1.3 million in cash. Of the net
proceeds, $587,000 was distributed to the limited partner and $587,000 was
distributed to the Company as general partner. The partnership recognized a gain
of $128,000 on the sale.

In April 1996, the Company purchased a 28% general partner interest in Campbell
Center Associates, Ltd. ("Campbell Associates"), which in turn has a 56.25%
interest in Campbell Centre Joint Venture, which owned at the time a 413,175
square foot office building in Dallas, Texas. The purchase price of the general
partner interest was $550,000 in cash and a $500,000 note, which bears interest
at 8% per annum, requires monthly payments of interest only and matures in April
2000. In January 1997, the Company exercised its option to purchase an
additional 28% general partner interest in Campbell Associates. The purchase
price was $300,000 in cash and a $750,000 note, which bears interest at 8% per
annum, requires monthly payments of interest only and matures in April 2000. In
July 1997, the Company purchased an additional 9% general partner interest in
Campbell Associates for $868,000 in cash. In March 1998, Consolidated Equity
Properties, Inc. acquired a 30% limited partner interest in Campbell Associates
for $500,000 in cash. In June 1998, the Company purchased the remaining 5%
general partner interest in Campbell Associates for $1.1 million.

In June 1998, Campbell Centre Joint Venture sold the office building for $32.1
million in cash. Campbell Associates, as a partner, received net cash of $13.2
million from the sales proceeds and escrowed an additional $190,000 for pending
parking lot issues. Campbell Associates recognized a gain of $8.2 million on the
sale.

In June 1995, the Company purchased a 1% general partner interest in a limited
partnership which owned an apartment complex in each of the states of Florida,
Illinois and Minnesota, with a total of 900 units. In August 1998, in
conjunction with the sale of the apartment complexes, the Company sold its
general partner interest for $903,000 in cash. The Company recognized a gain of
$270,000 on the sale.

NOTE 6. INDUSTRY SEGMENTS

<TABLE>
<CAPTION>
Other
Real Pizza
1998 Hotels Estate Parlor Total
- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ............................... $ 24,541 $ 20,272 $ 21,344 $ 66,157
(Loss) from operations ................. (331) (39,702) 13 (40,020)
Identifiable assets .................... 75,489 496,268 24,655 596,412
Depreciation and
amortization ........................ 1,597 2,346 740 4,683
Capital expenditures ................... 959 6,308 787 8,054
</TABLE>

NOTE 7. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

In the first quarter of 1994, the Company began purchasing equity securities of
entities other than those of the REITs and NRLP to diversify and increase the
liquidity of its margin accounts. In the first nine months of 1998, the Company
purchased $7.6 million and sold $4.1 million of such securities. These equity
securities are considered a trading portfolio and are carried at market value.
At September 30, 1998, the Company recognized an unrealized increase in the
market value of its trading portfolio securities of $1.9 million. Also in the
first nine months of 1998, the Company realized a net gain of $206,000 from the
sale of trading portfolio securities and received $14,000 in dividends.
Unrealized and realized gains and losses on trading portfolio securities are
included in other income in the accompanying Consolidated Statements of
Operations.

F-50

<PAGE> 208
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 8. MARGIN BORROWINGS

The Company has margin arrangements with various brokerage firms which provide
for borrowing of up to 50% of the market value of the Company's marketable
equity securities. The borrowings under such margin arrangements are secured by
equity securities of the REITs, NRLP and the Company's trading portfolio and
bear interest rates ranging from 7% to 11%. Margin borrowing totaled $42.2
million at September 30, 1998.

In January 1998, the Company obtained a $2.0 million loan secured by a pledge of
Common Stock of the Company owned by BCM, the Company's advisor, with a market
value of $5.7 million at September 30, 1998. The Company received $2.0 million
in net cash. In September 1998, the lender advanced the Company an additional
$1.0 million.

In August 1996, the Company consolidated its existing NRLP margin debt held by
various brokerage firms into a single margin loan. The Company has pledged
3,349,169 of its NRLP units as security for such margin loan which had a
principal balance of $10.6 million at September 30, 1998. The margin loan is due
and payable. Subsequent to September 30, 1998, the Company has paid down such
loan by $5.0 million. The lender has not made a demand for payment of the
remaining $5.6 million, nor has it declared an event of default.

NOTE 9. INCOME TAXES

Financial statement income varies from taxable income principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated losses.
The Company had no taxable income or provision for income taxes in the nine
months ended September 30, 1998, due to operating loss carryforwards.

NOTE 10. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In May, June and July 1997, the Company obtained a total of $8.0 million in
mortgage loans from entities and trusts affiliated with the limited partner in a
partnership that owns approximately 15.6% of the Company's outstanding shares of
Common Stock. In January 1998, one of the loans in the amount of $2.0 million
was paid in full and in April 1998, a second loan in the amount of $3.0 million
was also paid in full. In April 1998, the Company obtained an additional $2.0
million mortgage loan from such entities. In July 1998, an additional $3.0
million loan was paid in full. In September 1998, the Company obtained an
additional $5.0 million mortgage loan from such entities. In October 1998, the
$2.0 million was paid in full. See NOTE 4. "REAL ESTATE."

NOTE 11. 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 12. SUBSEQUENT EVENTS

In October 1998, the Company purchased the Vista Business Park land, a 41.8 acre
parcel of undeveloped land in Travis County, Texas, for $3.0 million. The
Company paid $730,000 in cash and obtained mortgage financing of $2.3 million.
The mortgage bears interest at 8.9% per annum, requires monthly payments of
interest only and matures in September 2000. The Company paid a real estate
brokerage commission of $57,000 to Carmel Realty.

Also in October 1998, the Company purchased the Stone Meadows land, a 13.5 acre
parcel of undeveloped land in Houston, Texas, for $1.6 million. The Company paid
$491,000 in cash and obtained seller financing for the remaining $1.1 million of
the purchase price. The seller financing bears interest at 10% per annum,
requires quarterly principal and interest payments of $100,000 and matures in
October 1999. The Company paid a real estate brokerage commission of $98,000 to
Carmel Realty.

F-51

<PAGE> 209
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Further in October 1998, the Company financed its unencumbered Rasor land in the
amount of $15.0 million, the Company receiving net cash of $13.5 million after
the payment of various closing costs. Portions of the Company's Las Colinas and
Valwood land parcels are included as additional collateral. The Company used the
proceeds from this loan along with an additional $1.8 million to payoff the
$15.8 million in mortgage debt secured by its Las Colinas and Valwood land
parcels. 200.3 acres of the Company's Valwood land parcel are currently
unencumbered. The Company paid BCM a mortgage brokerage and equity refinancing
fee of $150,000.

F-52

<PAGE> 210
INDEPENDENT AUDITORS' REPORT

Board of Trustees and Shareholders
EQK Realty Investors I:

We have audited the accompanying balance sheets of EQK Realty Investors I (a
Massachusetts business trust) as of December 31, 1997 and 1996 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedule appearing on page F-62. These financial statements
and the financial statement schedule are the responsibility of the Trust's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of EQK Realty Investors I as of December 31,
1997 and 1996 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements, presents fairly, in all material respects, the information set forth
therein.

/s/DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Atlanta, Georgia
March 15, 1998

F-53

<PAGE> 211
EQK REALTY INVESTORS I
BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------

Assets: (dollars in thousands, except share data)
<S> <C> <C>
Investment in Harrisburg East Mall, at cost ................. $ 52,774 $ 52,228
Less accumulated depreciation ......................... 17,233 15,338
------------ -----------
35,541 36,890
Cash and cash equivalents:
Cash Management Agreement 2,486 2,667
Other 837 994
Deferred leasing costs (net of accumulated
amortization of $1,937 and $1,629
respectively) ......................................... 3,755 4,041
Accounts receivable and other assets (net of
allowance of $214 and $22,
respectively) ......................................... 2,448 2,238
------------ -----------
TOTAL ASSETS ................................................ $ 45,067 $ 46,830
============ ===========

LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY:

Liabilities:
Mortgage note payable $ 43,794 $ 43,794
Term loan payable to bank 1,585 1,585
Accounts payable and other liabilities
(including amounts due affiliates of
$3,117 and $2,940, respectively) .................... 4,670 4,472
------------ -----------

Commitments and Contingencies (Notes 3.5 and 9) 50,049 49,851
Deficit in Shareholders' Equity:

Shares of beneficial interest, without par
value: 10,055,555 shares authorized,
9,264,344 shares issued and outstanding ............. 135,875 135,875

Accumulated deficit (140,857) (138,896)
------------ -----------
(4,982) (3,021)
TOTAL LIABILITIES AND DEFICIT
IN SHAREHOLDERS' EQUITY $ 45,067 $ 46,830
============ ===========
</TABLE>

See accompanying Notes to Financial Statements.

F-54

<PAGE> 212
EQK REALTY INVESTORS I
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---------- ---------- ----------

(dollars in thousands, except per share amount)

<S> <C> <C> <C>
Revenues from rental operations .................. $ 6,158 $ 6,174 $ 15,761

Operating Expenses, net of tenant reimbursements
(including property management fees earned
by an affiliate of $307, $297 and
$291, respectively) ........................ 1,083 887 5,403

Depreciation and amortization .................... 2,532 2,391 4,848
Other income ..................................... -- (268) (400)
Write-down of investment in real estate .......... -- -- 3,200
---------- ---------- ----------
Income from rental operations .................... 2,543 3,164 2,710

Interest expense ................................. 4,046 3,896 8,302

Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $242,
$250 and $403, respectively) ............... 458 756 983
---------- ---------- ----------

Loss before gain on sale of real estate .......... (1,961) (1,488) (6,575)
Gain on sale of real estate ...................... -- -- 229
---------- ---------- ----------
Net loss ......................................... $ (1,961) $ (1,488) $ (6,346)
========== ========== ==========
Loss per share:
Loss before gain on sale of real estate .... $ (0.21) $ (0.16) $ (0.71)
Gain on sale of real estate ................ -- -- $ 0.03
Net loss ......................................... $ (0.21) $ (0.16) $ (0.68)
========== ========== ==========
</TABLE>
See accompanying Notes to Financial Statements.

F-55

<PAGE> 213

EQK REALTY INVESTORS I
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Shares of
Beneficial Accumulated
Interest Deficit Total
-------- ------- -----
(dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994 ........ $ 135,875 $ (131,062) $ 4,813

Net Loss .......................... -- (6,346) (6,346)
------------ ------------ ------------

Balance, December 31, 1995 ........ 135,875 (137,408) (1,533)
------------ ------------ ------------

Net loss .......................... -- (1,488) (1,488)

Balance, December 31, 1996 ........ 135,875 (138,896) (3,021)
------------ ------------ ------------

Net Loss .......................... -- (1,961) (1,961)

BALANCE, DECEMBER 31, 1997 ........ $ 135,875 $ (140,857) $ (4,982)
============ ============ ============
</TABLE>

See accompanying Notes to Financial Statements.

F-56

<PAGE> 214
EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss ................................................ (1,961) $ (1,488) $ (6,346)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Write-down of investment in real estate ............. -- -- 3,200
Depreciation and amoritzation ....................... 2,532 2,391 4,848
Amortization of debt discount ....................... -- -- 460
Imputed and deferred interest ....................... -- 302 1,494
Gain on sale of real estate ......................... -- -- (229)
Changes in assets and liabilities:
Decrease in accounts
payable and other liabilities ................... 198 140 (1,661)
(Increase) decrease in accounts receivable
and other assets ................................ (561) (128) (643)
------------ ------------ ------------
Net cash provided by operating activities .................. 208 1,217 1,123
------------ ------------ ------------
Cash Flows from investing activities:
Proceeds from sale of real estate ....................... -- -- 38,507
Additions to real estate investments .................... (546) (195) (5,362)
------------
Net cash provided by (used in)
investing activities .................................... (546) (195) 33,145
------------ ------------ ------------
Cash flows from financing activities:
Scheduled repayments of debt ............................ -- (333) (7)
Repayments of debt due to sale of property .............. -- -- (35,990)
------------ ------------ ------------
Net cash used in financing activities ...................... -- (333) (35,997)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ........... (338) 689 (1,729)
Cash and cash equivalents
beginning of year ....................................... 3,661 2,972 4,701
------------ ------------ ------------
Cash and cash equivalents
end of year ............................................. $ 3,323 $ 3,661 $ 2,972
============ ============ ============
</TABLE>

See accompanying Notes to Financial Statements.

