SOUTH WEST PROPERTY TRUST INC, 10-K, 1996-03-01

SOUTH WEST PROPERTY TRUST INC
10-K, 1996-03-01
OPERATORS OF APARTMENT BUILDINGS

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DOCUMENTS INCORPORATED BY REFERENCE
No annual report to security holders,
proxy or information statement, or
prospectus filed under the
Securities Act of 1933, is
incorporated herein by reference.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1995

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ____ to ____

Commission File Number 1-11224
------------

SOUTH WEST PROPERTY TRUST INC.
(Exact name of registrant as specified in its charter)
Maryland 75-2434995
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)

5949 Sherry Lane, Suite 1400, Dallas, Texas 75225-8010
(Address of principal executive offices) (Zip code

Registrant's telephone number, including area code: (214) 369-1995

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of Each Exchange
Title of Each Class on Which Registered
Common Stock New York Stock Exchange
Pacific Stock Exchange

8% Convertible Debentures Due 2003 New York Stock Exchange
Pacific Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 15, 1996: common stock, $0.01 par value - $282,583,000
(computed on the basis of $14.50 per share which was the reported closing sale
price of the registrant's common stock on the New York Stock Exchange on
February 15, 1996).

The number of shares of the registrant's common stock outstanding as of
February 15, 1996: common stock, $0.01 par value - 20,413,649 shares.

<PAGE>

SOUTH WEST PROPERTY TRUST INC.
INDEX
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1995

Securities and Exchange Commission Item Number and Description Page

PART I

Item 1. Business..................................................... 1
Item 2. Properties................................................... 9
Item 3. Legal Proceedings............................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.......... 9

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6. Selected Financial Data...................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 13
Item 8. Financial Statements and Supplementary Data.................. 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 14

PART III

Item 10. Directors and Executive Officers of the Registrant........... 15
Item 11. Executive Compensation....................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 21
Item 13. Certain Relationships and Related Transactions............... 23

PART IV

Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. 24

<PAGE>
PART I

ITEM I. Business.

General

South West Property Trust Inc., a Maryland corporation ("SWP" or the
"Company"), is a self-administered, fully-integrated, equity real estate
investment trust ("REIT") that has acquired, developed and managed apartment
properties since 1973. As of February 15, 1996, the Company's portfolio included
39 properties containing 12,291 apartment units. The Company also has five
development properties with 2,050 units including one 436 unit property which
was completed in late 1995), and has under development, additions or substantial
modifications to three existing properties which total 374 units. The Company
operates in the southwest and southeast regions of the United States and is
headquartered in Dallas, Texas.

The Company has approximately 402 officers and full-time employees
involved in the administration of the Company and operation of its properties.
The executive officers of the Company are responsible for the day-to-day
operations and will continue to be engaged in the management of real estate
exclusively through the Company. The Board of Directors (a majority of whose
members are independent) are responsible for overall direction of the Company.
The Company's policies with respect to investment, financing and dividends are
determined by its Board of Directors.

SWP is the successor-in-interest to Southwest Realty, Ltd., a
publicly-traded limited partnership ("SRL"), which began operations in January
1983 as a result of a consolidation of affiliated partnerships which were
controlled by John S. Schneider, Robert F. Sherman and Lewis H. Sandler, each of
whom is an executive officer of the Company. In October 1992, SRL reorganized
into the Company in order to elect REIT status (the "Reorganization"). The term
"Company" as used herein includes SRL with respect to all matters prior to the
Reorganization.

The Company's corporate headquarters are located at 5949 Sherry Lane,
Suite 1400, Dallas, Texas 75225. Its telephone number is (214) 369-1995 and its
fax number is (214) 369-6882.

Investment Objectives and Policies

The Company's principal objectives are to protect its investors'
capital, increase both funds from operations per share and quarterly dividends
to its stockholders, and to maximize the value of its portfolio. As a result of
SWP's experience and capacity in all aspects of the apartment industry, the
Company has been able to grow through acquisition, development and the intensive
management of its portfolio.

The Company's acquisition and development programs focus on
well-located properties in high job-growth markets which appeal to middle and
upper-middle income apartment residents, and which can be acquired or developed
at attractive prices. Management believes that it is important to properly time
new investments, taking into consideration cycles in the real estate and capital
markets to avoid near-term dilution and to maximize long-term appreciation of
its portfolio. Management believes the period from 1993 to 1995 was an ideal
time to invest in apartments. The Company acquired 26 properties in 1993 and
1994 at prices substantially below replacement cost, with yields in excess of
the cost of capital raised in the equity and debt markets.

In response to rising capital costs in 1994, SWP increased its minimum
initial return expectations to 10% for apartment acquisitions. In addition,
prices of high quality existing apartments were approaching or exceeding the
cost to develop new properties. The Company responded by utilizing its
development and construction capabilities to plan five new apartment properties
and additions or substantial modifications to three existing properties. SWP
currently requires an estimated minimum initial stabilized return on its
development properties of 11%.

The Company has been geographically diversifying its portfolio but has no
policy limiting the percentage of assets that may be invested in any particular
property. The Company may participate with other entities in property ownership
through joint ventures or other types of ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness which have
priority over the equity interests of the Company. The executive officers of the
Company, including John S. Schneider, Robert F. Sherman, Lewis H. Sandler, Diana
M. Laing and David L. Johnston (the "Executive Officers"), have no individual
economic interest in the properties in which the Company has an interest. The
Company will not engage in transactions in which these Executive Officers have
an economic interest.

Subject to REIT qualification requirements, the Company may also invest
in securities of other REITs or other entities engaged in real estate activities
or securities of other issuers. The Company may, in the future, acquire all or
substantially all of the securities or assets of other REITs or other real
estate entities where such investments would be consistent with the Company's
investment policies. The Company does not intend that its investments in
securities will require it to register as an "investment company" under the
Investment Company Act of 1940, and the Company will divest any such securities
before registration would be required. Further, the Company does not intend to
invest in any securities which would violate the asset holding requirements for
REITs.

Real Estate Investments

The following tables set forth certain information relating to the
properties in the Company's portfolio as of February 15, 1996:

<PAGE>
SUMMARY DESCRIPTION OF PROPERTIES
(unaudited)

<TABLE>
Average Rent Per Unit (a)
<CAPTION>
Average Unit Mix Year Ended December 31,
Square ------------------------------ -------------------------
Number Feet
of Square Per Year One Two Three
Property Location Units Feet Per Unit Built Bedroom Bedroom Bedroom 1995 1994 1993
-------- -------- -------- -------- -------- ----- -------- ------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Existing Properties:

Citiscape Dallas, TX 231 204,748 886 1973(e) 133 78 20 $553 $533
Foxfire (d) Dallas, TX 310 239,098 771 1977 190 120 0 418 471 346
High Ridge Dallas, TX 360 259,434 721 1979 312 48 0 397 367 346
Preston Oaks Dallas, TX 200 165,160 826 1980 104 96 0 549 513
Preston Trace Dallas, TX 228 182,120 799 1984 130 98 0 565 536 518
Rock Creek Dallas, TX 540 376,760 698 1979 476 64 0 451 416 390
Timbercreek Dallas, TX 1,083 767,047 708 1977 888 195 0 281 372 358
Windridge Dallas, TX 444 359,820 810 1980 324 120 0 484 452 419
Autumnwood Arlington, TX 320 237,130 741 1984 224 96 0 469 444 417
Cobblestone Arlington, TX 344 289,628 842 1984 168 176 0 538 510 471
Pavilion Arlington, TX 500 442,616 885 1979(e) 192 216 92 527 520
Oak Park Euless, TX 528 430,176 815 1980 240 240 48 461 435
Catalina Lewisville, TX 208 164,064 789 1982 88 104 16 473 456
Wimbledon Court Lewisville, TX 312 234,208 751 1983 152 160 0 485 453 421
Southern Oaks Fort Worth, TX 248 182,352 735 1982 176 72 0 461 397
Hunter's Ridge Fort Worth, TX 248 195,096 787 1981 144 104 0 471 393
Lakeridge Irving, TX 244 165,628 679 1984 172 72 0 453 414 377
Summergate Irving, TX 176 119,424 679 1984 152 24 0 452 433 412
Dove Park Grapevine, TX 263 250,908 954 1984 48 215 0 511 514
The Bluffs San Antonio, TX 318 212,772 669 1978 282 36 0 408 387 352
Westlake Villas San Antonio, TX 325 222,865 686 1985 157 168 0 478 461 423
Ashley Oaks San Antonio, TX 216 151,612 702 1985 180 36 0 487 472 444
Sunflower San Antonio, TX 282 259,412 920 1974 122 112 48 528 506 463
Woodscape Houston, TX 544 348,768 641 1978 436 108 0 310 288 291
Woodtrail Houston, TX 304 209,126 688 1978 240 64 0 388 372 374
Park Trails Houston, TX 210 168,480 802 1983 130 80 0 452 428
The Creeks Austin, TX 325 267,918 824 1975 180 145 0 442 437 396
Pecan Grove Austin, TX 192 115,200 600 1984 168 24 0 483 444 416
Foxfire Amarillo, TX 328 289,572 883 1978 136 176 16 445 427 391
Chandler's Mill Corpus Christi, TX248 183,320 739 1984 160 88 0 491 470 460
Ryan's Mill El Paso, TX 248 181,784 733 1985 168 80 0 444 452 430
Turtle Creek Little Rock, AR 216 172,248 797 1985 168 48 0 509 498
Shadow Lake Little Rock, AR 296 248,000 838 1984 152 128 16 502 470
Greenway Park Phoenix, AZ 200 163,904 820 1986 108 92 0 479 448 399
Vista Point Phoenix, AZ 192 138,352 721 1986 136 56 0 463 417 345
Sunset Pointe Las Vegas, NV 336 294,332 876 1989 160 144 32 579 618
Bluff Creek Oklahoma City, OK316 238,896 756 1984 216 100 0 396 377 363
Alvarado Albuquerque, NM 210 153,192 729 1984 175 35 0 540 511
Harbour Pointe Raleigh, NC 198 172,320 870 1984 58 140 0 612 588

Subtotal or weighted average (f) 12,291 9,457,490 769 64% 34% 2% $455 $437 $395
------ --------- --- --- --- -- ---- ---- ----