F-57

<PAGE> 215
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS

NOTE 1: DESCRIPTION OF BUSINESS

EQK Realty Investors I, a Massachusetts business trust (the "Trust"),
was formed pursuant to an Amended and Restated Declaration of Trust dated
February 24, 1985, as amended on March 5, 1986, to acquire certain
income-producing real estate investments. Commencing with the period beginning
April 1, 1985, the Trust qualified for and elected real estate investment trust
("REIT") status under the provisions of the Internal Revenue Code.

At December 31, 1997, the Trust's remaining real estate investment is
Harrisburg East Mall, a regional shopping center in Harrisburg, Pennsylvania. On
December 8, 1995, the Trust sold its remaining interest in Castleton Park
("Castleton"), an office park in Indianapolis, Indiana (see Note 4). The Trust
sold office buildings comprising an office complex located in Atlanta, Georgia,
formerly known as Peachtree-Dunwoody Pavilion or "Peachtree" during 1992 and
1993. In 1991, the Trust completed the sale of two office buildings at
Castleton.

The Declaration of Trust provides that the actual disposition of the
remaining property, Harrisburg East Mall, may occur at any time prior to March
1999. The Declaration of Trust further provides that this date may be extended
by up to two years upon the recommendation of the Trustees and the affirmative
vote of a majority of its shareholders. Based on the finite-life provisions of
the Declaration of Trust, Management has been pursuing the disposition of its
remaining real estate investment or an alternative strategic transaction.

Effective December 23, 1997, the Trust entered into an Agreement and
Plan of Merger, pursuant to which an affiliate of American Realty Trust, Inc., a
Georgia corporation ("ART"), is to merge with and into the Trust (the "Merger"),
with the Trust being the surviving entity. The Merger contemplates, among other
things, a 20-year extension of the life of the Trust. If the Merger is
completed, Basic Capital Management, Inc. ("BCM"), an affiliate of ART, will
serve as advisor to the Trust.

As consideration for the Merger, each holder of record of the Trust's
Shares, other than ART and its affiliates, ERE Yarmouth Portfolio Management,
Inc., and Greenspring Fund, Incorporated ("Greenspring"), will be entitled to
retain the Shares such holder holds and to receive for each Share owned by such
holder a combination of ART Preferred Shares and cash. As its consideration for
the Merger, ART will be entitled to receive newly-issued Shares of the Trust.
Immediately prior to the Merger, ART will purchase from ERE Yarmouth Portfolio
Management, Inc. and Greenspring all of their Shares pursuant to the terms of
separate stock purchase agreements (collectively, the "Block Purchase"). Upon
consummation of the Block Purchase and the Merger, ART would own approximately
49% of the issued and outstanding Shares of the Trust.

The Merger is contingent upon, among other things, ART's registration
statement relating to the ART Preferred Shares to be issued pursuant to the
Block Purchase and the Merger being declared effective by the Securities
Exchange Commission, and the affirmative vote of the holders of 75% of the
outstanding Shares.

The Trust, its trustees, and its Advisor have been named as defendants
in a purported class action complaint filed in Massachusetts state court,
seeking to enjoin the Merger. The complaint also seeks other relief including
unspecified damages. The Trust believes the action to be without merit and
intends to vigorously defend the action.

Management anticipates that the Merger will close in mid-1998. However,
no assurances can be given that the Merger will close during the anticipated
time frame or at all. In the event the Merger is not completed, Management
intends to pursue an immediate disposition of Harrisburg East Mall.

As discussed in Note 3, Management is pursuing an extension of the
maturity dates of the Trust's mortgage debt from June 15, 1998 to at least the
end of the year. Based on preliminary discussions with the lenders, Management
believes that it will be able to secure such extensions. However, the inability
of the Trust to extend such maturity dates or secure alternative financing could
have a negative impact on the Trust's ability to complete the Merger. In such an
event, Management will pursue an immediate disposition of Harrisburg East Mall.

F-58

<PAGE> 216
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CAPITALIZATION, DEPRECIATION AND AMORTIZATION:

Property additions are recorded at cost. Costs directly associated with
major renovations and improvements, including interest on funds borrowed to
finance construction, are capitalized to the point of substantial completion.

Depreciation of real estate investments is provided on a straight-line
basis over the estimated useful lives of the related assets, ranging generally
from 5 to 40 years. Tenant improvements are amortized over their estimated
useful lives, which do not exceed the terms of the respective tenant leases.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives.

VALUATION OF REAL ESTATE:

Real estate investments are recorded at cost less accumulated
depreciation. In accordance with SFAS 121, the Trust considers, on a quarterly
basis, whether events or changes in circumstances indicate that the carrying
amount of its real estate investments may not be recoverable based on estimates
of future undiscounted cash flows without interest expense. In the event such
projected undiscounted future cash flows are less than the depreciated cost of
the property, the real estate investment is written down to its estimated fair
market value. Real estate investments to be disposed of are recorded at the
lower of net book value or estimated fair market value less cost to sell at the
date management commits to a plan of disposal.

DEFERRED LEASING COSTS:

Costs incurred in connection with the execution of a new lease
including leasing commissions, costs associated with the acquisition or buyout
of existing leases, and legal fees are deferred and amortized over the term of
the new lease. Included in deferred leasing costs is the unamortized portion of
a 1990 payment of $5,500,000 made to an anchor tenant at Harrisburg East Mall in
exchange for the tenant relinquishing space that was subsequently converted into
leasable area for mall shops.

REVENUE RECOGNITION:

Minimum rents are recognized on a straight-line basis over the term of
the related leases. Percentage rents are recognized on an accrual basis.

NET LOSS PER SHARE:

The net loss per share calculation is based on the weighted average
number of shares outstanding during the year, which was 9,264,344 for all years
presented.

Share warrants issued in connection with the Trust's 1992 debt
restructuring (see Note 3) are considered common share equivalents. However, the
warrants have not been included in the net loss per share calculation since the
effect on such calculation would be anti-dilutive.

INCOME TAXES:

The Trust has complied with all applicable provisions established by
the Internal Revenue Code for maintaining its REIT status. Accordingly, no
income tax provision or benefit has been recognized in the accompanying
financial statements.

F-59

<PAGE> 217
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS - CONTINUED

STATEMENTS OF CASH FLOWS:

Cash equivalents include short-term investments with an original
maturity of three months or less. Included in the statements of cash flows are
cash payments for interest of $4,022,000, $3,886,000, and $6,703,000 in 1997,
1996 and 1995, respectively. Such amounts are net of interest costs of $69,000
capitalized in 1995.

FAIR VALUES OF FINANCIAL INSTRUMENTS:

The Trust values its financial instruments as required by SFAS 107,
"Disclosures about Fair Values of Financial Instruments". Based on rates
currently available to the Trust for comparable financial instruments, the Trust
believes the carrying amounts of cash and cash equivalents, the Mortgage Note,
and the Term Loan approximate fair value.

RECLASSIFICATIONS:

Certain amounts in the prior year have been reclassified from
previously issued financial statements to conform with the 1997 presentation.

MANAGEMENT ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 3: MORTGAGE DEBT AND RESTRUCTURING ACTIVITIES

On December 15, 1992, the Trust completed a restructuring of its
existing mortgage debt through the issuance of a "Mortgage Note" and a "Term
Loan", both due December 15, 1995, with original principal balances of
$75,689,000 and $2,859,000, respectively. The Mortgage Note bore interest at an
average rate of 9.79% per annum during its three year term, although interest
was payable at 8.54% per annum. The Term Loan bore interest at 8.33% and was
subject to the same pay rate of 8.54%. The differences between the accrual and
pay rates of interest under both debt instruments were reflected in the
principal balances due at maturity. Absent prepayments due to property
dispositions, the scheduled amount of principal due under the Mortgage Note and
the Term Loan on the original maturities date would have been $78,928,000 and
$2,839,000, respectively. However, on December 8, 1995, the Trust completed the
sale of Castleton Park (see Note 4) and used the net proceeds of $35,990,000
(reflecting reductions of $2,517,000 for customary prorations) to prepay such
debt obligations in the amounts of $34,738,000 and $1,252,000, respectively.
These debt instruments were subsequently extended for a period of one year to
December 15, 1996, and again for a period of eighteen months to June 15, 1998 as
described below.

Pursuant to its Mortgage Note agreement, the Trust issued the lender
warrants to purchase 367,868 of its shares of beneficial interest at $.0001 per
share. As of December 31, 1997, all such warrants remain outstanding and
exercisable.

As part of the 1992 restructuring, the Trust entered into a Cash
Management Agreement with the mortgage lender and assigned all lease and rent
receipts to the lender as additional collateral. Pursuant to this agreement, a
third-party escrow agent has been appointed to receive all rental payments from
tenants and to fund monthly operating expenses in accordance with a budget
approved by the lender. As of December 31, 1997, a balance of $634,000 was held
by the third-party escrow agent in accordance with the Cash Management
Agreement. The agreement also provides for the establishment of a capital
reserve account, which is maintained by the escrow agent. Disbursements from
this account, which is funded each month with any excess operating cash flow,
are limited to capital expenditures approved by the lender. As of December 31,
1997 the balance of the capital reserve account was $1,852,000.

F-60

<PAGE> 218
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS - CONTINUED

EXTENSIONS OF DEBT

The remaining principal balances outstanding under the Mortgage Note
and the Term Loan at December 15, 1996, $43,794,000 and $1,585,000,
respectively, were extended for eighteen months through June 15, 1998, under
terms substantially comparable from those previously in effect, except as
described below. Previously, principal balances of $44,125,000 and $1,587,000,
respectively, were extended from their original maturity date of December 15,
1995 to December 15, 1996. The Mortgage Note remains collateralized by a first
mortgage lien on Harrisburg East Mall, an assignment of leases and rents, and
certain cash balances. The Term Loan remains collateralized by a subordinate
lien on Harrisburg East Mall. In addition, the Mortgage Note contains provisions
restricting the payment of dividends.

The Mortgage Note agreement has been amended to provide for monthly
payments of interest only accruing at the rate of 8.88% per annum ($324,000 per
month). Previously, in connection with the December 15, 1995 extension, the
Mortgage Note agreement was amended to provide for monthly payments of principal
(assuming a 30 year amortization) and interest (at an accrual rate equal to the
former pay rate of 8.54%) in the aggregate amount of $341,000. The Term Loan
agreement was amended to provide for an accrual rate that resets periodically
and is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate
(as defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in
effect as of March 16, 1998 was 8.25%.

In consideration for the extension of the maturity date of the Mortgage
Note agreement through June 15, 1998, the Trust paid an upfront application fee
of $165,000 and agreed to pay a back end fee of $272,900, plus interest thereon
at the contract rate of 8.88%, at the maturity date of June 15, 1998, or the
date at which all or any part of the original principal amount is prepaid. As of
December 31, 1997 and December 31, 1996, the $272,900 back end fee, along with
accrued interest, is included in accounts payable and other liabilities on the
balance sheet. In consideration for the extension of the maturity date of the
Term Loan agreement through June 15, 1998, the Trust incurred an extension fee
of $23,800. The majority of this fee was paid in 1997. As of December 31, 1997,
$200 is included in accounts payable and other liabilities on the balance sheet
representing the remaining amount due.

In anticipation of the Mortgage Note and Term Loan maturities,
Management is pursuing extensions of these facilities through at least the end
of the year. Based on preliminary discussions with the respective lenders,
Management believes that it will be able to secure such extensions. However, the
inability of the Trust to extend such maturity dates or secure alternative
financing could have a negative impact on the Trust's ability to complete the
Merger. In such an event, Management will pursue an immediate disposition of
Harrisburg East Mall.

NOTE 4: SALES OF REAL ESTATE

During 1995, Management recorded a write-down of its investment in
Castleton of $3,200,000 in order to reflect its then current estimate of net
realizable value. In December 1995, the Trust completed the sale of its
remaining forty-four buildings at Castleton. The Trust received net sales
proceeds of $38,507,000 before reduction for customary prorations of $2,517,000,
and recognized a gain on sale of $229,000. The net proceeds were used to repay a
portion of outstanding mortgage indebtedness (see Note 3).

NOTE 5: LEASING ARRANGEMENTS

The Trust leases shopping center space generally under noncancelable
operating leases, some of which contain renewal options. The shopping center
leases generally provide for minimum rentals, plus percentage rentals based upon
the retail stores' sales volume. Percentage rentals amounted to $122,000,
$179,000, and $270,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. In addition, the tenants pay certain utility charges to the Trust.
In most leases, tenants reimburse their proportionate share of real estate taxes
and common area expenses. Recoveries of common area and real estate tax expenses
amounted to $2,299,000, $2,313,000, and $2,355,000 for the years ended December
31, 1997, 1996, and 1995, respectively.

F-61

<PAGE> 219
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS - CONTINUED

Future minimum rentals under existing, non-cancelable leases at
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
Years ending December 31, Amount
------------------------- -----------

<S> <C>
1998 4,797,000
1999 4,487,000
2000 4,236,000
2001 3,548,000
2002 3,032,000
Thereafter 10,795,000
-----------

$30,895,000
===========
</TABLE>

The Limited Inc. operates seven stores at Harrisburg. Revenues from
these tenants represented approximately 13% of Harrisburg East Mall's total
revenues in 1997. No other individual tenant, or group of affiliated tenants,
contributed more than 10% to the mall's total revenues in any of the three years
in the period ended December 31, 1997.

Due to the temporary closure of two of the department stores operating
at Harrisburg East Mall, certain tenants exercised the right, as provided for
under cotenancy provisions set forth in their respective leases, to pay
percentage rent in lieu of fixed minimum rents which amounted to $228,000,
$663,000, and $702,000, for the years ended December 31, 1997, 1996, and 1995,
respectively. The rental payment obligations of substantially all of these
tenants reverted back to fixed minimum rent upon the March 10, 1997 opening of a
Lord & Taylor department store at Harrisburg East Mall.

NOTE 6: INVESTMENTS IN REAL ESTATE

The Trust's investments in real estate at December 31, 1997 and 1996
consisted of the following:

<TABLE>
<CAPTION>
1997 1996
------------ ------------

<S> <C> <C>
Land $ 4,700,000 $ 4,700,000
Buildings and improvements 45,356,000 45,033,000
Tenant improvements 2,555,000 2,332,000
Personal property 163,000 163,000
------------ ------------
$ 52,774,000 $ 52,228,000
============ ============
</TABLE>

Additions to real estate investments in 1997 and 1996 consisted of
minor building and tenant improvements to Harrisburg East Mall.

NOTE 7: ADVISORY AND MANAGEMENT AGREEMENTS

ADVISORY AGREEMENT

The Trust has entered into an agreement with ERE Yarmouth Portfolio
Management, Inc. ("EYPM", formerly known as Equitable Realty Portfolio
Management, Inc.), to act as its "Advisor". The Advisor is a wholly owned
subsidiary of ERE Yarmouth, Inc., formerly known as Equitable Real Estate
Investment Management, Inc. The Advisor makes recommendations to the Trust
concerning investments, administration and day-to-day operations.

F-62

<PAGE> 220
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS - CONTINUED

Under the terms of the advisory agreement, as amended in December 1989,
the Advisor receives a management fee that is based upon the average daily per
share price of the Trust's shares plus the average daily balance of outstanding
mortgage indebtedness. Such fee is calculated using a factor of 42.5 basis
points (0.425%) and generally has been payable monthly without subordination.
Commencing with the December 1995 extension of debt and continuing with the
December 1996 debt extension (see Note 3), the Mortgage Note lender has
requested, and the Advisor has agreed to, a partial deferral of payment of its
fee. Whereas the fee continues to be computed as described above, payments to
the Advisor are limited to $37,500 per quarter. Accrued but unpaid amounts will
be eligible for payment upon the repayment of the Mortgage Note. For the years
ended December 31, 1997, 1996 and 1995, portfolio management fees were $242,000,
$250,000, and $403,000, respectively. The balance of deferred advisory fees at
December 31, 1997 was $217,000.

As of December 31, 1989, portfolio management fees of $5,440,000
payable to the Advisor were deferred in accordance with subordination provisions
contained in the original advisory agreement. Pursuant to the amended advisory
agreement, the Advisor forgave one-half, or $2,720,000, of the deferred balance.
The remaining deferred fees are to be paid upon the disposition of the Trust's
properties. As of December 31, 1997, the liability for deferred management fees
was $2,720,000. If the Merger described in Note 1 is completed, the Advisor will
receive ART Preferred Shares from ART in lieu of such fees.

Upon the sale of all or any portion of any real estate investment of
the Trust, the Advisor will receive a disposition fee equal to 2% of the gross
sale price (including outstanding indebtedness taken subject to or assumed by
the buyer and any purchase money indebtedness taken back by the Trust). The
disposition fee will be reduced by the amount of any brokerage commissions and
legal expenses incurred by the Trust in connection with such sales. During 1995,
disposition fees earned by the Advisor were $788,000.

In connection with the December 15, 1996 extension of debt (see Note
3), the Advisor will receive a refinancing fee of $50,000, which will be paid
upon the retirement of the debt.

PROPERTY MANAGEMENT AGREEMENTS

The Trust has also entered into agreements for the on-site management
of each of its properties. Harrisburg East Mall is managed by ERE Yarmouth
Retail, Inc. (the "Property Manager", formerly Compass Retail, Inc.). Castleton
Park was managed by an unaffiliated third-party management company up until the
time of its sale.

Management fees paid to the Property Manager are generally based upon a
percentage of rents and certain other charges. The Trust believes that such fees
are comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the years ended December 31, 1997, 1996 and
1995, management fees paid to the Property Manager were $307,000, $297,000, and
$291,000, respectively.

In connection with the redevelopment of Harrisburg East Mall's
outparcel building, the Property Manager received a $150,000 development fee in
1995. The Trust renovated the outparcel building during 1995 to accommodate the
relocation of Toys `R' Us, with a final project cost of approximately
$3,440,000.

SHARE OWNERSHIP

In connection with a debt restructuring in December 1992, the Trust
issued 1,675,000 previously repurchased shares to its Advisor for $6,700,000, or
$4.00 per share. In total, the Advisor owns 1,685,556 shares, or 18.2% of the
total shares outstanding. The Advisor earned a $500,000 fee in connection with
this refinancing, which was paid in 1993-1994.

NOTE 8: RELATED PARTY TRANSACTIONS

As a condition of the Term Loan issuance in December 1992 (Note 3), an
escrow deposit of $300,000 was required as additional collateral. The Trust
borrowed this amount from its Advisor. In connection with the December 15, 1995
extension of this debt, the escrow deposit was released and the Advisor was
repaid in 1996.

F-63

<PAGE> 221
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 9: COMMITMENTS AND CONTINGENCIES

NOTE 10: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data for the
years ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Quarter Ended
---------------------------------------------------------------------

1997 March 31 June 30 Sept. 30 Dec. 31

<S> <C> <C> <C> <C>
Revenues from rental operations $ 1,413 $ 1,557 $ 1,545 $ 1,643
Income from rental operations 628 727 625 563
Net loss (478) (375) (565) (543)
Net loss per share (.05) (.04) (.06) (.06)
</TABLE>

<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Quarter Ended
---------------------------------------------------------------------

1996 March 31 June 30 Sept. 30 Dec. 31

<S> <C> <C> <C> <C>
Revenues from rental operations $ 1,714 $ 1,412 $ 1,576 $ 1,472
Income from rental operations 968 695 868 633
Net loss (193) (475) (261) (559)
Net loss per share (.02) (.05) (.03) (.06)
</TABLE>

During the first and second quarters of 1996, the Trust was notified by
the Fulton County (Georgia) Tax Commissioner's office of a reduction in the
assessed value of the real estate underlying Peachtree Dunwoody Pavilion for tax
years prior to the Trust's sale of this property. Such reduction in assessed
value resulted in a refund of previously paid real estate taxes in the amount of
$268,000, which the Trust recognized as other income.

F-64

<PAGE> 222
FINANCIAL STATEMENT SCHEDULE
DECEMBER 31, 1997
(IN THOUSANDS)

SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION

Cost Capitalized Gross Amount
Initial Cost Subsequent to at which Carried
Acquisition at Close of Period
------------------- -------------------- ---------------------

Bldg. & Bldg. &
Description Encumbrance Land Improv. Improvements Land Improvements Total
----------- -------------- ----------- ----------- ------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Harrisburg East Mall
Harrisburg, PA $ 45,379(1) $ 4,700(2) $ 31,287(2) $ 16,787 $ 4,700(2) $ 48,074(2) $ 52,774
---------- -------- -------- ------------ ------- ---------- --------
$ 45,379 $ 4,700 $ 31,287 $ 16,787 $ 4,700 $ 48,074 $ 52,774
========== ======== ======== ============ ======= ========== ========

<CAPTION>
Life on which
Depreciation
in Latest
Accum. Date of Date Income Stmt.
Description Deprec. Construction Acquired is Computed
----------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Harrisburg East Mall
Harrisburg, PA $ 17,233 1969(4) 3/13/85 30 yrs
--------- ------------ --------- -----------
$ 17,233
=========
</TABLE>

(1) Encumbrance is a mortgage note payable constituting first lien on the
Harrisburg real estate and a term loan payable to a bank constituting
subordinated lien on the property.
(2) Initial cost is net of imputed interest of $5,280 at date of acquisition.
(3) The aggregate tax basis of the Trust's property is $53 million as of
December 31, 1997. (4) Renovation of Harrisburg was completed in 1993.

<TABLE>
<CAPTION>
RECONCILIATION OF GROSS CARRYING AMOUNT OF REAL ESTATE: RECONCILATION
OF ACCUMULATED DEPRECIATION:

<S> <C> <C> <C>
Balance, December 31, 1994 $ 109,525 Balance, December 31, 1994 $31,793

Improvements and Additions 2,823 Depreciation expense 4,016

Deductions -- Sale of Castleton Deductions -- Sale of Castleton

Commercial Park (60,315) Commercial Park (22,363)
----------- ----------

Balance, December 31, 1995 52,033 Balance, December 31, 1995 13,446

Improvements and Additions 195 Depreciation Expense 1,892
----------- ----------

Balance, December 31, 1996 52,228 Balance, December 31, 1996 15,338

Improvements and Additions 546 Depreciation Expense 1,895
----------- ----------

Balance, December 31, 1997 $ 52,774 Balance, December 31, 1997 $ 17,233
----------- ==========
</TABLE>

F-65

<PAGE> 223
EQK REALTY INVESTORS I
BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)

ASSETS (dollars in thousands, except share data)
<S> <C> <C>
Investment in Harrisburg East Mall, at cost $ -- $ 58,466

Less accumulated depreciation and
amortization -- 19,170
------------ ------------
-- 39,296
Real estate held for sale (Notes 1 and 2) 39,264 --
Cash and cash equivalents:
Cash Management Agreement 2,127 2,486
Other 612 837
Accounts receivable and other assets (net of
allowance of $213 and $214 respectively) 2,262 2,448
------------ ------------
TOTAL ASSETS $ 44,265 $ 45,067
============ ============

LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY

Liabilities:
Mortgage note payable $ 43,794 $ 43,794
Term loan payable to bank 1,581 1,585
Accounts payable and other liabilities
(including amounts due affiliates of
$3,091 and $3,117, respectively) 4,070 4,670
------------ ------------

49,445 50,049
Commitments and Contingencies (Note 1 and 5)

Deficit in Shareholders' Equity:
Shares of beneficial interest, without par
value: 10,055,555 shares authorized;
9,632,212 shares issued and outstanding 135,875 135,875
Accumulated deficit (141,055) (140,857)
(5,180) (4,982)
TOTAL LIABILITIES AND DEFICIT
IN SHAREHOLDERS' EQUITY $ 44,265 $ 45,067
============ ============
</TABLE>

See accompanying Notes to Financial Statements.