</TABLE>
<TABLE>

TABLE
SUMMARY DESCRIPTION OF PROPERTIES (Cont.)
(unaudited)

Economic Occupancy (b) Gross
Year Ended December 31, Potential
- ----------------------- Rent (c) Current
Per Sq. Ft. Market
Year Ended Rent Per
1995 1994 1993 Dec 31, 1995 Sq. Foot
---- ---- ---- ------------ -------
<S> <C> <C> <C> <C>

92% 93% $0.66 $0.71
91% 95% 84% 0.57 0.63
94% 92% 88% 0.56 0.62
94% 94% 0.69 0.76
93% 92% 92% 0.74 0.80
94% 90% 87% 0.66 0.71
87% 91% 90% 0.58 0.63
93% 90% 84% 0.61 0.65
94% 94% 92% 0.66 0.72
94% 95% 92% 0.67 0.73
92% 91% 0.63 0.66
92% 90% 0.57 0.65
89% 92% 0.65 0.69
92% 93% 89% 0.67 0.73
97% 96% 0.58 0.65
94% 92% 0.57 0.65
93% 90% 84% 0.70 0.76
94% 93% 94% 0.68 0.73
92% 94% 0.57 0.63
89% 91% 90% 0.64 0.72
90% 92% 93% 0.75 0.80
90% 94% 93% 0.75 0.82
93% 95% 94% 0.59 0.63
88% 85% 88% 0.53 0.56
88% 86% 89% 0.61 0.66
87% 88% 0.64 0.69
85% 91% 90% 0.61 0.65
97% 96% 97% 0.81 0.89
93% 96% 96% 0.52 0.57
92% 92% 97% 0.70 0.77
85% 90% 90% 0.69 0.69
93% 97% 0.67 0.73
94% 92% 0.62 0.68
89% 91% 86% 0.62 0.68
94% 92% 79% 0.63 0.71
87% 95% 0.67 0.75
92% 91% 92% 0.55 0.61
93% 96% 0.76 0.82
95% 93% 0.72 0.76

91% 92% 90% $0.63 $0.68
--- --- --- ----- -----

</TABLE>

SUMMARY DESCRIPTION OF PROPERTIES
(unaudited)
Average Rent Per Unit(a)

Average Unit Mix Year Ended December 31,
Square -----------------------------------------------------
Number Feet
of Square Per Year One Two Three
Property Location Units Feet Per Unit Built Bedroom Bedroom Bedroom 1995 1994 1993
-------- -------- ----------- -------- -------- ----- -------- ------- ------- ---- ---- ----

Development Properties:

Oak Forest Lewisville, TX 436 363,280 833 1995 292 120 24

Promontory Pointe San Antonio, TX 596 591,436 992 1996 312 284 0
Sierra Palms Chandler, AZ 320 329,640 1,030 1996 96 192 32
Copper Mill Durham, NC 278 264,896 953 1996 144 110 24
Providence Court Charlotte, NC 420 453,804 1,080 1997 144 204 72

Ashley Oaks--Ph 2 San Antonio, TX 246 241,184 980 1996 48 118 80
Oak Park--Ph 2 Euless, TX 80 68,448 856 1996 44 36
Sunset Pointe--Ph 2Las Vegas, NV 48 27,060 564 1996 48

Subtotal or weighted average (f) 2,424 2,339,748 965 47% 44% 9%
------- ----------- --- --- --- ---

Grand total or weighted average 14,715 11,797,238 802 61% 35% 4% $455 $437 $395
====== ========== === === === ==== ==== ==== ====

</TABLE>
<TABLE>

SUMMARY DESCRIPTION OF PROPERTIES (Cont.)
(unaudited)

Economic Occupancy (b) Gross
Year Ended December 31, Potential
- ----------------------- Rent (c) Current
Per Sq. Ft. Market
Year Ended Rent Per
1995 1994 1993 Dec 31, 1995 Sq. Foot
- ---- ---- ---- -------------- -------
<S> <C> <C> <C> <C>

$0.83 (g)

0.80 (g)
0.80 (g)
0.83 (g)
0.79 (g)

0.75 (g)
0.77 (g)
0.90 (g)

$0.80
-----

91% 92% 90% $0.63 $0.71
=== === === ===== =====

<FN>

(a) Represents average collected rental revenue per unit per month (after
giving effect to vacancy, concessions, delinquent rent and non-revenue
units) for all months owned during the period.

(b) Represents collected rental revenue divided by gross potential rent for
all months owned during the period. (c) Represents average lease rates on
leased units and market rates on vacant units for all months owned during
the period. (d) During 1995, the Company acquired 100% interest in this
property. Prior to 1995, the Company owned 5% of Phase I and 66% of Phase
II.
(e) Substantially refurbished in 1993.
(f) The weighted average rent per unit and economic occupancy percentage
have been based on the Company's portfolio of wholly-owned apartments
and its percentage of apartments owned in joint ventures in each of
the periods presented.
(g) For development properties not currently in lease-up phase, represents
management's estimate of market rent for the property.
</FN>
</TABLE>

Management believes that its properties are adequately covered by liability
and casualty insurance, consistent with industry standards.

<PAGE>

<TABLE>
TABLE 2
SUMMARY DESCRIPTION OF PROPERTIES - DEBT FINANCING
AS OF DECEMBER 31, 1995
(in thousands)
(unaudited)
<CAPTION>

Balance Balance
Original at Interest Due or Due at
Name of Property Amount 12/31/95 Rate (a) Call Date Maturity

MORTGAGE LOANS PAYABLE:
<S> <C> <C> <C> <C> <C>

First Mortgage REMIC Financing (b)......... $ 50,000 $ 47,647 7.01% 12/10/00 $ 39,953

First Mortgage REMIC Financing (c)......... 50,000 48,566 8.50% 02/10/01 41,735

Oak Forest (d)............................. 10,864 10,609 LIBOR + 2.25% 06/30/97 10,609

Sunset Pointe (e).......................... 8,873 8,873 8.50% 06/01/96 8,873

Turtle Creek (f)........................... 5,248 5,110 8.50% 10/01/99 4,891

High Ridge (g)............................. 4,865 4,693 8.50% 01/01/00 4,517

Foxfire - Dallas (h) 3,800 3,788 COFI + 2.75% 07/01/25
---- --------- -----
0

Total................................. $ 133,650 $ 129,286 $ 110,578
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>

Balance
Maximum at Interest Due or
Amount 12/31/95 Rate (a) Call Date

CONSTRUCTION LOANS PAYABLE:
<S> <C> <C> <C> <C>

Promontory Pointe (i)...................... $ 19,800 $ 17,573 LIBOR + 2.25% 07/12/96

Ashley Oaks Phase II (j)................... 7,354 6,297 LIBOR + 2.25% 06/30/97

Sierra Palms (k)........................... 12,402 3,884 LIBOR + 2.25% 12/29/96

Copper Mill (l)............................ 10,700 4,501 LIBOR + 2.00% 04/13/97

Providence Court (m)....................... 18,250 1 LIBOR + 2.00% 03/12/98
-- ----------------- -

Total............................... $ 68,506 $ 32,256
======= ========

REVOLVING LINE OF CREDIT (n): $ 41,800 $ 16,500 LIBOR + 1.50% 3/15/97
======= ========

NOTES TO TABLE 2

(a) At December 31, 1995, the Company had an interest rate swap agreement
with a notional amount of $48,851,000. The Company has entered into the
interest rate swap agreement to convert floating rate liabilities to
fixed rate liabilities. The agreement fixes the interest rate on the
Company's expected variable rate debt at 7.9% through April 1997. The
Company does not hold or issue interest rate swap agreements for trading
purposes. The Company is exposed to possible credit risk if the
counterparty fails to perform, however, this risk is minimized by
entering into the agreement with a highly rated counterparty. At December
31, 1995, there were no defaults under this agreement.

(b) In December 1993, the Company, through a wholly-owned subsidiary, closed
on the first phase of a $100,000,000 REMIC Financing. The first phase is
secured by first mortgages on 13 properties (Ashley Oaks, Autumnwood,
Bluff Creek, Cobblestone, The Creeks, Greenway Park, Lakeridge, Preston
Trace, Rock Creek, Ryan's Mill, Summergate, Wimbledon Court and
Woodscape). Monthly payments of principal and interest in the amount of
$388,000 are required.

(c) In June 1994, the Company, through a wholly-owned subsidiary, closed on
the second phase of the REMIC Financing. The second phase is secured by
first mortgages on 14 properties (Alvarado, The Bluffs, Catalina,
Citiscape, Chandlers Mill, Foxfire - Amarillo, Park Trails, Pavilion,
Pecan Grove, Preston Oaks, Vista Point, Westlake Villas, Windridge and
Woodtrail). Monthly payments of principal and interest in the amount of
$434,000 are required.

(d) In June 1994, the Company closed a construction mortgage note in the
maximum amount of $10,864,000 for the development of the Oak Forest
Apartments. The note, which is recourse to the Company, has an original
maturity date of June 30, 1997, with two optional one-year extensions.

(e) In September 1994, the Company acquired the Sunset Pointe Apartments
subject to a non-recourse first mortgage loan. Monthly payments of
interest in the amount of $62,850 are required through March 1, 1996.
Monthly payments of in the amount of $105,937 are required from April 1,
1996 through June 1, 1996. The mortgage loan matures June 1, 1996, and is
prepayable on or after March 1, 1996.

(f) In May 1994, the Company acquired the Turtle Creek Apartments subject to
a non-recourse first mortgage loan. Monthly payments of principal and
interest in the amount of $40,353 are required.

(g) In January 1995, the Company acquired the remaining ownership interests
in High Ridge Apartments subject to a non-recourse first mortgage loan.
Monthly payments of principal and interest in the amount of $36,335 are
required.

(h) In August 1995, the Company acquired the remaining ownership interests in
the Foxfire Apartments in Dallas, Texas, subject to two non-recourse
first mortgage loans. The mortgage loans bear interest at the cost of
funds index as published by the San Francisco National Bank plus 2.75%.
Monthly payments of principal and interest in the amount of $27,242 are
required.

(i) In January 1994, the Company closed a construction mortgage note for the
development of the Promontory Pointe Apartments. The note, which is
recourse to the Company, has an original maturity date of July 12, 1996,
with three optional one-year extensions.