F-66

<PAGE> 224
EQK REALTY INVESTORS I
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- --------------------------
(in thousands, except per
share amounts)
1998 1997 1998 1997
---------- ---------- ---------- ----------

<S> <C> <C> <C> <C>
Revenues from rental operations ....................... $ 1,619 $ 1,545 $ 4,509 $ 4,515

Operating Expenses, net of tenant reimbursements
(including property management fees earned
by an affiliate of $82, $72, $228 and
$220, respectively) ............................. 190 283 629 642

Depreciation and amortization ......................... -- 637 548 1,630
---------- ---------- ---------- ----------
Income from rental operations ......................... 1,429 625 3,332 2,243

Interest expense ...................................... 1,006 1,011 3,204 3,296

Other expenses, net of interest income
(including portfolio management fees earned by
an affiliate of $56, $59, $174 and
$183, respectively) ............................. 141 179 326 365
---------- ---------- ---------- ----------

Net income (loss) ..................................... $ 282 $ (565) $ (198) $ (1,418)
========== ========== ========== ==========
Net income (loss) per share: .......................... $ 0.03 $ (0.06) $ (0.02) $ (0.15)
========== ========== ========== ==========
</TABLE>

See accompanying Notes to Financial Statements.

F-67

<PAGE> 225
EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
Nine months ended September 30,
(in thousands)
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss ..................................................... $ (198) $ (1,418)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amoritzation ............................ 724 1,893
Changes in assets and liabilities:
Decrease in accounts
payable and other liabilities ........................ (600) (277)
(Increase) decrease in accounts receivable
and other assets ..................................... 10 (349)
------------ ------------

Net cash used in operating activities ........................... (64) (151)
------------ ------------
Cash flows from investing activities:
Additions to real estate investments ......................... (516) (505)
------------
Net cash used in investing activities ........................... (516) (505)
------------
Cash Flows from financing activities:
Scheduled repayments of debt ................................. (4) --
------------ ------------

Net cash used in financing activities ........................... (4) --
------------ ------------
Decrease in cash and cash equivalents ........................... (584) (656)
Cash and Cash Equivalents
Beginning of Period .......................................... 3,323 3,661
------------ ------------
Cash and Cash Equivalents
End of Period ................................................ $ 2,739 $ 3,005
============ ============
Supplemental disclosure of cash flow information:
Interest paid ................................................ $ 3,415 $ 3,015
============ ============
</TABLE>

See accompanying Notes to Financial Statements.

F-68

<PAGE> 226
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

NOTE 1: DESCRIPTION OF BUSINESS

EQK Realty Investors I ("EQK I" or "the Trust"), a Massachusetts business trust,
was formed pursuant to an Amended and Restated Declaration of Trust dated
February 24, 1985, as amended on March 5, 1986 to acquire certain
income-producing real estate investments. Commencing with the period beginning
April 1, 1985, the Trust qualified for and elected real estate investment trust
("REIT") status under the provisions of the Internal Revenue Code.

At September 30, 1998, the Trust's remaining real estate investment is
Harrisburg East Mall ("the Mall"), a regional shopping center located in
Harrisburg, Pennsylvania.

The Declaration of Trust currently provides that the actual disposition of the
remaining property, Harrisburg East Mall, may occur at any time prior to March
1999. The Declaration of Trust further provides that this date may be extended
by up to two years upon the recommendation of the Trustees and the affirmative
vote of a majority of its shareholders. Based on the finite life provisions of
the Declaration of Trust, Management has been pursuing the disposition of the
Trust's remaining real estate investment and/or an alternative strategic
transaction. Due to the impact of certain adverse market conditions described
below, it may be necessary for the Trustees to recommend a formal extension of
the Trust's life to facilitate the completion of the sale of the Mall.

Effective December 23, 1997, the Trust entered into an Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which an affiliate of American
Realty Trust, Inc. ("ART") is to merge with and into the Trust (the "Merger"),
with the Trust being the surviving entity. The Merger contemplates, among other
things, a 20-year extension of the life of the Trust.

Delays in completing the Merger as originally proposed required certain
revisions to the Merger Agreement, the most significant of which are the right
of Management to dispose of Harrisburg East Mall and to distribute the proceeds
of such sale to the Trust's shareholders prior to completing the Merger and a
corresponding reduction in the Merger consideration to be paid to the Trust's
shareholders. Management commenced marketing and sales activities during the
second quarter of 1998 including the retention of an outside broker, and is
currently proceeding towards negotiating a purchase and sale agreement, although
no definitive agreement has been reached.

Since the commencement of sales activities, changing conditions in the capital
markets have had an adverse effect on the market for real estate, and especially
on the market for regional malls. This unfavorable environment has been
characterized by a reduction in available sources of financing for real estate
transactions and by reduced purchasing interest on the part of many traditional
buyers, including many of the public real estate investment trusts.

Largely due to the conditions described above, it appears likely that completion
of the sale of the Mall will occur subsequent to December 15, 1998, the date on
which the current forbearance agreement with the primary lender of the Trust's
mortgage indebtedness terminates. At this time, the Trust believes it may be
necessary to extend the term of the forebearance agreement, as well as the term
of the Trust's loan. As a result, Management has commenced discussions with both
lenders regarding extension for a period of six months with a termination date
of June 15, 1999. In consideration of the extension, it is probable that an
extension fee will be imposed. Although Management believes the lender will
agree to the extension on reasonable economic terms, no assurances can be made
at this time.

On August 25, 1998 the Trust executed an Amended and Restated Agreement and Plan
of Merger (the "Revised Merger Agreement"). According to the terms of the
Revised Merger Agreement, upon completion of the sale of the Mall, and subject
to shareholder approval, the Merger would be completed. Immediately prior to the
closing of the Merger, ART is expected to convey one of its properties to EQK I.
ART will provide 100% of the financing for this property contribution via a
non-recourse note.

ART has agreed to permit EQK I to continue to solicit, or respond to, offers
from third parties for EQK I . In the event EQK I accepts an offer from a party
other than ART and elects not to proceed with the Merger, EQK I generally will
be obligated to pay ART a "break-up" fee of $200,000 plus its share of
transaction expenses (collectively, the "Break-Up Consideration").

F-69

<PAGE> 227
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

The Revised Merger Agreement may be terminated by EQK I if any of the following
conditions exist: (i) the Merger has not been accomplished by December 15, 1998;
(ii) EQK I secures a more favorable offer from another party subject to the
payment of the Break-Up Consideration; or (iii) if the Revised Merger Agreement
in any way impairs or delays the sale of Harrisburg East Mall, or is likely to
result in a material reduction in proceeds.

Proceeds from the sale of Harrisburg East Mall and, if applicable, the
completion of the Merger, will be distributed to the shareholders of EQK I once
the Trust's liabilities have been settled (including the retirement of its
mortgage note and term loan) and related transaction costs have been paid.

The Merger is contingent upon, among other things, ART's registration statement
relating to ART Preferred Shares to be issued pursuant to the Merger Agreement,
as revised, being declared effective by the Securities Exchange Commission, and
the affirmative vote of the holders of 75% of the outstanding shares of the
Trust. The Trust, its trustees, and its Advisor have been named as defendants in
a purported class action complaint filed in Massachusetts state court, which
seeks to enjoin the Merger. The complaint also seeks other relief including
unspecified damages. The Trust is vigorously pursuing its legal defenses and
believes that the disposition of this matter will not have a material adverse
affect on the financial position of the Trust.

Trading in EQK I's common shares on the New York Stock Exchange ("NYSE")
terminated on May 4, 1998, as the Trust did not meet the NYSE's continued
listing criteria. A market for the EQK I common shares has been created on the
OTC Bulletin Board System.

NOTE 2: BASIS OF PRESENTATION

The financial statements have been prepared by the Trust, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Trust believes that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read in conjunction
with the audited financial statements and related notes thereto included in the
Annual Report on Form 10-K for the year ended December 31, 1997.

Certain amounts in the prior year have been reclassified from previously issued
financial statements to conform with current presentation.

As discussed in Note 1, Management intends to dispose of Harrisburg East Mall
and as such, its investment in real estate is presented on the balance sheet as
held for sale. This asset includes deferred leasing costs, and is carried at the
lower of cost or fair value less cost to sell. Depreciation and amortization of
the investment ceased beginning April 1, 1998.

On March 19, 1998, The Prudential Insurance Company of America ("Prudential")
exercised its warrants for 367,868 shares of the Trust's shares of beneficial
interest at $.0001 per share. Such shares were issued to Prudential on May 7,
1998 thus bringing the total number of issued and outstanding shares of the
Trust to 9,632,212. The net income and net loss per share, as reflected on the
statements of operations, have been calculated using the weighted average of the
number of shares outstanding during the periods presented.

In the opinion of the Trust, all other adjustments are normal recurring
adjustments necessary to present fairly its financial position as of September
30, 1998, its results of operations for the three months and nine months ended
September 30, 1998 and 1997 and its cash flows for the nine months ended
September 30, 1998 and 1997.

NOTE 3: CASH MANAGEMENT AGREEMENT

In connection with the Trust's mortgage agreement (as amended and extended), the
Trust entered into a cash management agreement with the mortgage lender and
assigned all lease and rent receipts to the lender as additional collateral.
Pursuant to this agreement, a third-party escrow agent has been appointed to
receive all rental payments from tenants and to fund monthly operating expenses
in accordance with a budget approved by the lender. As of September 30, 1998, a
balance of $701,000 was held by the third-party escrow agent in accordance with
the cash management agreement. The agreement also provides for the establishment
of a capital reserve account, which is maintained by the

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<PAGE> 228

EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

escrow agent. Disbursements from this account, which are funded each month with
any excess operating cash flow, are limited to capital expenditures approved by
the lender. As of September 30, 1998 the balance of the capital reserve account
was $1,426,000.

NOTE 4: ADVISORY AND MANAGEMENT AGREEMENTS

The Trust has entered into an agreement with Lend Lease Portfolio Management,
Inc. (formerly known as ERE Yarmouth Portfolio Management, Inc.) to act as its
"Advisor". The Advisor is a wholly owned subsidiary of Lend Lease Real Estate
Investments, Inc., formerly known as ERE Yarmouth, Inc. The Advisor makes
recommendations to the Trust concerning investments, administration, and
day-to-day operations.

Commencing with the December 1995 debt extension and continuing with the
December 1996 debt extension, the Mortgage Note lender has requested, and the
Advisor has agreed to, a partial deferral of payment of its fee. Whereas the fee
will continue to be computed as described, payments to the Advisor will be
limited to $37,500 per quarter. Deferred fees, which amounted to $279,000 as of
September 30, 1998, will be eligible for payment upon the repayment of the
Mortgage Note. Portfolio management fees amounted to $174,000 and $183,000 for
the nine months ended September 30, 1998 and 1997, respectively.

As part of the 1989 amendment to the advisory agreement, the Advisor forgave
one-half, or $2,720,000, of the total amount of fees previously deferred
pursuant to subordination provisions of the original advisory agreement. The
remaining deferred fees of $2,720,000 are to be paid upon the disposition of the
Mall.

The Trust has also entered into an agreement with ERE Yarmouth Retail, Inc. (the
"Manager"), formerly Compass Retail, Inc., for the on-site management of the
Mall. ERE Yarmouth Retail, Inc. is a wholly owned subsidiary of Lend Lease Real
Estate Investments, Inc. On September 30, 1998, Lend Lease Real Estate
Investments, Inc. sold the Manger to LaSalle Partners Incorporated. An affiliate
of Lasalle Partners, Incorporated will manage the Mall pursuant to the terms of
the original management agreement.

Management fees paid to the property manager are generally based upon a
percentage of rents and certain other charges. Such fees and commissions are
comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the nine months ended September 30, 1998 and
1997, management fee expense attributable to services rendered by ERE Yarmouth
Retail, Inc. were $228,000 and $220,000, respectively.