(j) In June 1994, the Company closed a construction mortgage note in the
maximum amounts of $7,354,000 for the development of the Ashley Oaks
Apartments Phase II. The note, which is recourse to the Company, has an
original maturity date of June 30, 1997, with two optional one-year
extensions.

(k) In December 1994, the Company closed a construction mortgage note in the
maximum amount of $12,402,000 for the development of the Sierra Palms
Apartments. The note, which is recourse to the Company, has an original
maturity date of December 29, 1996, with three optional one-year
extensions.

(l) In April 1995, the Company closed a construction mortgage note in the
maximum amount of $10,700,000 for the development of the Copper Mill
Apartments. The note, which is recourse to the Company, has an original
maturity date of April 13, 1997, with three optional one-year extensions.
(m) In September 1995, the Company closed a construction mortgage note in the
maximum amount of $18,250,000 for the development of the Providence Court
Apartments. The note, which is recourse to the Company, has an original
maturity date of March 21, 1998, with two optional one-year extensions
and one optional six-month extension.

(n) In September 1994, the Company obtained a revolving line of credit in the
maximum amount of $75,000,000. The line of credit, which is recourse to
the Company, had a revolving period of 18 months, with a one-year
extension at the lender's option followed by an amortization period of
two years. In November 1995, the lender agreed to extend the loan until
March 15, 1997, and reduced the interest rate on the loan from LIBOR plus
1.75% to LIBOR plus 1.50%. The Company can currently draw up to a total
of $41,800,000 on the line of credit, which is secured by seven
properties (Harbour Pointe, Hunter's Ridge, Oak Park, Shadow Lake,
Southern Oaks, Sunflower and Timbercreek). This amount may be increased
as additional properties are added as security for the line of credit.
Periodic payments of interest are required.

</FN>
</TABLE>

<PAGE>

Rental Operations

Management's objective is to provide residents of its apartment
communities with a consistent, high-quality living environment. Management
services for the properties are provided by the Company's management staff,
which includes approximately 335 on-site leasing, management and maintenance
personnel, many of whom have extensive experience in apartment management.

The Company believes that it has developed the people, procedures,
operating systems and financial controls to maximize rental income, minimize
resident turnover and control operating expenses. A key aspect of management's
strategy has been to focus on maximizing rental revenue as opposed to
concentrating exclusively on occupancy. This is accomplished primarily through
monthly reviews of competitive conditions in each market and by aggressively
increasing rent levels on each unit type and amenity.

Competition and Market Conditions

Management believes that a geographically diversified portfolio is an
important factor in achieving consistent internal growth in the apartment
industry. When SWP's current development portfolio is completed, approximately
23% of its apartment units will be located in Dallas, Texas, and 23% in suburban
Dallas communities; 14% in San Antonio, Texas; 7% in Houston, Texas; 5% in
Phoenix, Arizona; 4% each in Austin, Texas, and Little Rock, Arkansas; 3% each
in Fort Worth, Texas, Raleigh/Durham and Charlotte, North Carolina; and about 2%
each in Las Vegas, Nevada, Amarillo, Corpus Christi and El Paso, Texas, Oklahoma
City, Oklahoma, and Albuquerque, New Mexico.

The creation of new jobs, which management believes is one of the most
important factors affecting demand for apartments, continues to be greater in
SWP's markets than in the United States as a whole. Non-agricultural employment
in the markets in which the Company owns property increased by a monthly average
of 354,000 jobs in 1995, a gain of 3.8% over the average monthly growth for the
same markets in 1994. During the same period, average monthly non-agricultural
employment in the United States grew by 2,567,000 jobs, a 2.3% increase from the
monthly average for 1994.

Management believes that in 1996, for the first time in several years,
the supply of new apartments in most of its markets will modestly exceed demand.
As a result, the Company expects a small decline in overall market occupancy and
a slower pace of rental rate increases. Management also believes that prices of
existing properties and the current cost to develop new properties are generally
too high to justify significant new investment, especially considering the
anticipated near-term softness in the apartment markets. Consequently, in 1996
SWP plans to maximize internal growth through intense management, to continue
adding value through capital improvements to its existing portfolio and to build
additions to a select few of its existing properties where the value added to
the overall property should be significant.

Dividend Policy

A primary objective of South West Property Trust is to raise its
dividend annually. For the quarter ended March 31, 1996, the Company has
increased its quarterly dividend to $0.26 per share, bringing the total dividend
increase since 1992 to 49%. However, because real estate is a capital-intensive
industry and raising new equity is generally the most expensive source of
capital, SWP has concurrently lowered the percentage of its funds from
operations which it pays out in the form of dividends (its "payout ratio"). This
allows the Company to invest internally generated funds in revenue-enhancing
capital improvements to its existing properties and in its development
properties. In the fourth quarter of 1992, SWP paid out 97% of its funds from
operations as dividends. This payout ratio was lowered to 81% in 1993, 73% in
1994 and 71% in 1995.

The Company has a dividend reinvestment plan designed to encourage
individual stockholder participation. The plan allows stockholders to acquire
additional common shares from SWP at a 5% discount to the market price.

<PAGE>

Policies with Respect to Certain Activities

The following is a discussion of the Company's policies with respect to
certain activities. The Company's policies with respect to these activities have
been determined by the Board of Directors and may be amended or revised from
time to time at the discretion of the Board of Directors without a vote of the
stockholders of the Company.

Financing Policies. To the extent that the Company's Board of Directors
determines to obtain additional capital, the Company may raise such capital
through additional equity offerings, debt financing or retention of cash flow
(subject to REIT distribution requirements), or a combination of these methods.

Policies with Respect to Property Additions and Reserves. Only those
expenditures that generally do not recur annually and/or that will increase the
rental income potential of its properties are capitalized. Expenditures for
replacement of items such as carpet, air conditioning compressors, appliances,
blinds and landscaping (which aggregate approximately $212 per apartment unit
annually) are generally expensed. In addition, the Company has cash reserves to
provide for predictable expenditures for additions to property. The estimate of
the requirements for these reserves is based on the replacement cost and useful
lives of exterior paint, boilers, roofs, asphalt and miscellaneous items. At
December 31, 1995, the Company had cash reserves aggregating $4,643,000 for
additions to property. Annual cash reserve additions for 1996 are expected to
average $105 per apartment unit.

Lending Policies. The Company may acquire mortgage loans on apartment
properties. Once acquired, the Company may modify, increase, or extend such
loans as the Board of Directors shall deem appropriate.

Policies with Respect to Other Activities. The Company does not
presently intend to make investments other than as previously described,
although it may do so. The Company has authority to offer shares of its capital
stock and preferred or debt securities for cash or in exchange for securities or
properties, and to repurchase or otherwise reacquire its common stock or any
other securities, and may engage in such activities in the future. It may also
offer warrants, options and rights on such terms as the Board of Directors shall
determine to be in the best interests of the Company. The Company does not
intend to underwrite the securities of any other issuers.

The Company intends to continue to qualify as a REIT for federal income
tax purposes unless, because of a change in circumstances or changes in
applicable federal income tax laws, the Board of Directors determines that it is
no longer in the best interests of the Company to qualify as a REIT.

Federal Income Tax

The Company intends to operate in a manner as to qualify as a REIT for
federal income tax purposes, but no assurance can be given that the Company will
be able to qualify at all times. By qualifying as a REIT, the Company can deduct
dividend distributions to its stockholders for federal income tax purposes, thus
effectively eliminating the "double taxation" (at the corporate and stockholder
levels) that typically applies to corporate dividends.

ITEM 2. Properties.

For information regarding the Company's properties, see Item 1 -
"Business."

ITEM 3. Legal Proceedings.

As of December 31, 1995, there are no material pending legal
proceedings to which the Company or its property is subject.

ITEM 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the
fourth quarter of 1995.

PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.

The Company's common stock is listed and traded on the New York Stock
Exchange ("NYSE") and on the Pacific Stock Exchange ("PSE") under the symbol
"SWP."

The following table sets forth the high and low prices per common share
on the NYSE, for the two-year period ended December 31, 1995:
<TABLE>
<CAPTION>

Year Ended December 31, 1995
<S> <C> <C>
High Low
Quarter ended:
December 31...................................................... $ 13 1/2 $ 11 3/8
September 30..................................................... 13 11 3/8
June 30.......................................................... 12 5/8 11 3/8
March 31 ........................................................ 12 3/4 11 5/8
</TABLE>
<TABLE>
<CAPTION>

Year Ended December 31, 1994
High Low
<S> <C> <C>
Quarter ended:
December 31 $ 12 3/8 $ 11
September 30..................................................... 13 11
June 30.......................................................... 13 3/4 12
March 31......................................................... 14 12 1/4
</TABLE>

At February 15, 1996, management estimated that there were approximately
609 holders of record of the Company's common stock. The closing price of the
common stock on February 15, 1996 was $14.50.

Because the Company's securities are listed on a national stock
exchange, they are marginable if they otherwise meet the minimum price
requirements for marginability.

The Company paid a dividend of $.22 per share for first quarter of
1994; $.23 per share for each of the second, third and fourth quarters of 1994;
and $.25 per share for each of the four quarters of 1995. The Company has raised
its quarterly dividend to $.26 per share for the quarter ending March 31, 1996.

<PAGE>

ITEM 6. Selected Financial Data.

The following table sets forth selected financial data with respect to
the Company and its subsidiaries for each of the five years in the period ended
December 31, 1995 and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto which are contained elsewhere in this
report (in thousands, except per share data):
<TABLE>
<CAPTION>

Years ended December 31,
------------------------------------------------
1995 1994 1993 1992(3) 1991(3)
---- ---- ---- ----- ----
Selected Consolidated Operating Data:
<S> <C> <C> <C> <C> <C>

Total revenues................................. $ 71,862 $ 58,928 $ 33,090 $ 19,758 $ 18,937
Income (loss) before extraordinary item........ 13,031 9,963 3,182 ( 3,181) ( 2,292)

Per share(1):
Income (loss) before extraordinary item.... $ .70 $ .64 $ .39 $( 3.31) $( 3.24)
Cash distributions and dividends(2):
Common stock............................. $ 1.00 $ .91 $ .62 .38
====== ======= ====== ===
Preferred depositary receipts............ $ 1.35 $ 1.80
====== =======
</TABLE>
<TABLE>
<CAPTION>

as of December 31,
1995 1994 1993 1992(3) 1991(3)
---- ---- ---- ----- ----
Selected Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C> <C>

Real estate investments, net................... $356,164 $ 302,878 $203,989 $ 55,797 $ 58,147
Total assets................................... 378,165 323,616 229,579 67,099 62,444
Mortgage loans payable......................... 129,286 117,270 57,691 18,401 65,869
Construction loans payable..................... 32,256 4,584
Revolving line of credit....................... 16,500 27,700 4,447
Convertible debentures......................... 13,529 28,378 55,000
Preferred depositary receipts.................. 8,369
Stockholders' equity (deficit)................. 183,472 146,852 134,820 (17,07) (17,757)

</TABLE>

<PAGE>

NOTES TO SELECTED FINANCIAL DATA:

(1) Earnings per share is based on the net income or loss attributable to the
common stock and the weighted average number of shares of common stock
and dilutive common stock equivalents outstanding during the periods
presented. Earnings per share for the year ended December 31, 1995 was
based on 18,627,322 weighted average shares of common stock outstanding
during the period (15,633,291 in 1994, 8,099,900 in 1993, 961,870 in
1992, and 708,391 in 1991).

The 1995, 1994 and 1993 per share computations include options and
warrants outstanding during the period to purchase common stock, as
calculated by application of the "treasury stock" method. Under generally
accepted accounting principles, the Company's debentures were not common
stock equivalents and therefore were not considered in the primary
earnings per share computations; the debentures were antidilutive to the
computation of fully-diluted earnings per share.

For periods prior to 1993, SRL's preferred depositary receipts were not
common stock equivalents, and were not considered in primary earnings per
share computation; SRL's warrants, options, and specified acquisition
convertible limited partnership interests were antidilutive to the
computation of fully-diluted earnings per share.

(2) The Company paid a dividend of $.175 per share for the fourth quarter of
1992; $.20 per share for each of the first, second and third quarters of
1993; $.22 per share for each of the fourth quarter of 1993 and the first
quarter of 1994; $.23 per share for each of the second, third and fourth
quarters of 1994; and $.25 per share for each of the four quarters of
1995. The Company has raised its quarterly dividend to $.26 per share for
the quarter ending March 31, 1996.

(3) The Reorganization of SRL into the Company has been accounted for similar
to a pooling of interests and has been applied by restating the financial
statements of SRL, with the only impact being the classification of
certain equity accounts and disclosures with respect to earnings per
share.

<PAGE>

ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

The following discussion and analysis should be read in conjunction
with the Selected Financial Data and the Consolidated Financial Statements and
Notes appearing elsewhere herein.

Results of Operations

Year ended December 31, 1995 compared to year ended December 31, 1994.
Rental revenues in 1995 were $70,396,000, an increase of 22% from $57,625,000
for 1994. This increase was due to the acquisition of eight apartment properties
in 1994, an approximate 4% rental rate increase on existing properties and the
first contribution from the Company's development properties. Other income was
$1,466,000 in 1995, compared to $1,303,000 for 1994.
Total revenues were $71,862,000 in 1995, compared to $58,928,000 for 1994.

Operating expenses (property operating expenses plus general and
administrative expenses) were $35,038,000 for 1995, compared to $30,083,000 for
the same period in 1994. This increase was primarily attributable to the
acquisition of eight apartment properties in 1994 and initial operating expenses
from three of the Company's development properties.

Net operating income per unit (total revenues less operating expenses,
divided by the weighted average number of apartment unit owned during the
period) increased in 1995 for the seventh consecutive year. Net operating income
per unit in 1995 was $2,826, a 4% increase from $2,713 in 1994. This increase is
the result of increases in both gross income and operating expenses per unit of
4%.

Interest on debt was $10,878,000 for 1995, compared to $8,470,000 for 1994.
This increase is primarily attributable to interest on the construction loans
and the line of credit.

Additions to property in 1995 were $6,441,000 compared to $7,764,000 in
1994. Depreciation and amortization expense increased $2,461,000 in 1995
compared to 1994 as a result of a full year of depreciation on the properties
acquired in 1994, depreciation on completed construction and depreciation on
capitalized improvements made to the properties.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993.
Rental revenues in 1994 were $57,625,000, an 80% increase from $31,959,000 in
1993. This increase was due primarily to the acquisition of 26 apartment
properties in 1993 and 1994, and to an approximate 2% increase in economic
occupancy and a 5% increase in rental rates. Other income was $1,303,000 in
1994, compared to $1,131,000 for 1993. Total revenues were $58,928,000 in 1994,
compared to $33,090,000 for 1993.

Operating expenses (property operating expenses plus general and
administrative expenses) were $30,083,000 for 1994, compared to $17,868,000 for
the same period in 1993. This increase was attributable to the acquisition of 26
apartment properties during 1993 and 1994.

Net operating income per unit (total revenues less operating expenses,
divided by the weighted average number of apartment units owned during the
period) in 1994 was $2,713, a 25% increase from $2,176 in 1993. This increase is
due to an increase in gross income per unit of 10% and a decrease in operating
expenses per unit of 2% (which is the result of a combination of expense control
at the property level and general and administrative expenses being spread over
a larger number of units).

Interest on fixed-rate mortgage debt and the debentures was $8,470,000
for 1994, compared to $5,146,000 for 1993. This increase is primarily
attributable to the REMIC financing which closed in December 1993 and June 1994.

Additions to property in 1994 were $7,764,000 compared to $3,615,000 in
1993. Depreciation and amortization expense increased $3,694,000 in 1994
compared to 1993 as a result of the acquisition of properties and capitalized
improvements made to the properties. About 71% of the 1994 additions to property
was for improvements to building exteriors, parking lots, unit interiors,
exterior lighting, carports and limited access perimeter fencing.

<PAGE>

Liquidity and Capital Resources

Cash and cash equivalents at December 31, 1995 aggregated $2,406,000,
compared to $1,334,000 at December 31, 1994. In addition, the Company has
accumulated cash reserves of $4,643,000 to fund recurring additions to its
properties. The estimate of the requirements for these reserves is based on the
replacement cost and useful lives of exterior paint, boilers, roofs, asphalt and
miscellaneous items. Annual cash reserve requirements in 1996 are estimated to
be $105 per unit. Management anticipates that cash generated from property
operations and cash on hand will be adequate to fund working capital
requirements for the foreseeable future.

In September 1994, the Company obtained a revolving line of credit in
the maximum amount of $75,000,000. The Company can currently draw up to a total
of $41,800,000 on the line of credit, which amount may be increased as
additional properties are added as security for the loan. At December 31, 1995,
the outstanding balance on the line of credit was $16,500,000.

At December 31, 1995, the Company had an interest rate swap agreement
with a notional amount of $48,851,000. The Company has entered into the interest
rate swap agreement to convert floating rate liabilities to fixed rate
liabilities. The agreement fixes the interest rate on the Company's expected
variable rate debt at 7.9% through April 1997. The Company does not hold or
issue interest rate swap agreements for trading purposes. The Company is exposed
to possible credit risk if the counterparty fails to perform, however, this risk
is minimized by entering into the agreement with a highly rated counterparty. At
December 31, 1995, there were no defaults under this agreement.

The Company plans to complete construction of four properties and
additions or modifications to three existing properties in 1996 and 1997. The
total cost of the four properties and one addition currently under construction
is estimated to be $109,500,000, and the Company has construction loans
available totaling $68,506,000. The Company has committed to fund the remaining
$40,994,000 from available funds or draws on the Company's line of credit.
As of December 1995, the Company has funded all but $3,814,000 of its
commitment.

SWP plans to spend approximately $4,000,000 in 1996 on capital
improvements to increase the revenue-generating capabilities of its existing
properties. Funds for these improvements will come from cash on hand or cash
generated from property operations.

SWP plans to repay the $8,873,000 mortgage on Sunset Pointe Apartments
on March 1, 1996, with funds from its line of credit.

ITEM 8. Financial Statements and Supplementary Data.

The independent auditor's report, consolidated financial statements and
schedule listed in the accompanying index are filed as part of this report. See
Index to Consolidated Financial Statements and Consolidated Financial Statement
Schedule on page F-1.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

<PAGE>

PART III

ITEM 10. Directors and Executive Officers of the Registrant.

Directors and Officers of the Company

The Bylaws of the Company and the provisions of the Maryland General
Corporation Law (the "Maryland Law"), under which the Company was formed,
generally provide that the Company will be managed by its Board of Directors,
which may appoint officers to handle the administration of the Company. The
Bylaws of the Company further provide that a majority of the Company's Board of
Directors shall at all times consist of independent Directors.

The Directors and Officers of the Company as of February 15, 1996 are:

Name Age Principal Occupation

John S. Schneider.................. 57 Chairman of the Board
and Chief Executive Officer
Robert F. Sherman.................. 53 President, Chief Operating Officer
and Director
Lewis H. Sandler................... 59 Executive Vice President,Secretary,
General Counsel and Director
Mark J. Sandler.................... 53 Director
Ira T. Wender...................... 69 Director
Larrie A. Weil..................... 52 Director
Robert W. Scharar.................. 46 Director
David L. Johnston.................. 51 Executive Vice President - Real
Estate Investments
Diana M. Laing..................... 41 Executive Vice President, Chief
Financial Officer and Treasurer

John S. Schneider has been Chief Executive Officer of the Company and its
predecessor-in-interest, SRL, since 1983 and is the Chairman of the Board of
Directors. He is primarily responsible for the overall direction of the Company.
Mr. Schneider graduated from the Harvard Business School in 1967 and was
employed by the investment banking firm of Donaldson, Lufkin and Jenrette until
1973, when he cofounded a predecessor firm to SWP.

Robert F. Sherman has been in charge of SWP's (or its predecessors')
management division since 1973 and is President and Chief Operating Officer and
a Director of the Company, in charge of management services and responsible for
the on-site management of the properties owned or managed by the Company. Mr.
Sherman has served as president of both the National Apartment Association and
the Dallas Apartment Association, and has been a director of the National, Texas
and Dallas Apartment Associations.