NOTE 5: DEBT MATURITIES

The Trust's debt instruments (aggregate principal outstanding of $45,375,000)
had scheduled maturity dates of June 15, 1998. While the mortgage note holder
has refused to grant an extension of this maturity date, it has agreed to a
forbearance arrangement wherein it will not exercise remedies for non-repayment
of the outstanding principal due through December 15, 1998. The holder of the
Trust's term loan has agreed to an extension of the maturity date, also through
December 15, 1998. The forbearance and extension arrangements are conditioned
upon, among other things, the Trust continuing to make timely debt service
payments in monthly amounts equal to those amounts stipulated in the December
1996 debt extension agreements.

On June 15, 1998 the Trust paid deferred loan fees plus interest to the mortgage
note holder in the amount of $309,200 and deferred loan fees to the term loan
holder in the amount of $88,100.

As discussed in Note 1, the Trust has commenced efforts to sell the Mall.
Management anticipates that a sale of the Mall will be completed subsequent to
December 15, 1998, which is the date the current forbearance agreement with the

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<PAGE> 229
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

primary lender of the Trust's mortgage indebtedness terminates. At this time,
the Trust believes it may be necessary to extend the term of the forebearance
agreement, as well as the term of the Trust's loan. As a result, Management has
commenced discussions with both lenders regarding extension for a period of six
months with a termination date of June 15, 1999. In consideration of the
extension, it is probable that an extension fee will be imposed. Although
Management believes the lender will agree to the extension on reasonable
economic terms, no assurances can be made at this time.

Proceeds from the sale of the Mall and, if applicable, the completion of the
Merger, will be distributed to the shareholders of EQK I once the Trust's
liabilities have been settled (including the retirement of its mortgage note and
term loan) and related transaction costs have been paid.

NOTE 6: CHANGE IN ACCOUNTING PRINCIPLE

The Trust defers recognition of percentage rent until the tenants' sales exceed
the contractual breakpoint in accordance with the Financial Accounting Standards
Board's Emerging Issues Task Force EITF 98-9, "Accounting for Contingent Rent in
Interim Financial Periods". The Trust adopted EITF 98-9 during the second
quarter of 1998. The effect of the change in accounting principal had no
material impact on quarterly interim financial information presented during
1998.

NOTE 7: YEAR 2000

The inability of computers, software and other equipment to recognize and
properly process data fields containing a two- digit year is commonly referred
to as the Year 2000 compliance issue ("Y2K"). As the year 2000 approaches, such
systems may be unable to accurately process certain date-based information.

Y2K exposures of the Trust and the Mall are currently being assessed. Potential
critical exposures include reliance on third party vendors and building systems
that are not Y2K compliant. The Trust has begun to communicate with its third
party service vendors such as Lend Lease and LaSalle Partners in an effort to
assess their Y2K compliance status and the adequacy of their Y2K efforts.

The Mall is being assessed in an effort to identify Y2K issues. Any required
remediation strategy will depend on the outcome of the assessment and therefore
will not be developed until the assessment is complete. Management expects the
assessment to be completed and remediation efforts to be underway by the end of
the first quarter of 1999.

Neither the Trust nor the Mall has incurred any material costs to date relating
to Y2K. The total assessment cost is expected to total approximately $10,000.
These costs were not incurred and therefore not accrued at September 30, 1998.
Remediation costs cannot be reasonably estimated until the assessment is
complete and a remediation strategy is determined.

The failure to adequately address the Year 2000 issue may result in the closure
of the Mall. In order to reduce the potential impact on the operations of the
Trust and the Mall, contingency plans are expected to be developed once Y2K
exposures have been assessed.

A building contingency plan is expected to be developed once the assessment has
been completed. A contingency plan may involve but not be limited to the
engagement of additional security services, the disconnect of system interfacing
(that does not significantly impact Mall operations) and the identification and
engagement of alternative service vendors.

If the sale of the Mall and the Merger with ART occur as currently proposed, the
current property manager and the Advisor will cease providing services to the
Trust. If, subsequent to the sale of the Mall, the Merger is approved and the
Trust continues as an operating entity, affiliates of ART will provide property
management and advisory services on an ongoing basis. The Trust does not
currently have knowledge of the status of ART's and its affiliates Y2K
compliance. Accordingly, there can be no assurance that all business critical
systems will be fully Y2K compliant, or that the consequences of any systems
deficiencies will not have a material adverse effect on the Trust.

F-72

<PAGE> 230

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Thirteen of ART's Articles of Incorporation provides that, to
the fullest extent permitted by Georgia law, as the same exists or may be
hereafter be amended, no director of ART shall be personally liable to ART or
the shareholders of ART for monetary damages for breach of the duty of care as a
director, provided that Article Thirteen does not limit or eliminate liability
for (i) a breach of duty involving an appropriation of a business opportunity of
ART; (ii) an act or omission not in good faith or involving intentional
misconduct or a knowing violation of law; or (iii) a transaction from which the
director derived an improper personal benefit. In addition, a director's
liability will not be limited as to any payment of a dividend or approval of a
stock repurchase that is illegal under Section 14-2-640 of the Georgia Business
Corporation Code.

Article Thirteen applies only to claims against a director arising out
of his or her role as a director and not, if he or she is also an officer, his
or her role as an officer or in any other capacity. In addition, Article
Thirteen does not reduce the exposure of directors to liability under Federal
securities laws.

The Bylaws of ART require ART to indemnify any person who, by reason of
the fact that he is or was a director of ART, is made or is threatened to be
made a party to an action, including an action brought by ART or its
shareholders. The Bylaws provide that ART will indemnify such person against
reasonably incurred expenses (including, but not limited to, attorneys' fees and
disbursements, court costs, and expert witness fees), and against any judgments,
fines and amounts paid in settlement, provided that ART shall not indemnify such
person under circumstances in which the Georgia Business Corporation Code, as in
effect from time to time, would not allow indemnification.

The Bylaws of ART give the ART Board the power to cause ART to provide
to officers, employees, and agents of ART all or any part of the right to
indemnification afforded to directors of ART as set forth in the Bylaws, subject
to the conditions, limitations and obligations therein, upon a resolution to
that effect identifying such officer, employee or agent and specifying the
particular rights provided.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of ART
pursuant to the foregoing provisions, ART has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<S> <C>
3.1 -- Articles of Incorporation (1)
3.2 -- Amendment to Articles of Incorporation dated
September 15, 1989 (1)
3.3 -- Articles of Amendment setting forth Certificate of
Designation of Series A Cumulative Participating Preferred
Stock dated as of April 11, 1990 (1)
3.4 -- Articles of Amendment dated December 10, 1990 to Articles of
Incorporation (1)
3.5 -- Amended By-laws of American Realty Trust, Inc., dated
December 11, 1991 (1)
3.6 -- 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 on Restrictions thereof of Special Stock of
American Realty Trust, Inc. (Series B 10% Cumulative
Preferred Stock) dated as of April 4, 1996 (1)
3.7 -- 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 on Restrictions thereof of Special Stock of
American Realty Trust, Inc. (Series C 10% Cumulative
Preferred Stock) dated as of June 4, 1996 (1)
</TABLE>

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<PAGE> 231

3.9 -- 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 Series E Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated as of December 3, 1996 (1)

3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated as of
February 28, 1997 (2)
3.11 -- 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 Series G Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated as of September 18, 1997 (5)

3.12 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. Increasing the number of
authorized shares of Common Stock to 100,000,000 shares,
dated March 26, 1998 (6)
3.13 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. reducing the number of authorized
shares of Series B Preferred Stock to zero and eliminating
such designation, dated May 27, 1998 (5)
3.14 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. increasing the number of
authorized shares of Series G Cumulative Convertible
Preferred Stock from 11,000 to 12,000, dated May 27, 1998 (5)
3.15 -- 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 Series H Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated as of June 24, 1998 (8)
3.16 -- Amended and 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 Series
F Cumulative Convertible Preferred Stock of American Realty
Trust, Inc. dated as of October 23, 1998 (9)
4.1 -- Instruments defining the rights of security holders (included
in Exhibit 3.16) (9)

5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the
legality of the Preferred Stock being offered (3)
8.1 -- Opinion of Andrews & Kurth L.L.P. regarding tax matters (5)
11.1 -- Statement re: computation of per share earnings (4)
12.1 -- Statement re: computation of ratios (4)
15.1 -- Letter re: unaudited interim financial information (4)
21.1 -- Subsidiaries of the registrant (1)
23.1 -- Consent of BDO Seidman, LLP (American Realty Trust, Inc.) (9)
23.2 -- Consent of BDO Seidman, LLP (Continental Mortgage and Equity
Trust) (9)
23.3 -- Consent of BDO Seidman, LLP (Income Opportunity Realty
Investors, Inc.) (9)
23.4 -- Consent of BDO Seidman, LLP (Transcontinental Realty
Investors, Inc.) (9)
23.5 -- Consent of BDO Seidman, LLP (National Realty, L.P.) (9)
23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP (5)
23.7 -- Consent of Deloitte & Touche LLP (EQK Realty Investors I) (9)

23.8 -- Consent of Blosser Appraisal (9)
23.9 -- Consent of Brown & Associates (9)

</TABLE>

II-2

<PAGE> 232
<TABLE>
<S> <C>
24.1 -- Power of Attorney (5) 29.1 -- Financial Data Schedule (7)

99.1 -- Amended and Restated Agreement and Plan of Merger By and
Among American Realty Trust, Inc., ART Newco LLC, Basic
Capital Management, Inc., EQK Realty Investors I, and Lend
Lease Portfolio Management, Inc. (8)
99.2 -- Amended and Restated Stock Purchase Agreement by and between
Lend Lease Portfolio Management,Inc. and American Realty
Trust, Inc. (8)
99.3 -- Stock Purchase Agreement by and between Summit Ventures, L.P.
and American Realty Trust, Inc. (8)
99.4 -- Stock Purchase Agreement by and between Sutter Opportunity
Fund, LLC and American Realty Trust, Inc. (8)
99.5 -- Second Amended and Restated Declaration of Trust of EQK
(included as Exhibit "A" to Exhibit 99.1) (8)
99.6 -- Advisory Agreement by and between EQK Realty Investors I and
Basic Capital Management, Inc. (included as Exhibit "B" to
Exhibit 99.1) (8)

99.7 -- Form of Proxy Card (5)
</TABLE>

- ----------

(1) Incorporated by reference to the Registrant's Registration Statement
No. 333-21583 filed with the Commission on February 11, 1997.
(2) Incorporated by reference to Amendment No. 1. To the Registrant's
Registration Statement No. 333-21583 filed with the Commission on April
29, 1997.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement No. 333-21583 filed with the
Commission on September 8, 1997.
(4) Not applicable.
(5) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4 (No. 333-43777), filed with the Commission on January 6, 1998 and
incorporated by reference therein.
(6) Filed as an Exhibit to the Reqistrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1998, as filed with the Commision
on May 14, 1998 and incorporated by reference therein.

(7) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1998, as filed with the
Commission on November 16, 1998 and incorporated by reference therein.
(8) Filed as an Exhibit to the Registrant's Amendment No. 2 to Registration
Statement on Form S-4 (No. 333- 43777), filed with the Commission on
September 3, 1998 and incorporated by reference herein.
(9) Filed herewith.

ITEM 22. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the charges in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;

II-3

<PAGE> 233

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if this Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

(d) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 1933 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(e) For the purpose of determining any liability under the 1933 Act, each
post-effective-amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-4

<PAGE> 234
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas, on the 2nd
day of December, 1998.

AMERICAN REALTY TRUST, INC.