Lewis H. Sandler has been General Counsel of the Company and its
predecessors since 1983 and is Executive Vice President, Secretary, General
Counsel and a Director of the Company. He was admitted to the Bar of the State
of New York in 1962 and has since then been a practicing attorney. He was
admitted to the Bar of the State of Texas in 1981. He has acted as counsel to
Messrs. Schneider and Sherman, and their respective companies and partnerships,
since 1973.

Mark J. Sandler was a senior managing director of Bear, Stearns & Co. Inc.,
an investment banking firm, in charge of its real estate operations from prior
to 1987 until his retirement in October 1988. Since that time, Mr. Sandler has
managed his personal and family investments. Mr. Sandler is a Director of the
Company and a member of the Compensation and Audit Committees. Mark Sandler is
not related to Lewis Sandler.

Ira T. Wender is a former partner and is currently of counsel to the law
firm of Patterson, Belknap, Webb & Tyler, New York, NY, since July 1986. He is
also a Director of Dime Savings Bank of New York and REFAC Technology, Inc. Mr.
Wender is a Director of the Company and a member of the Compensation and Audit
Committees.

Larrie A. Weil has been President and Chief Executive Officer of QuickCall
Corporation, an international producer and distributor of wireless pay phones,
since June 1995. On January 4, 1996, QuickCall Corporation filed a voluntary
petition under Chapter 11, of the Federal Bankruptcy Code. From March 1991 to
June 1995, he was a principal and in charge of corporate finance for Barre &
Company, Inc., an investment banking firm. From 1985 to 1989, he was employed by
Underwood, Neuhaus & Co., Incorporated, an investment banking firm, serving as
Chief Operating Officer from 1987 to 1989 and from January 1990 to March 1992 as
President of its successor, 909 Corp. He was Senior Vice President of Eppler,
Guerin & Turner, Inc., an investment banking firm, from 1981 to 1985. Mr. Weil
is a Chartered Financial Analyst. Mr. Weil is a Director of the Company and a
member of the Compensation and Audit Committees.

Robert W. Scharar is President and a Director of FCA Corporation, a
registered investment advisor which he founded in 1983. He is also president and
a director of FCA Investment Company, a Small Business Investment Company, and
serves as a trustee of First Commonwealth Mortgage Trust and of United Investors
Realty Trust, both of which are REITs. Mr. Scharar is also past president of the
American Association of Attorneys - CPAs. Mr. Scharar is a Director of the
Company and a member of the Compensation and Audit Committees.

David L. Johnston has been Executive Vice President - Real Estate
Investments since joining the Company in October 1992. From 1989 to 1992, Mr.
Johnston was Senior Vice President of Property Company of America, responsible
for the Southwestern Region, acquiring approximately 5,000 apartment units for
that company. From 1982 to 1988, he was a Division President and Senior Partner
of the Trammell Crow Residential Company. During his more than 20 years of real
estate experience, Mr. Johnston has developed more than 10,000 apartment units,
primarily in Texas.

Diana M. Laing has been employed by the Company and its predecessors since
1982. She is Executive Vice President and Chief Financial Officer of the
Company. She has previously served as Controller, Treasurer and Vice
President-Finance of the Company and its predecessors. Ms. Laing is a Certified
Public Accountant and a member of the American Institute of CPA's and the Texas
Society of CPA's. Ms. Laing is a Director of Sterling House Corporation, a
publicly-traded operator of assisted living centers.

ITEM 11. Executive Compensation.

General

.........The following table sets forth certain information regarding the annual
compensation the Company paid to the Chief Executive Officer and to the four
executive officers each of whose aggregate remuneration exceeded $100,000 during
1995:

<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

Long-Term
Compensation
Shares
Annual Compensation Underlying All Other
Options LTIP Payouts(4) Compensation
Name and Principal Position Year Salary ($) Bonus ($)(1) (#) ($) (5)
- --------------------------- ---- ---------- ------------ -------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C> <C>

John S. Schneider 1995 $ 236,400 $90,000 26,725(2) $ 1,404 $4,000
Chief Executive Officer 1994 225,000 67,500 70,000(3) 80 4,000
1993 190,000 54,900 2,000

Robert F. Sherman 1995 189,000 86,940 17,000(2) 446 3,000
President 1994 180,000 54,000 70,000(3) 55 3,000
1993 164,000 47,700 2,000

Lewis H. Sandler 1995 168,000 77,280 28,850(2) 749 3,000
Executive Vice President 1994 160,000 48,000 70,000(3) 45 5,000
1993 158,000 45,900 2,000

David J. Johnston 1995 178,500 82,110 400
Executive Vice President 1994 169,500 51,000 70,000(3) 55
1993 158,000 45,900

Diana M. Laing 1995 150,000 69,000 424 3,000
Chief Financial Officer 1994 120,000 36,000 70,000(3) 20 2,000
1993 100,000 28,800 1,000
- -----------------------------
<FN>

(1) Amounts represent incentive/bonus earned for the year. These amounts
were paid in the following year.

(2) Amounts represent options issued as reload options for stock tendered for
a portion of the option exercise price when non-qualified options were
exercised. In the aggregate, reload options for 72,575 shares of common
stock with exercise prices ranging from $12.375 to $13.00 were granted.

(3) Each Executive Officer was granted options for 50,000 shares of common
stock with an exercise price of $13.00 per share and options for 20,000
shares of common stock with an exercise price of $11.00 per share of
common stock, which will vest over four years commencing May 25, 1995.
The exercise price represents the closing market price of the Company's
common stock on the date of the grant.

(4) Amounts earned through December 31, 1995 on deferred compensation under
non-qualified deferred compensation plan.

(5) Company's matching contribution under 401(k) Plan.
</FN>
</TABLE>

Indemnification. The Charter and Bylaws of the Company provide for
indemnification of the officers and Directors of the Company to the fullest
extent permitted under Maryland Law and permit the indemnification, at the
discretion of the Board of Directors, of all other persons permitted to be
indemnified to the extent the Board deems advisable as permitted under such law.
The Charter also contains a provision that limits the liability of the Directors
to the Company and its stockholders for monetary damages for a breach of a
Director's duty of care.

<PAGE>

Employment Agreements. The Company has entered into employment
agreements with each of Messrs. Schneider, Sherman, Sandler and Johnston and Ms.
Laing for the payment of certain severance compensation in the event of the
voluntary or involuntary termination of their employment. These agreements,
which may be terminated by either party upon 90 days' notice, also provide for
annual incentive compensation calculated as a percentage of base salary, based
upon the increase in funds from operations per share of common stock for the
current year over the prior year. Such agreements also provide that in the event
of termination of employment by the Company (other than for cause or in the
event of death) the executive is entitled to severance pay equal to at least his
then current annual base salary plus the unpaid portion of any incentive/bonus
compensation payable and/or earned in that year. In the event of termination, at
the option of the executive, the Company is obligated to repurchase the common
stock owned by him at the then market price per share. If the executive proposes
to sell 10% or more of his current holdings of common stock, such shares are
subject to the Company's right of first refusal at the then market price during
the term of employment and for a period of one year thereafter.

<PAGE>

OPTION GRANTS IN 1995

Individual Grants Potential Realizable Value
at Assumed Annual Rates
Options % of Total Options of Share Price Appreciation
Granted Granted to Exercise Expiration For Option Term
Name (#) (1) Employees in 1995 Price Date 5%($) 10%($)
- ---- ----------- ----------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>

John S. Schneider 4,095 0.7% $12.625 June 5, 2001 $ 14,465 $ 31,791
4,095 0.7% 12.625 June 5, 2002 17,773 40,140
4,095 0.7% 12.625 June 5, 2003 21,246 49,324
4,095 0.7% 12.625 June 5, 2004 25,103 59,731
4,095 0.7% 12.625 June 5, 2005 28,943 70,874
1,563 0.2% 13.000 Sept 26, 2001 6,985 15,776
1,563 0.2% 13.000 Sept 26, 2002 8,350 19,385
1,562 0.2% 13.000 Sept 26, 2003 9,784 23,356
1,562 0.2% 13.000 Sept 26, 2004 11,375 27,855

Robert F. Sherman 2,200 0.4% 12.375 June 8, 2001 7,617 16,741
2,200 0.4% 12.375 June 8, 2002 9,359 21,138
2,200 0.4% 12.375 June 8, 2003 11,188 25,974
2,200 0.4% 12.375 June 8, 2004 13,219 31,454
2,200 0.4% 12.375 June 8, 2005 15,242 37,322
1,500 0.2% 13.000 Sept 26, 2001 6,703 15,140
1,500 0.2% 13.000 Sept 26, 2002 8,014 18,604
1,500 0.2% 13.000 Sept 26, 2003 9,389 22,414
1,500 0.2% 13.000 Sept 26, 2004 10,917 26,732

Lewis H. Sandler 4,520 0.7% 12.375 June 1, 2001 15,649 34,396
4,520 0.7% 12.375 June 1, 2002 19,229 43,429
4,520 0.7% 12.375 June 1, 2003 22,987 53,365
4,520 0.7% 12.375 June 1, 2004 27,160 64,625
4,520 0.7% 12.375 June 1, 2005 31,315 76,680
1,563 0.2% 13.000 Sept 26, 2001 6,985 15,776
1,563 0.2% 13.000 Sept 26, 2002 8,350 19,385
1,562 0.2% 13.000 Sept 26, 2003 9,784 23,356
1,562 0.2% 13.000 Sept 26, 2004 11,375 27,855

<FN>

(1) Amounts represent options issued as reload options for stock redeemed
when options were exercised. In the aggregate, reload options for 72,575 shares
of common stock with exercise prices ranging from $12.375 to $13.00 were
granted.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1995 AND YEAR END OPTION VALUES

Number of Value of Unexercised
Unexercised Options In-the-Money Options
Shares Value at December 31, 1995 at December 31, 1995(2)
Acquired on Realized # Exercisable/ Exercisable/
Name Exercise (#) ($) (1) Unexercisable Unexercisable
---- ------------- ------------ -------------------------- -------------------
<S> <C> <C> <C> <C>

John S. Schneider 59,500 $ 76,375 0 / 205,225 $ 0 / $382,000

Robert F. Sherman 73,500 83,875 0 / 153,500 $ 0 / $282,000

Lewis H. Sandler 63,500 70,125 0 / 150,350 $ 0 / $257,000

David L. Johnston 63,500 / 121,500 $133,750 / $229,000

Diana M. Laing 20,000 45,000 36,500 / 112,500 $ 66,250 / $206,000
<FN>

(1) Represents the spread between the market value of the underlying
securities at exercise minus the exercise price.