By: /s/ KARL L. BLAHA
---------------------------------------
Karl L. Blaha
President (Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

Signature Title Date

<S> <C> <C>
/s/ KARL L. BLAHA
- ----------------- President (Principal December 2, 1998
Karl L. Blaha Executive Officer) and
Director

* Director December 2, 1998
- ----------------
Roy E. Bode

* Director December 2, 1998
- ----------------
Al Gonzalez

* Director December 2, 1998
- ----------------
Cliff Harris

* Executive Vice President and December 2, 1998
- ----------------- Chief Financial Officer
Thomas A. Holland (Principal Financial and
Accounting Officer)

</TABLE>

*By: /s/ KARL L. BLAHA
--------------------
Karl L. Blaha
Attorney-in-Fact

II-5
<PAGE> 235

<TABLE>
<CAPTION>
INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 -- Articles of Incorporation (1)
3.2 -- Amendment to Articles of Incorporation dated
September 15, 1989 (1)
3.3 -- Articles of Amendment setting forth Certificate of
Designation of Series A Cumulative Participating Preferred
Stock dated as of April 11, 1990 (1)
3.4 -- Articles of Amendment dated December 10, 1990 to Articles of
Incorporation (1)
3.5 -- Amended By-laws of American Realty Trust, Inc., dated
December 11, 1991 (1)
3.6 -- 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 on Restrictions thereof of Special Stock of
American Realty Trust, Inc. (Series B 10% Cumulative
Preferred Stock) dated as of April 4, 1996 (1)
3.7 -- 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 on Restrictions thereof of Special Stock of
American Realty Trust, Inc. (Series C 10% Cumulative
Preferred Stock) dated as of June 4, 1996 (1)
</TABLE>

<PAGE> 236

<TABLE>
<S> <C>
3.8 -- 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 Series D Cumulative
Preferred Stock of American Realty Trust, Inc. dated as of
August 2, 1996 (1)
3.9 -- 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 Series E Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated as of December 3, 1996 (1)
3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated as of
February 28, 1997 (2)

3.11 -- 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 Series G Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated as of September 18, 1997 (5)
3.12 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. Increasing the number of
authorized shares of Common Stock to 100,000,000 shares,
dated March 26, 1998 (6)
3.13 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. reducing the number of authorized
shares of Series B Preferred Stock to zero and eliminating
such designation, dated May 27, 1998 (5)
3.14 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. increasing the number of
authorized shares of Series G Cumulative Convertible
Preferred Stock from 11,000 to 12,000, dated May 27, 1998 (5)
3.15 -- 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 Series H Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated as of June 24, 1998 (8)
3.16 -- Amended and 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 Series
F Cumulative Convertible Preferred Stock of American Realty
Trust, Inc. dated as of October 23, 1998 (9)
4.1 -- Instruments defining the rights of security holders (included
in Exhibit 3.16) (9)

23.8 -- Consent of Blosser Appraisal (9)
23.9 -- Consent of Brown & Associates (9)

</TABLE>

<PAGE> 237

<TABLE>
<S> <C>
24.1 -- Power of Attorney (5) 29.1 -- Financial Data Schedule (7)

</TABLE>

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<PAGE> 1
EXHIBIT 3.16

AMENDED AND 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

SERIES F CUMULATIVE CONVERTIBLE PREFERRED STOCK

AMERICAN REALTY TRUST, INC.

(Pursuant to Section 14-2-1006 of the
Georgia Business Corporation Code)

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

American Realty Trust, Inc., a corporation organized and existing under
the Georgia Business Corporation Code (hereinafter called the "Corporation"),
hereby certifies:

THAT, pursuant to the authority conferred upon the board of Directors
(the "Board of Directors") by the articles of incorporation, as amended
("Articles of Incorporation") of the Corporation, and pursuant to Section
14-2-1003 of the Georgia Business Corporation Code, the Board of Directors have
recommended by unanimous written consent dated August 3, 1998, and the holders
of a majority of the issued and outstanding shares of Series F Cumulative
Convertible Preferred Stock have duly adopted certain amended and restated
recitals and resolutions providing for the certificate of designations,
preferences and relative participating, optional or other special rights and
qualifications, limitations or other restrictions thereof, of a series of
special stock of the Corporation, specifically the Series F Cumulative
Convertible Preferred Stock, which amended and restated recitals and resolutions
are as follows:

WHEREAS, Article Five of the Articles of Incorporation authorizes the
Corporation to issue not more than 100,000,000 shares of common voting stock,
$0.01 par value per share (the "Common Stock"), and 20,000,000 shares of a
special class of stock, $2.00 par value per share (the "Special Stock"), which
Special Stock may be issued from time to time in one or more series and shall be

<PAGE> 2

designated as the Board of Directors may determine to have such voting powers,
preferences, limitations and relative rights with respect to the shares of each
series of the class of Special Stock of the Corporation as expressly provided in
a resolution or resolutions providing for the issuance of such series adopted by
the Board of Directors which is vested with the authority in respect thereof;

WHEREAS, 16,681 shares of such Special Stock have been previously
designated as the Series C 10% Cumulative Preferred Stock prior to the date
hereof, all of which have been issued and are outstanding;

WHEREAS, 91,000 shares of such Special Stock have been previously
designated as the Series D Cumulative Preferred Stock prior to the date hereof,
none of which has been issued or is outstanding;

WHEREAS, 80,000 shares of such Special Stock have been previously
designated as the Series E Cumulative Convertible Preferred Stock prior to the
date hereof, none of which has been issued or is outstanding;

WHEREAS, 7,500,000 shares of such Special Stock have been previously
designated as the Series F Cumulative Convertible Preferred Stock prior to the
date hereof, 3,350,000 shares of which have been issued and are currently
outstanding;

WHEREAS, 12,000 shares of such Special Stock have been previously
designated as the Series G Cumulative Convertible Preferred Stock prior to the
date hereof, 1,000 shares of which have been issued and are outstanding;

WHEREAS, 231,750 shares of such Special Stock have been previously
designated as the Series H Cumulative Convertible Preferred Stock prior to the
date hereof, none of which has been issued or is outstanding; and

WHEREAS, the Board of Directors now desires to amend and restate the
Articles of Amendment of the Articles of Incorporation of the Corporation
setting forth the certificate of designations, preferences and relative
participating or optional or other special rights, and qualifications,
limitations or restrictions of the Corporation's Series F Cumulative Convertible
Preferred Stock to (i) increase the number of authorized shares of such series
to 15,000,000, and (ii) modify the voting rights with respect to such series in
order to satisfy the listing criteria of the New York Stock Exchange, all as set
forth herein.

NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority granted
to the Board of Directors by Article Five of the Articles of Incorporation, and
with the unanimous consent and approval of the holders of a majority of the
issued and outstanding shares of Series F Cumulative Convertible Preferred
Stock, the Board of Directors hereby amends and restates the Articles of
Amendment to the Articles of Incorporation setting forth the certificate of
designations, preferences

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<PAGE> 3

and relative participating or optional or other special rights, and
qualifications, limitations or restrictions of the Corporation's Series F
Cumulative Convertible Preferred Stock as follows:

1. Designation and Amount. The shares of such series shall be designated
as "Series F Cumulative Convertible Preferred Stock" (the "Series F
Preferred Stock") and each share of the Series F Preferred Stock shall
have a par value of $2.00 per share and a preference on liquidation as
specified in Section 6 below. The number of shares constituting the
Series F Preferred Stock shall be 15,000,000. Such number of shares may
be increased or decreased by the Board of Directors by filing articles
of amendment as provided in the Georgia Business Corporation Code;
provided, that no decrease shall reduce the number of shares of Series
F Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants; provided further,
that no increase in the authorized amount of shares constituting Series
F Preferred Stock shall be made without the prior written consent of
the holders of a majority of shares of Series F Preferred Stock then
outstanding voting separately as a class.

2. Dividends and Distributions.

(A) The holders of shares of Series F Preferred Stock shall be
entitled to receive, when, as, and if declared by the Board of
Directors and to the extent permitted under the Georgia
Business Corporation Code, out of funds legally available for
the purpose and in preference to and with priority over
dividends upon all Junior Securities, quarterly cumulative
dividends payable in arrears in cash on the fifteenth day
following the end of each calendar quarter (each such date
being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on October 15, 1998, in an amount per share
(rounded to the next highest cent) equal to 10% per annum of
the Adjusted Liquidation Value, as determined immediately
prior to the beginning of such calendar quarter assuming each
year consists of 360 days and each quarter consists of 90
days. The term "Adjusted Liquidation Value" shall mean
Liquidation Value (as defined in Section 6) plus all accrued
and unpaid dividends through the applicable date. The
foregoing is intended to provide a 10% cumulative return,
compounded on a quarterly basis, on the Liquidation Value from
August 16, 1998.

(B) Dividends shall commence accruing cumulatively on outstanding
shares of the Series F Preferred Stock from August 16, 1998 to
and including the date on which the Redemption Price (as
defined in Section 9(A), below) of such shares is paid,
whether or not such dividends have been declared and whether
or not there are profits, surplus or other funds of the
Corporation legally available for the payment of such
dividends. Dividends for the first Quarterly Dividend Payment
Date shall accrue and shall be payable for a period of 45
days. Dividends payable on each Quarterly Dividend Payment
Date shall be dividends accrued and unpaid through the last
Business Day (as defined in Section 3(A) below) of the
immediately preceding calendar month. The Board of Directors
may fix a record date for the determination

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<PAGE> 4

of holders of shares of Series F Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon
other than a quarterly dividend paid on the Quarterly Dividend
Payment Date immediately after such dividend accrued; which
record date shall be not more than 50 days prior to the date
fixed for the payment thereof.

(C) So long as any shares of the Series F Preferred Stock are
outstanding, the Corporation will not make, directly or
indirectly, any distribution (as such term is defined in the
Georgia Business Corporation Code) in respect of Junior
Securities unless on the date specified for measuring
distributions in Section 14-2-640(e) of the Georgia Business
Corporation Code (a) all accrued dividends on the Series F
Preferred Stock for all past quarterly dividend periods have
been paid in full and the full amount of accrued dividends for
the then current quarterly dividend period has been paid or
declared and a sum sufficient for the payment thereof set
apart and (b) after giving effect to such distribution (i) the
Corporation would not be rendered unable to pay its debts as
they become due in the usual course of business and (ii) the
Corporation's total assets would not be less than the sum of
its total liabilities plus the amount that would be needed, if
the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon
dissolution of the holders of the Series F Preferred Stock as
provided in these Articles of Amendment. Dividends shall not
be paid (in full or in part) or declared and set apart for
payment (in full or in part) on any series of Special Stock
(including the Series F Preferred Stock) for any dividend
period unless all dividends, in the case dividends are being
paid in full on the Series F Preferred Stock, or a ratable
portion of all dividends (i.e., so that the amount paid on
each share of each series of Special Stock as a percentage of
total accrued and unpaid dividends for all periods with
respect to each such share is equal), in the case dividends
are not being paid in full on the Series F Preferred Stock,
have been or are, contemporaneously, paid and declared and set
apart for payment on all outstanding series of Special Stock
(including the Series F Preferred Stock) entitled thereto for
each dividend period terminating on the same or earlier date.
If at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series F
Preferred Stock, such payment will be distributed ratably
among the then holders of Series F Preferred Stock so that an
equal amount is paid with respect to each outstanding share.

3. Conversion Rights.

(A) The Series F Preferred Stock may be converted at any time and
from time to time in whole or in part after the earliest to
occur of (i) August 15, 2003, (ii) the first Business Day, if
any, occurring after a Quarterly Dividend Payment Date on
which dividends equal to or in excess of 5% of the Liquidation
Value (i.e., $0.50 per share) are accrued and unpaid, or (iii)
the Corporation becomes obligated to mail a statement pursuant
to subsection (G)(iv) below, at the option of the holders
thereof,

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<PAGE> 5

in accordance with subsection (D) below at the Conversion
Price (as defined below in subsection (D)) into fully paid and
nonassessable Common Stock of the Corporation by dividing (i)
the Adjusted Liquidation Value for such share of Series F
Preferred Stock as of the date of conversion by (ii) the
Conversion Price; provided, however, that as to any shares of
Series F Preferred Stock which shall have been called for
redemption, the right of conversion shall terminate at the
close of business on the second full Business Day (unless
otherwise provided, "Business Day" herein shall mean any day
other than a Saturday, a Sunday or a day on which banking
institutions in Dallas, Texas are authorized or obligated by
law or executive order to remain closed) prior to the date
fixed for redemption. Notwithstanding anything to the contrary
herein provided, the Corporation may elect to redeem the
shares of Series F Preferred Stock sought to be converted
hereunder instead of issuing shares of Common Stock in
replacement thereof in accordance with the provisions of
Section 3(D), below.

(B) For purposes of this Section 3, the term "Conversion Price"
shall be and mean the amount obtained (rounded upward to the
next highest cent) by multiplying (i) 0.9 by (ii) the simple
average of the daily closing price of the Common Stock for the
twenty Business Days ending on the last Business Day of the
calender week immediately preceding the date of conversion on
the New York Stock Exchange or, if the shares of Common Stock
are not then being traded on the New York Stock Exchange, then
on the principal stock exchange (including without limitation
NASDAQ NMS or NASDAQ Small Cap) on which such Common Stock is
then listed or admitted to trading as determined by the
Corporation (the "Principal Stock Exchange") or, if the Common
Stock is not then listed or admitted to trading on a Principal
Stock Exchange, the average of the last reported closing bid
and asked prices on such days in the over-the-counter market
or, if no such prices are available, the fair market value per
share of the Common Stock, as determined by the Board of
Directors of the Corporation in its sole discretion. The
Conversion Price shall not be subject to any adjustment as a
result of the issuance of any additional shares of Common
Stock by the Corporation for any purpose, except for stock
splits (whether accomplished by stock dividend or otherwise).
For purposes of calculating the Conversion Price, the term
"Business Day" shall mean a day on which the exchange looked
to for purposes of determining the Conversion Price is open
for business or, if no such exchange, the term "Business Day"
shall have the meaning given such term in Section 3(A), above.

(C) Upon any conversion, fractional shares of Common Stock shall
not be issued but any fractions shall be adjusted by the
delivery of one additional share of Common Stock in lieu of
any cash. Any accrued but unpaid dividends shall be
convertible into shares of Common Stock as provided for in
this Section. The Corporation shall pay all issue taxes, if
any, incurred in respect to the issuance of Common Stock on
conversion, provided, however, that the Corporation shall not
be required to pay any transfer or other taxes incurred by
reason of the issuance of such Common Stock in

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<PAGE> 6

names other than those in which the Series F Preferred Stock
surrendered for conversion may stand.

(D) Any conversion of Series F Preferred Stock into Common Stock
shall be made by the surrender to the Corporation, at the
office of the Corporation set forth in Section 12 hereof or at
the office of the transfer agent for such shares, of the
certificate or certificates representing the Series F
Preferred Stock to be converted, duly endorsed or assigned
(unless such endorsement or assignment be waived by the
Corporation), together with a written request for conversion.
The Corporation shall either (i) issue as of the date of
receipt by the Corporation of such surrender shares of Common
Stock calculated as provided above and evidenced by a stock
certificate delivered to the holder as soon as practicable
after the date of such surrender or (ii) within two Business
Days after the date of such surrender advise the holder of the
Series F Preferred Stock that the Corporation is exercising
its option to redeem the Series F Preferred Stock pursuant to
Section 3(A), above, in which case the Corporation shall have
thirty (30) days from the date of such surrender to pay to the
holder cash in an amount equal to the Conversion Price for
each share of Series F Preferred Stock so redeemed. The date
of surrender of any Series F Preferred Stock shall be the date
of receipt by the Corporation or its agent of such surrendered
shares of Series F Preferred Stock.

(E) A number of authorized shares of Common Stock sufficient to
provide for the conversion of the Series F Preferred Stock
outstanding upon the basis hereinbefore provided shall at all
times be reserved for such conversion. If the Corporation
shall propose to issue any securities or to make any change in
its capital structure which would change the number of shares
of Common Stock into which each share of Series F Preferred
Stock shall be convertible as herein provided, the Corporation
shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved for conversion of the
outstanding Series F Preferred Stock on the new basis.

(F) The term "Common Stock" shall mean stock of the class
designated as Common Stock of the Corporation on the date the
Series F Preferred Stock is created or stock of any class or
classes resulting from any reclassification or
reclassifications thereof, the right of which to share in
distributions of both earnings and assets is without
limitation in the Articles of Incorporation of the Corporation
as to any fixed amount or percentage and which are not subject
to redemption; provided, that if at any time there shall be
more than one such resulting class, the shares of each such
class then issuable on conversion of the Series F Preferred
Stock shall be substantially in the proportion which the total
number of shares of stock of each such class resulting from
all such reclassifications bears to the total number of shares
of stock of all such classes resulting from all such
reclassifications.

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<PAGE> 7

(G) In case the Corporation shall propose at any time before all
shares of the Series F Preferred Stock have been redeemed by
or converted into Common Stock of the Corporation:

(i) to pay any dividend on the Common Stock
outstanding payable in Common Stock or to make any other
distribution, other than cash dividends to the holders of the
Common Stock outstanding; or

(ii) to offer for subscription to the holders of
the Common Stock outstanding any additional shares of any
class or any other rights or option; or

(iii) to effect any re-classification or
recapitalization of the Common Stock outstanding involving a
change in the Common Stock, other than a subdivision or
combination of the Common Stock outstanding; or

(iv) to merge or consolidate with or into any
other corporation (unless the Corporation is the surviving
entity and holders of Common Stock continue to hold such
Common Stock without modification and without receipt of any
additional consideration), or to sell, lease, or convey all or
substantially all its property or business, or to liquidate,
dissolve or wind up;

then, in each such case, the Corporation shall mail to the holders of
record of each of the shares of Series F Preferred Stock at their last
known addresses as shown by the Corporation's records a statement,
signed by an officer of the Corporation, with respect to the proposed
action, such statement to be so mailed at least thirty (30) days prior
to the date of the taking of such action or the record date for holders
of the Common Stock for the purposes thereof, whichever is earlier. If
such statement relates to any proposed action referred to in clauses
(iii) or (iv) of this subsection (G), it shall set forth such facts
with respect thereto as shall reasonably be necessary to inform the
holders of the Series F Preferred Stock as to the effect of such action
upon the conversion rights of such holders.

4. Voting Rights and Powers. The holders of shares of Series F Preferred
Stock shall have only the following voting rights:

(A) Except as may otherwise be specifically required by law under
Section 14-2-1004 of the Georgia Business Corporation Code or
otherwise provided herein, the holders of the shares of Series
F Preferred Stock shall not have the right to vote such stock,
directly or indirectly, at any meeting of the shareholders of
the Corporation, and such shares of stock shall not be counted
in determining the total number of outstanding shares to
constitute a quorum at any meeting of shareholders;

(B) In the event that, under the circumstances, the holders of the
Series F Preferred Stock are required by law to vote upon any
matter, the approval of such series shall be

-7-

<PAGE> 8

deemed to have been obtained only upon the affirmative vote of
the holders of a majority of the shares of the Series F
Preferred Stock then outstanding;

(C) Except as set forth herein, or as otherwise provided by the
Articles of Incorporation or by law, holders of the Series F
Preferred Stock shall have no voting rights and their consent
shall not be required for the taking of any corporate action;

(D) Notwithstanding anything herein to the contrary, if and
whenever at any time or times all or any portion of the
dividends on Series F Preferred Stock for any six quarterly
dividends, whether or not consecutive, shall be in arrears and
unpaid, then and in any such event, the number of Directors
constituting the Board of Directors shall be increased by two,
and the holders of Series F Preferred Stock, voting separately
as a class, shall be entitled at the next annual meeting of
shareholders, or at a special meeting of holders of Series F
Preferred Stock called as hereinafter provided, to elect two
Directors to fill such newly created Directorships. Each
holder shall be entitled to one vote in such election for each
share of Series F Preferred Stock held. At such time as all
arrearages in dividends on the Series F Preferred Stock shall
have been paid in full and dividends thereon for the current
quarterly period shall have been paid or declared and a sum
sufficient for the payment thereof set aside, then (i) the
voting rights of holders of Series F Preferred Stock described
in this subsection (D) shall cease (subject always to
revesting of such voting rights in the event of each and every
similar future arrearages in quarterly dividends), (ii) the
term of the Directors then in office as a result of the voting
rights described in this subsection (D) shall terminate and
(iii) the number of Directors shall be reduced by the number
of Directors then in office elected pursuant to this
subsection (D). A vacancy in the class of Directors elected
pursuant to this subsection (D) shall be filled by a Director
chosen by the remaining Directors of the class, unless such
vacancy is filled pursuant to the final sentence of subsection
(G);

(E) At any time when the voting right described in subsection (D)
shall have vested and shall remain in the holders of Series F
Preferred Stock, such voting right may be exercised initially
either at a special meeting of holders of Series F Preferred
Stock or at any annual or special shareholders' meeting called
for the purpose of electing Directors, but thereafter it shall
be exercised only at annual shareholders' meetings. If such
voting right shall not already have been initially exercised,
the Secretary of the Corporation may, and upon the written
request of the holders of record of at least 10% of the shares
of Series F Preferred Stock then outstanding shall, call a
special meeting of the holders of Series F Preferred Stock for
the purpose of electing two Directors pursuant to subsection
(D), and notice thereof shall be given to the holders of
Series F Preferred Stock in the same manner as that required
to be given to holders of the Corporation's Common Stock for
the annual meeting of shareholders. Such meeting shall be held
at the earliest practicable date upon the notice required for

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<PAGE> 9

special meetings of shareholders of the Corporation, or, if
none, at a time and place designated by the Secretary of the
Corporation.

(F) At any meeting held for the purpose of electing Directors at
which the holders of Series F Preferred Stock shall have the
right to elect Directors as provided in subsection (D) above,
the presence in person or by proxy of the holders of at least
thirty-five percent (35%) of the then outstanding shares of
Series F Preferred Stock shall be required and be sufficient
to constitute a quorum of Series F Preferred Stock for the
election of Directors by Series F Preferred Stock, and the
vote of the holders of a majority of such shares so present in
person or by proxy at any such meeting at which there shall be
such a quorum shall be required and be sufficient to elect the
members of the Board of Directors which the holders of Series
F Preferred Stock are entitled to elect as hereinabove
provided. At any such meeting or adjournment thereof, (i) the
absence of a quorum of the holders of Series F Preferred Stock
shall not prevent the election of Directors other than the
Directors to be elected by the holders of Series F Preferred
Stock and (ii) in the case of holders of Series F Preferred
Stock entitled to vote for the election of Directors, a
majority of the holders present in person or by proxy of such
class, if constituting less than a quorum as hereinabove
provided, shall have the power to adjourn the meeting for the
election of the Directors that the holders of such class are
entitled to elect, from time to time until a quorum shall be
present, and notice of such adjourned meeting need not be
given unless otherwise required by law, provided that nothing
herein shall affect the conduct of the meeting with respect to
shareholders of any other class.

(G) Any Director who shall have been elected or appointed pursuant
to Section 4(D) shall hold office for a term expiring (subject
to the earlier termination of the default in quarterly
dividends) at the next annual meeting of shareholders, and
during such term may be removed at any time, either with or
without cause, only by the affirmative vote of the holders of
record of a majority of the shares of Series F Preferred Stock
then outstanding at a special meeting of such shareholders
called for such purpose. Any vacancy created by such removal
may also be filled at such meeting.

(H) So long as any shares of Series F Preferred Stock remain
outstanding, the Corporation shall not, without the vote or
written consent by the holders of record of two-thirds of the
outstanding shares of Series F Preferred Stock, amend its
articles of incorporation or bylaws if such amendment would
materially alter or change the existing terms of the Series F
Preferred Stock.

5. Reacquired Shares. Any shares of Series F Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever or
surrendered for conversion hereunder shall no longer be deemed to be
outstanding and all rights with respect to such shares of stock,
including the right, if any, to receive notices and to vote, shall
forthwith cease except, in the case of stock surrendered for conversion
hereunder, rights of the holders thereof to receive

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<PAGE> 10

Common Stock in exchange therefor. All shares of Series F Preferred
Stock obtained by the Corporation shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Special
Stock and may be reissued as part of a new series of Special Stock
subject to the conditions and restrictions on issuance set forth
herein, in the Articles of Incorporation, or in any other Certificates
of Designations creating a series of Special Stock or any similar stock
or as otherwise required by law.