(2) Represents the number of shares of common stock underlying the options
(excluding options the exercise price of which was more than the market value of
the underlying securities) times the market price, minus the exercise price.
</FN>
</TABLE>

<PAGE>

ITEM 12. Security Ownership of Certain Beneficial Owners and Management.

As of February 15, 1996, there were 20,413,649 shares of common stock
outstanding. In addition, there were vested options to purchase 420,200 shares
of common stock at exercise prices ranging from $11.00 to $13.00 per share. The
following ownership tables do not include ownership of shares which are
represented by unvested options to purchase common stock.

The following table sets forth certain information as to the number of shares of
common stock beneficially owned as of February 15, 1996 by each person
(including any "group" as that term is used in Section 13(d)(3) of the Exchange
Act) who is known to the Company to own beneficially 5% or more of the common
stock:
<TABLE>
<CAPTION>

Security Ownership of Certain Beneficial Owners

Names and Addresses of Amount & Nature of Percentage
Beneficial Owners Beneficial Ownership of Class
<S> <C> <C>

Public Employee Retirement 1,537,800(1) 7.53%
Systems of Ohio
277 East Town Street
Columbus, Ohio 43215-4642

T. Rowe Price Associates, Inc. 1,196,000(2) 5.86%
100 East Pratt Street
Baltimore, Maryland 21202

LaSalle Advisors Limited Partnership 1,095,017(3) 5.36%
ABKB/LaSalle Securities Limited Partnership 470,300(4) 2.30%
11 South LaSalle Street
Chicago, Illinois 60603

- ------------------------------
<FN>

(1) According to the Schedule 13G filed by Public Employees Retirement
System of Ohio dated January 30, 1996, they beneficially own and have sole
dispositive and voting power of 1,537,800 shares of common stock.

(2) According to the Schedule 13G filed by T. Rowe Price Associates, Inc.
dated February 14, 1996, they beneficially own 1,196,000 shares of common stock
and have sole voting power over 31,000 shares and sole dispositive power over
1,196,000.

(3) According to the Schedule 13G filed by LaSalle Advisors Limited
Partnership dated February 14, 1996, they beneficially own 1,095,017 shares of
common stock and have sole voting and dispositive power over 539,000 shares.
They have shared voting power and shared dispositive power over 202,407 shares
and 556,107 shares, respectively,

(4) According to the Schedule 13G filed by ABKB/LaSalle Securities Limited
Partnership dated February 14, 1996, they beneficially own 470,300 shares of
common stock and have sole voting and dispositive power over 126,700 shares.
They have shared voting power and shared dispositive power over 178,100 and
343,600 shares, respectively.

</FN>
</TABLE>

<PAGE>

The following table sets forth certain information as to the number of
shares of common stock beneficially owned as of February 15, 1996, by each
Director and nominee for Director, by each of the named Executive Officers, and
by all officers and Directors of the Company as a group:
<TABLE>
<CAPTION>

Security Ownership of Management

Names and Addresses of Amount & Nature of Percentage
Beneficial Owners Beneficial Ownership of Class
<S> <C> <C>

John S. Schneider 510,333(1) 2.5%
5949 Sherry Lane, Suite 1400
Dallas, Texas 75225

Robert F. Sherman 182,979(2) 1%
5949 Sherry Lane, Suite 1400
Dallas, Texas 75225

Lewis H. Sandler 170,703(3) 1%
5949 Sherry Lane, Suite 1400
Dallas, Texas 75225

Mark J. Sandler 52,387 *
16 West Road
Short Hills, New Jersey 07078

Robert W. Scharar 28,000(4) *
5847 San Felipe, Suite 850
Houston, Texas 77057

Larrie A. Weil 31,366(5) *
650 Century Plaza Drive, Suite D-120
Houston, Texas 77073

Ira T. Wender 37,264(6) *
1133 Avenue of the Americas, 22nd Floor
New York, New York 10036

David L. Johnston 86,500(7) *
5949 Sherry Lane, Suite 1400
Dallas, Texas 75225

Diana M. Laing 86,500(8) *
5949 Sherry Lane, Suite 1400
Dallas, Texas 75225

All Officers and Directors 1,621,232(9) 7.9%
as a group (16 persons)
- ------------------------------------
<FN>

* Less than 1%.

(1) Includes 79,650 shares held by a trust for his wife.

(2) Includes 70,351 shares owned by members of Mr. Sherman's immediate family
or by trusts for such members and 28,000 shares which are issuable to Mr.
Sherman pursuant to options to purchase common shares which vested January
1, 1996.

<PAGE>

(3) Includes 15,780 shares held in trusts for members of Mr. Lewis Sandler's
immediate family and 4,200 shares which are issuable to Mr. Lewis Sandler
pursuant to options to purchase common shares which vested January 1, 1996.

(4) Includes 8,500 shares which are issuable to Mr. Scharar pursuant to options
to purchase common shares which vested January 1, 1996.

(5) Includes 28,000 shares which are issuable to Mr. Weil pursuant to options
to purchase common shares which vested January 1, 1994, May 25, 1995 and
January 1, 1996.

(6) Includes 8,500 shares which are issuable to Mr. Wender pursuant to options
to purchase common shares which vested January 1, 1996.

(7) Includes 86,500 shares which are issuable to Mr. Johnston pursuant to
options to purchase common shares which vested January 1, 1994, January 1,
1995, May 25, 1995 and January 1, 1996.

(8) Includes 56,500 shares which are issuable to Ms. Laing pursuant to options
to purchase common shares which vested January 1, 1994, January 1, 1995,
May 25, 1995 and January 1, 1996.

(9) Includes 165,781 shares owned by members of the Officers' and Directors'
immediate family or by trusts for such members and 435,200 shares which are
issuable pursuant to options to purchase common shares which have vested or
will vest within 60 days of February 15, 1996.

</FN>
</TABLE>

ITEM 13. Certain Relationships and Related Transactions.

Except as hereafter noted, there have been no transactions, or series
of similar transactions, since the beginning of the Company's last fiscal year,
nor are there any currently proposed transactions, or series of similar
transactions, to which the Company or any of its subsidiaries was or is to be a
party, in which the amount involved exceeds $60,000, and in which any director
or officer of the Company (or any investor beneficially owning more than 5% of
any class of the Company's voting securities) had, or will have, a direct or
indirect material interest.

During 1995, the Company accepted notes receivable totaling $1,945,000
from certain officers and directors to exercise options to purchase common
stock. The notes receivable, which mature on December 31, 2002, are in amounts
up to 80% of the option exercise price and bear interest at the Applicable
Federal Rate (as published by the Internal Revenue Service) at the date of
exercise. Principal in the amount of 50% of the exercise price will be forgiven
ratably over seven years beginning January 1, 1997, contingent upon continued
service as an officer or director and the absence of any default on the notes.
The balance of such loans will be payable ratably over the same period. The
loans are secured by the common stock purchased. Options to purchase 275,000
shares of common stock were exercised, and 85,967 previously issued shares of
common stock were applied (at the market price of such shares at the date of
such application) to the exercise price of the options and were retired.

<PAGE>

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The index to the audited Consolidated Financial Statements and Consolidated
Financial Statement Schedule is included on page F-1 of this report.

(b) Reports on Form 8-K for the quarter ended December 31, 1995:

None

Filed herewith or
incorporated herein by
Number Title reference

3.1 Articles of Incorporation of the Exhibit No. 99.1 to Form 10-Q for
Company, as amended the quarter ended June 30, 1994
(File No. 1-11224)

3.2 Bylaws of the Company Exhibit No. 3.2 to Amendment No. 2
to Form S-4 filed July 8, 1992
(File No. 33-48122)

3.3 Rights Agreement dated August 17, 1994 Exhibit No. 1 to Form 8-K filed
between South West Property Trust Inc. August 17, 1994
and Society National Bank, as Rights (File No. 1-11224)
Agent

4.1 Form of Indenture governing the Exhibit No. 4.1 to Amendment No. 2
Convertible Debentures to Form S-11 filed July 8, 1992
(File No. 33-48121)

4.2 Form of Convertible Debenture Exhibit No. 4.2 to Amendment No. 2
to Form S-11 filed July 8, 1992
(File No. 33-48121)

4.3 Form of Certificate representing Exhibit No. 4.1 to Form S-2 filed
common stock of the Company March 15, 1993
(File No. 33-59528)

10.1 Employment Agreement between the Company Exhibit No. 10.1 to Form 10-K for
and John S. Schneider the year ended December 31, 1994
(File No. 1-11224)

10.2 Employment Agreement between the Company Exhibit No. 10.2 to Form 10-K for
and Lewis H. Sandler the year ended December 31, 1994
(File No. 1-11224)

10.3 Employment Agreement between the Exhibit No. 10.3 to Form 10-K for
Company and Robert F. Sherman the year ended December 31, 1994
(File No. 1-11224)

10.4 1992 Stock Option Plan (as amended) Exhibit No. 10.5 to Amendment
No. 3 to Form S-4 filed July 22,
1992
(File No. 33-48122)

<PAGE>

Filed herewith or
incorporated herein by
Number Title reference

10.5 Lease Agreement dated March 14, 1994 Exhibit No. 10.4 to Form 10-K for
between Sterling Plaza Limited the year ended December 31, 1994
Partnership, as landlord, and the (File No. 1-11224)
Company, as Tenant

10.7 Dividend and Interest Reinvestment and Exhibit No. 10.1 to Post-Effective
Share Purchase Plan Amendment No. 2 to Form S-3
filed February 10, 1995
(File No. 33-59526)

10.8 Credit Agreement dated December 1, Exhibit No. 99.1 to Form 8-K dated
1993 among SWP Properties, Inc., SWP December 23, 1993
Woodscape Properties, Inc., and SWP (File No. 1-11224)
Creeks Properties, Inc. and National
Westminster Bank, PLC

10.9 Collection Account Agreement dated Exhibit No.99.2 to Form 8-K dated
December 1, 1993 among SWP Properties, December 23, 1993
Inc., SWP Woodscape Properties, Inc. (File No. 1-11224)
and SWP Creeks Properties, Inc.
(Mortgagor), Norwest Bank Minnesota,
N.A. (Account Agent),Southwestern
Property Trust, Inc. (PropertyManager),
and Norwest Bank Minnesota,N.A. (Trustee)

10.10 Property Management Agreement dated Exhibit No. 99.3 to Form
December 1, 1993 for properties covered 8-K dated December 23, 1993
by the Credit Agreement described in Exhibit No. 10.8
hereto between SWP Properties, Inc., SWP (File No. 1-11224)
Woodscape Properties, Inc., SWP Creeks
Properties, Inc., and Southwestern Property
Trust, Inc.