6. Liquidation, Dissolution or Winding Up. The Liquidation Value of the
Series F Preferred Stock shall be $10.00 per share. Upon any
liquidation, dissolution or winding up of the Corporation, and after
paying and providing for the payment of all creditors of the
Corporation, the holders of shares of the Series F Preferred Stock then
outstanding shall be entitled, before any distribution or payment is
made upon any Junior Securities (defined to be and mean the Common
Stock and any other equity security of any kind which the Corporation
at any time has issued, issues or is authorized to issue if the Series
F Preferred Stock has priority over such securities as to dividends or
upon liquidation, dissolution or winding up), to receive a liquidation
preference in an amount in cash equal to the Adjusted Liquidation Value
as of the date of such payment, whether such liquidation is voluntary
or involuntary, and the holders of the Series F Preferred Stock shall
not be entitled to any other or further distributions of the assets.
If, upon any liquidation, dissolution or winding up of the affairs of
the Corporation, the net assets available for distribution shall be
insufficient to permit payment to the holders of all outstanding shares
of all series of Special Stock of the amount to which they respectively
shall be entitled, then the assets of the Corporation to be distributed
to such holders will be distributed ratably among them based upon the
amounts payable on the shares of each such series of Special Stock in
the event of voluntary or involuntary liquidation, dissolution or
winding up, as the case may be, in proportion to the full preferential
amounts, together with any and all arrearages to which they are
respectively entitled. Upon any such liquidation, dissolution or
winding up of the Corporation, after the holders of Special Stock have
been paid in full the amounts to which they are entitled, the remaining
assets of the Corporation may be distributed to holders of Junior
Securities, including Common Stock, of the Corporation. The Corporation
will mail written notice of such liquidation, dissolution or winding
up, not less than twenty (20) nor more than fifty (50) days prior to
the payment date stated therein to each record holder of Series F
Preferred Stock. Neither the consolidation nor merger of the
Corporation into or with any other corporation or corporations, nor the
sale or transfer by the Corporation of less than all or substantially
all of its assets, nor a reduction in the capital stock of the
Corporation, nor the purchase or redemption by the Corporation of any
shares of its Special Stock or Common Stock or any other class of its
stock will be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Section 6.

7. Ranking. Except as provided in the following sentence, the Series F
Preferred Stock shall rank on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special
Stock issued by the Corporation. The Corporation shall not issue any

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<PAGE> 11

shares of Special Stock of any series which are superior to the Series
F Preferred Stock as to dividends or rights upon liquidation,
dissolution or winding up of the Corporation as long as any shares of
the Series F Preferred Stock are issued and outstanding, without the
prior written consent of the holders of at least 662/3% of such shares
of Series F Preferred Stock then outstanding voting separately as a
class.

8. Redemption at the Option of the Holder. The shares of Series F
Preferred Stock shall not be redeemable at the option of a holder of
Series F Preferred Stock.

9. Redemption at the Option of the Corporation.

(A) In addition to the redemption right of the Corporation set
forth in Section 3(A), above, the Corporation shall have the
right to redeem all or a portion of the Series F Preferred
Stock issued and outstanding at any time and from time to
time, at its option, for cash. The redemption price of the
Series F Preferred Stock pursuant to this Section 9 shall be
an amount per share (the "Redemption Price") equal to (i) 105%
of the Adjusted Liquidation Value as of the Redemption Date
(as defined in subsection (B) below) during the period from
August 15, 1997 through August 15, 1998; (ii) 104% of Adjusted
Liquidation Value as of the Redemption Date during the period
from August 16, 1998 through August 15, 1999; and (iii) 103%
of the Adjusted Liquidation Value as of the Redemption Date at
any time on or after August 16, 1999.

(B) The Corporation may redeem all or a portion of any holder's
shares of Series F Preferred Stock by giving such holder not
less than twenty (20) days nor more than thirty (30) days
notice thereof prior to the date on which the Corporation
desires such shares to be redeemed, which date shall be a
Business Day (the "Redemption Date"). Such notice shall be
written and shall be hand delivered or mailed, postage
prepaid, to the holder (the "Redemption Notice"). The
Redemption Notice, once given, shall be irrevocable. If
mailed, such notice shall be deemed to be delivered when
deposited in the United States Mail, postage prepaid,
addressed to the holder of shares of Series F Preferred Stock
at his address as it appears on the stock transfer records of
the Corporation. The Redemption Notice shall state (i) the
total number of shares of Series F Preferred Stock held by
such holder; (ii) the total number of shares of the holder's
Series F Preferred Stock that the Corporation intends to
redeem; (iii) the Redemption Date and the Redemption Price;
and (iv) the place at which the holder(s) may obtain payment
of the applicable Redemption Price upon surrender of the share
certificate(s).

(C) If fewer than all shares of the Series F Preferred Stock at
any time outstanding shall be called for redemption, such
shares shall be redeemed pro rata, by lot drawn or other
manner deemed fair in the sole discretion of the Board of
Directors to redeem one or more such shares without redeeming
all such shares of Series F Preferred

-11-

<PAGE> 12

Stock. If a Redemption Notice shall have been so mailed, at
least two Business Days prior to the Redemption Date the
Corporation shall provide for payment of a sum sufficient to
redeem the applicable number of shares of Series F Preferred
Stock subject to redemption either by (i) setting aside the
sum required to be paid as the Redemption Price by the
Corporation, separate and apart from its other funds, in trust
for the account of the holder(s) of the shares of Series F
Preferred Stock to be redeemed or (ii) depositing such sum in
a bank or trust company (either located in the state where the
principal executive office of the Corporation is maintained,
such bank or trust company having a combined surplus of at
least $20,000,000 according to its latest statement of
condition, or such other bank or trust company as may be
permitted by the Articles of Incorporation, or by law) as a
trust fund, with irrevocable instructions and authority to the
bank or trust company to give or complete the notice of
redemption and to pay, on or after the Redemption Date, the
applicable Redemption Price on surrender of certificates
evidencing the share(s) of Series F Preferred Stock so called
for redemption and, in either event, from and after the
Redemption Date (a) the share(s) of Series F Preferred Stock
shall be deemed to be redeemed, (b) such setting aside or
deposit shall be deemed to constitute full payment for such
shares(s), (c) such share(s) so redeemed shall no longer be
deemed to be outstanding, (d) the holder(s) thereof shall
cease to be a shareholder of the Corporation with respect to
such share(s), and (e) such holder(s) shall have no rights
with respect thereto except the right to receive the
Redemption Price for the applicable shares. Any interest on
the funds so deposited shall be paid to the Corporation. Any
and all such redemption deposits shall be irrevocable except
to the following extent: any funds so deposited which shall
not be required for the redemption of any shares of Series F
Preferred Stock because of any prior sale or purchase by the
Corporation other than through the redemption process,
subsequent to the date of deposit but prior to the Redemption
Date, shall be repaid to the Corporation forthwith and any
balance of the funds so deposited and unclaimed by the
holder(s) of any shares of Series F Preferred Stock entitled
thereto at the expiration of one calendar year from the
Redemption Date shall be repaid to the Corporation upon its
request or demand therefor, and after any such repayment of
the holder(s) of the share(s) so called for redemption shall
look only to the Corporation for payment of the Redemption
Price thereof. All shares of Series F Preferred Stock redeemed
shall be canceled and retired and no shares shall be issued in
place thereof, but such shares shall be restored to the status
of authorized but unissued shares of Special Stock.

(D) Holders whose shares of Series F Preferred Stock have been
redeemed hereunder shall surrender the certificate or
certificates representing such shares, duly endorsed or
assigned (unless such endorsement or assignment be waived by
the Corporation), to the Corporation by mail, courier or
personal delivery at the Corporation's principal executive
office or other location so designated in the Redemption
Notice, and upon the Redemption Date the Redemption Price
shall be payable to the order of the

-12-

<PAGE> 13

person whose name appears on such certificate or certificates
as the owner thereof, and each surrendered certificate shall
be canceled and retired. In the event fewer than all of the
shares represented by such certificates are redeemed, a new
certificate shall be issued representing the unredeemed
shares.

10. Sinking Fund. The Corporation shall not be required to maintain any
so-called "sinking fund" for the retirement on any basis of the Series
F Preferred Stock.

11. Fractional Shares. The Series F Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all
other rights of holders of shares of Series F Preferred Stock.

12. Notice. Any notice or request made to the Corporation in connection
with the Series F Preferred Stock shall be given, and shall
conclusively be deemed to have been given and received three Business
Days following deposit thereof in writing, in the U.S. mails, certified
mail, return receipt requested, duly stamped and addressed to the
Corporation, to the attention of its General Counsel, at its principal
executive offices (which shall be deemed to be the address most
recently provided to the Securities and Exchange Commission ("SEC") as
its principal executive offices for so long as the Corporation is
required to file reports with the SEC).

IN WITNESS WHEREOF, these Amended and Restated Articles of Amendment
are executed on behalf of the Corporation by its President and attested by its
Secretary as of the 23rd day of October, 1998.

/s/ Karl L. Blaha
-----------------------------
Karl L. Blaha
President

Attest:

/s/ Robert A. Waldman
- -----------------------------
Robert A. Waldman
Secretary

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<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

American Realty Trust, Inc.
Dallas, Texas

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 25, 1998, relating to the
consolidated financial statements of American Realty Trust, Inc. for the year
ended December 31, 1997.

We also consent to the references to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
-------------------------
BDO Seidman, LLP

Dallas, Texas
December 2, 1998

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
March 6, 1998, relating to the consolidated financial statements and schedules
of Continental Mortgage and Equity Trust appearing in the Trust's Annual Report
on Form 10-K for the year ended December 31, 1997.

We also consent to the references to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
--------------------
BDO Seidman, LLP

Dallas, Texas
December 2, 1998

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
March 6, 1998, relating to the consolidated financial statements and schedules
of Opportunity Realty Investors, Inc. appearing in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.

We also consent to the references to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
----------------------
BDO Seidman, LLP

Dallas, Texas
December 2, 1998

<PAGE> 1

EXHIBIT 23.4

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
March 12, 1998, relating to the consolidated financial statements and schedules
of Transcontinental Realty Investors, Inc. appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.

We also consent to the references to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
--------------------
BDO Seidman, LLP

Dallas, Texas
December 2, 1998

<PAGE> 1

EXHIBIT 23.5

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
March 23, 1998, relating to the consolidated financial statements and schedules
of National Realty, L.P. appearing in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997.

We also consent to the references to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
--------------------
BDO Seidman, LLP

Dallas, Texas
December 2, 1998

<PAGE> 1

EXHIBIT 23.7

INDEPENDENT AUDITOR'S CONSENT

We consent to the use in this Amendment No. 3 to Registration Statement No.
33-43777 of American Realty Trust, Inc. of our report dated March 15, 1998
(relating to the financial statements of EQK Realty investors I) appearing in
the Prospectus, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
December 2, 1998

<PAGE> 1
EXHIBIT 23.8

INDEPENDENT APPRAISER'S CONSENT

We hereby consent to the reference in this Registration Statement of American
Realty Trust, Inc. of our survey relating to the Lubbock, Texas commercial real
estate market in the Prospectus/Proxy Statement which is part of this
Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus/Proxy Statement.

BLOSSER APPRAISAL

By: /s/ Merle Blosser
-----------------------

Lubbock, Texas
November 23, 1998

<PAGE> 1
EXHIBIT 23.9

INDEPENDENT APPRAISER'S CONSENT

We hereby consent to the reference in this Registration Statement of American
Realty Trust, Inc. of our appraisal report relating to the Oak Tree Village
Shopping Center in the Prospectus/Proxy Statement which is part of this
Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus/Proxy Statement.

BROWN & ASSOCIATES

By: /s/ DAVID BROWN
---------------------------
David Brown

Lubbock, Texas
November 18, 1998