10.11 Property Manager Subordination Agreement Exhibit No. 99.4 to Form 8-K
dated December 1, 1993 between National dated December 23, 1993
Westminster Bank, PLC, and Southwestern (File No. 1-11224)
Property Trust, Inc.

10.12 Certificate Purchase Agreement dated Exhibit No. 99.5 to Form 8-K
December 22, 1993 between SWP dated December 23, 1993
Depositor, Inc, Southwestern Property (File No. 1-11224)
Trust, Inc., and National Westminster
Bank, PLC

10.13 Loan Purchase Agreement dated December 22, Exhibit No. 99.6 to Form 8-K
1993 between National Westminster Bank, PLC dated December 23, 1993
and SWP Depositor, Inc. (File No. 1-11224)

10.14 Employment Agreement between the Company Exhibit No. 10.14 to Form
and David L. Johnston 10-K for the year ended
December 31, 1994
(File No. 1-11224)

10.15 Employment Agreement between the Company Exhibit No. 10.15 to Form
and Diana M. Laing 10-K for the year ended
December 31, 1994
(File No. 1-11224)

<PAGE>

10.16 Credit Agreement dated March 1, 1994 Exhibit No. 99.1 to Form 10-Q
between SWP REMIC Properties II-A, L.P. for quarter ended March 31,
and National Westminster Bank, PLC, 1994
New York Branch (File No. 1-11224)

10.17 Property Management Agreement dated Exhibit No. 99.2 to Form
March 10, 1994 between SWP REMIC 10-Q for quarter ended
Properties II-A, L.P. and Southwestern March 31, 1994
Property Trust, Inc. (File No. 1-11224)

10.18 Property Manager Subordination Exhibit No. 99.3 to Form 10-Q
Agreement datedMarch 10, 1994 between for quarter ended March 31,
National WestminsterBank, PLC, and 1994
Southwestern Property Trust, Inc. (File No. 1-11224)

10.19 Note Purchase Agreement dated March Exhibit No. 99.4 to Form 10-Q
10, 1994 between SWP Depositor, Inc., for quarter ended March 31,
Southwestern Property Trust, Inc. and 1994
National Westminster Bank, PLC (File No. 1-11224)

10.20 Form of Promissory Note dated March 10, Exhibit No.99.5 to Form 10-Q
1994 in connection with REMIC Financing for quarter ended March 31,
1994
(File No. 1-11224)

10.21 Form of Mortgage dated March 10, 1994 Exhibit No. 99.6 to Form 10-Q
in connection with REMIC Financing for quarter ended March 31,
1994
(File No. 1-11224)

10.22 Indenture dated March 10, 1994 between Exhibit No. 99.1 to Form 10-Q
SWP Depositor, Inc. and Bankers Trust for quarter ended June 30,
Company, as Trustee 1994
(File No. 1-11224)

10.23 Loan Purchase Agreement dated June 30, Exhibit No. 99.2 to Form 10-Q
1994, between National Westminster Bank, for quarter ended June 30,
PLC and SWP Depositor, Inc. 1994
(File No. 1-11224)

10.24 Collection Account Agreement dated Exhibit No. 99.3 to Form 10-Q
June 30, 1994 among SWP REMIC Properties for quarter ended June 30,
II-A, L.P., BankersTrust Company, as 1994
Account Agent, South West Property Trust, (File No. 1-11224)
as Property Manager, and Bankers
Trust Company, as Indenture Trustee

10.25 Line of Credit Agreement dated Exhibit No. 99.7 to Form 10-Q
September 15, 1994 between South West for quarter ended September
Properties, L.P., South West Property 30, 1994
Trust Inc. and Lehman Brothers Holdings (File No. 1-11224)
Inc.

10.26 Promissory Note dated September 15, 1994 Exhibit No. 99.8 to Form 10-Q
made by South West Properties, L.P. in for quarter ended September 30,
favor of Lehman Brothers Holdings Inc. 1994
in the principal amount of $41,000,000 (File No. 1-11224)

10.27 Form of Deed of Trust and Security Exhibit No. 99.9 to Form 10-Q
dAgreement ated September 15, 1994 for quarter ended September 30,
from South West Properties, L.P. in 1994
favor of Robert J. Banta, as trustee, (File No. 1-11224)
and Lehman Brothers Holdings Inc.,
as beneficiary

<PAGE>

22.1 Subsidiaries of the Registrant Filed herewith

23.1 Consent of Ernst & Young LLP Filed herewith

<PAGE>

================================================================================

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

SOUTH WEST PROPERTY TRUST INC.

By: /s/ JOHN S. SCHNEIDER
John S. Schneider, Chairman of the Board
and Chief Executive Officer

February 26, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

Capacities in
Signature which signed Date

/s/ JOHN S. SCHNEIDER Chairman of the Board, February 26, 1996
- ------------------------------- and Chief Executive Officer
John S. Schneider

/s/ ROBERT F. SHERMAN President, Chief Operating February 26, 1996
- ------------------------------- Officer and Director
Robert F. Sherman

/s/ LEWIS H. SANDLER Executive Vice President, February 26, 1996
- ------------------------------- Secretary, General Counsel
Lewis H. Sandler and Director

/s/ DIANA M. LAING Executive Vice President, February 26, 1996
- ------------------------------- Chief Financial Officer and
Diana M. Laing Treasurer (Principal Financial
and Accounting Officer)

- ---------------------- Director
Mark J. Sandler

- ---------------------- Director
Ira T. Wender

/s/ LARRIE A. WEIL Director February 26, 1996
- ----------------------
Larrie A. Weil

- ---------------------- Director
Robert W. Scharar

<PAGE>

===============================================================================

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

Report of Independent Auditors............................................. F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993................................ F-3
Consolidated Balance Sheets at December 31, 1995 and 1994............ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1995, 1994 and 1993............ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993................................ F-6
Notes to Consolidated Financial Statements........................... F-8
Consolidated Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation.................... F-18

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
South West Property Trust Inc.

We have audited the accompanying consolidated balance sheets of South
West Property Trust Inc. ("SWP") and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. Our audits also included the consolidated financial statement schedule
of SWP listed in the Index at F-1. These financial statements and schedule are
the responsibility of SWP's management. Our responsibility is to express an
opinion on these financial statements and 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SWP and
subsidiaries at December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

Dallas, Texas
January 30, 1996

<PAGE>

See accompanying notes.

<TABLE>
<CAPTION>
SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)

Years ended December 31,

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>

Revenues:
Rental operations........................................... $ 70,396 $ 57,625 $ 31,959
Other income................................................ 1,466 1,303 1,131
------- ------ -------
71,862 58,928 33,090
------- ------ -------

Expenses:
Property operating expenses:
Personnel................................................ 7,705 6,556 3,852
Utilities................................................ 4,940 4,259 2,521
Repairs and maintenance.................................. 6,556 5,617 3,363
Real estate taxes........................................ 6,499 5,266 2,785
Marketing and other operating............................ 7,301 6,107 3,895
------- ------ -------
33,001 27,805 16,416

Depreciation and amortization............................... 12,697 10,236 6,542
Debenture and mortgage interest............................. 10,878 8,470 5,146
Interest forfeited by debentureholders upon conversion...... 220 115 619
General and administrative.................................. 2,037 2,278 1,452
------- ------ -------
58,833 48,904 30,175
------- ------ -------
Operating income................................................ 13,029 10,024 2,915
Minority interest in net (income) loss of
consolidated partnerships................................... ( 8) ( 61) 267
Gain on sale of real estate assets.............................. 10
-------
Net income...................................................... $ 13,031 $ 9,963 $ 3,182
======== ======= ========

Primary and fully-diluted earnings per share:
Net income.................................................. $ .70 $ .64 $ .39
======== ======= ========

</TABLE>

<PAGE>

SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)

December 31,

1995 1994
---- ----
<S> <C> <C>

ASSETS

Real estate investments:
Property:
Land............................................................ $ 44,584 $ 43,341
Buildings and improvements...................................... 311,694 287,023
------- --------
356,278 330,364
Less accumulated depreciation................................... ( 69,584) ( 59,443)
------- --------
286,694 270,921
Construction in progress........................................... 69,436 25,592
Mortgage notes receivable, net..................................... 6,365
------- --------
356,164 302,878

Cash and cash equivalents.............................................. 2,406 1,334
Cash reserved for additions to property, including $2,413
and $2,794 of restricted cash in 1995 and 1994..................... 4,643 3,917
Escrow deposits........................................................ 6,708 6,365
Deferred charges, less accumulated amortization of $1,664
and $918 in 1995 and 1994, respectively............................ 4,448 5,302
Other assets, net...................................................... 3,830 3,820
------- --------
$ 378,165 $ 323,616
======== =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Mortgage loans payable................................................. $ 129,286 $ 117,270
Construction loans payable............................................. 32,256 4,584
Revolving line of credit............................................... 16,500 27,700
Convertible debentures................................................. 13,529
Accounts payable and accrued expenses.................................. 9,104 7,154
Dividends payable...................................................... 5,112 3,770
Accrued interest....................................................... 557 1,142
Tenant security deposits............................................... 1,878 1,727
Minority interests in consolidated partnerships........................ ( 112)
------- --------
194,693 176,764
------- --------

Stockholders' equity (deficit):
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued.........................................
Common stock, $.01 par value; 50,000,000 shares authorized, 20,319,405 and
16,182,019 shares issued and outstanding
at December 31, 1995 and 1994, respectively..................... 203 161
Paid-in capital.................................................... 231,208 188,665
Accumulated deficit................................................ ( 47,939) ( 41,974)
------- --------
183,472 146,852
------- --------
$ 378,165 $ 323,616
======== =========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.

SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share and per share data)

Total
Stockholders'
Common Stock Paid-In Accumulated Equity/
Shares Amount Capital Deficit (Deficit)
<S> <C> <C> <C> <C> <C>

Balance, December 31, 1992...................... 1,420,787 $ 14 $ 15,373 $( 32,459) $( 17,072)
Net income.................................. 3,182 3,182
Sale of common stock, net of offering costs. 10,350,000 104 130,580 130,684
Exercise of warrants for common stock....... 94,142 1 534 535
Conversion of debentures for common stock... 2,662,200 26 25,796 25,822
Common stock retired........................ ( 10)
Common stock dividends declared,
$.62 per share........................... ( 8,331) ( 8,331)
----------- -- ------- ------- -------

Balance, December 31, 1993...................... 14,527,119 145 172,283 ( 37,608) 134,820
Net income.................................. 9,963 9,963
Sale of common stock, net of offering costs. 115,000 1 1,403 1,404
Exercise of options for common stock........ 55,000 1 646 647
Conversion of debentures to common stock.... 1,484,900 14 14,333 14,347
Common stock dividends declared,
$.91 per share........................... (14,329) ( 14,329)
----------- -- ------- ------ --------

Balance, December 31, 1994..................... 16,182,019 161 188,665 (41,974) 146,852
Net income.................................. 13,031 13,031
Repurchase common stock..................... ( 115,000) ( 1) ( 1,508) ( 1,509)
Sale of common stock, net of offering costs. 2,711,853 27 30,648 30,675
Exercise of options for common stock, net
of stock tendered in payment............. 189,033 2 2,036 2,038
Notes receivable from common stock options
exercised................................ ( 1,945) ( 1,945)
Conversion of debentures to common stock.... 1,351,500 14 13,312 13,326
Common stock dividends declared,
$1.00 per share.......................... (18,996) ( 18,996)
----------- -- ------- ------ -------

Balance, December 31, 1995..................... 20,319,405 $ 203 $ 231,208 $( 47,939) $ 183,472
=========== === ======== ======= ========
</TABLE>

<PAGE>
<TABLE>
See accompanying notes.

SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years ended December 31,

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>

Cash flows provided by operating activities:
Cash received from rental operations........................ $ 70,824 $ 57,755 $ 32,175
Cash received from other sources............................ 1,473 1,246 1,137
Operating expenses paid..................................... ( 34,173) ( 33,008) ( 20,023)
Interest paid............................................... ( 10,469) ( 8,061) ( 5,072)
-------- ------- --------
Net cash provided by operating activities................ 27,655 17,932 8,217
-------- ------- --------

Cash flows used in investing activities:
Purchase of properties...................................... ( 3,031) ( 58,317) ( 136,111)
Proceeds from sale of real estate........................... 2,814
Cost of construction in progress............................ ( 60,405) ( 25,592)
Purchase of notes receivable................................ ( 10,584)
Additions to properties..................................... ( 6,441) ( 7,764) ( 3,615)
Purchase additional partnership interests................... ( 1,593) ( 2,259) ( 2,489)
Withdrawals from (additions to) capital
improvement reserves..................................... ( 726) 1,269 ( 5,081)
Proceeds from mortgage notes receivable..................... 6,279
Receipts on mortgage notes receivable....................... 108 159 149
Additions to mortgage notes receivable...................... ( 162)
Prepaid acquisition costs................................... ( 214) ( 761) ( 283)
Insurance claim reimbursements (advances)................... ( 195) ( 218) 335
-------- ------- --------
Net cash used in investing activities.................... ( 63,404) ( 93,483) ( 157,841)
-------- ------- --------

Cash flows provided by financing activities:
Net proceeds from issuance of common stock.................. 30,675 1,404 130,684
Cash received from mortgage loans........................... 1,000 50,000 53,468
Cash received from construction loans....................... 38,280 4,584
Revolving line of credit draws.............................. 23,800 27,700 8,053
Revolving line of credit payments........................... ( 35,000) ( 12,500)
Mortgage and notes payable principal payments............... ( 2,391) ( 4,479) ( 15,386)
Repayment of Debentures..................................... ( 14)
Payment of loan costs....................................... ( 459) ( 2,932) ( 1,820)
Proceeds from exercise of warrants and options.............. 93 647 535
Repurchase common stock..................................... ( 1,509)
Redemption of preferred depositary receipts................. ( 26)
Dividends and cash distributions............................ ( 17,654) ( 13,780) ( 5,824)
-------- ------- --------
Net cash provided by financing activities................ 36,821 63,144 157,184
-------- ------- -------

Net increase (decrease) in cash and cash equivalents............ 1,072 ( 12,407) 7,560

Cash and cash equivalents at beginning of year.................. 1,334 13,741 6,181
-------- ------- -------

Cash and cash equivalents at end of year........................ $ 2,406 $ 1,334 $ 13,741
======== ======= ========
</TABLE>

<PAGE>

SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years ended December 31,

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>

Reconciliation of net income to net
cash provided by operating activities:
Net income.................................................. $ 13,031 $ 9,963 $ 3,182
Depreciation of real estate assets.......................... 12,304 9,746 5,616
Depreciation and amortization of other assets............... 393 545 663
Amortization of loan costs.................................. 965 414 263
Interest forfeited by debentureholders upon conversion...... 220 115 619
Adjustment for rental guaranty.............................. ( 193)
Amortization of note receivable discount.................... ( 17) ( 58) ( 45)
Gain on sale of real estate assets.......................... ( 10)
Minority interest in income (loss) of
consolidated partnerships................................ 8 61 ( 267)
Increase in other assets.................................... ( 393) ( 3,528) ( 989)
Increase in escrow deposits................................. ( 314) ( 2,994) ( 706)
Increase (decrease) in accounts payable
and accrued expenses..................................... 1,929 ( 3,765) ( 275)
Accrued interest added to mortgage loans.................... 2
Increase (decrease) in accrued interest..................... ( 608) ( 60) 72
Increase in tenant security deposits........................ 147 156 82
------- ------ -------
Net cash provided by operating activities................ $ 27,655 $ 17,932 $ 8,217
======== ======= ========

</TABLE>

<PAGE>

SOUTH WEST PROPERTY TRUST INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SOUTH WEST PROPERTY TRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1995

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - South West Property Trust Inc., formerly Southwestern
Property Trust, Inc. ("SWP" or the "Company"), a Maryland corporation, was
formed in 1992 for the purpose of acquiring all of the assets subject to the
liabilities of Southwest Realty, Ltd. ("SRL") in connection with the
reorganization of SRL into a corporation which would elect to qualify as a real
estate investment trust ("REIT") for federal income tax purposes.

Consolidation and presentation - The consolidated financial statements
include the accounts of the Company, its wholly owned corporate subsidiaries,
and the partnerships in which the Company owns at least a 50% controlling
interest. The portion of net income or loss attributable to minority interests
in consolidated partnerships is presented as a single line item in the Company's
statement of operations. Investments in partnerships in which the Company owns
less than a 50% interest are accounted for on the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
presentation.

Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Properties - Properties are stated at the Company's cost or the
historical cost of SRL. For financial reporting purposes, the properties are
depreciated over their estimated useful lives ranging from 5 to 35 years using
the straight-line method.

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
1995 and the adoption has no effect.

Income taxes - The Company has elected to be taxed as a REIT and
intends to operate in such manner as to continue to qualify as a REIT under the
Internal Revenue Code. Under the Internal Revenue Code, if certain requirements
are met in a taxable year, a corporation that is treated as a REIT will
generally not be subject to federal income tax with respect to income which it
distributes to its stockholders. The Company made distributions in excess of its
taxable income for 1995, 1994 and 1993. Accordingly, no provision for income
taxes has been reflected in the statements of operations.

Earnings and profits, which will determine the taxability of
distributions to stockholders, will differ from net income reported for
financial reporting purposes, due primarily to differences in the historical
cost and tax bases of the assets and the estimated useful lives used to compute
depreciation.

Cash and cash equivalents - Cash and cash equivalents consist primarily
of cash in demand deposit and money market accounts and short-term commercial
paper carried at cost, which approximates fair value. Highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.

Cash reserved for additions to property - At December 31, 1995 and
1994, the Company has set aside cash reserves in the amount of $2,230,000 and
$1,123,000, respectively, to provide for the payment of planned additions to its
wholly-owned properties. In addition, reserves in the amount of $2,413,000 and
$2,794,000 at December 31, 1995 and 1994, respectively, are being held by
trustees and certain mortgage holders for recurring replacements to the
properties which secure the REMIC Financing (see Note 5) and two other first
mortgages. The carrying amount of these deposits approximates their fair value.

<PAGE>

Escrow deposits - Escrow deposits consist of amounts on deposit with
lenders for payment of property taxes and insurance premiums.

Deferred charges - Deferred charges include loan origination costs,
commitment fees and debt issue costs which are amortized over the life of the
related
debt.

Other assets - Other assets consist primarily of office furniture, fixtures
and equipment, miscellaneous accounts receivable and prepaid expenses.
Furniture, fixtures and equipment are depreciated over their estimated useful
lives ranging from three to five years using the straight-line method.

Revenue recognition - The apartment properties are leased to individual
tenants on short-term leases. Rental revenue is recognized monthly as it is
earned.

Earnings per share - Earnings per share is based on the net income or loss
attributable to the common stock and the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during the
periods presented. Earnings per share for the years ended December 31, 1995,
1994 and 1993 were based on 18,627,322, 15,633,291 and 8,099,900, respectively,
weighted average shares of common stock outstanding.

The number of shares assumed outstanding related to options to purchase
common stock has been calculated by application of the treasury stock method.
The Company's Debentures were not common stock equivalents as defined under
generally accepted accounting principles and, therefore, during the years they
were outstanding, were not considered in the primary earnings per share
computations and are antidilutive to the computation of fully-diluted earnings
per share.

NOTE 2 - ACQUISITION OF PROPERTIES

In August 1995, the Company sold the Meridian Business Park located in
Oklahoma City, Oklahoma, for total consideration of $3,000,000. In September
1995, the Company sold the third-party property management business in Little
Rock, Arkansas, for total consideration of $25,000. The Company recognized a net
gain on the sale of real estate assets of $10,000 from these two transactions.

In August 1995, the Company acquired the remaining ownership interests
in Foxfire Apartments, Phases I and II, located in Dallas, Texas, for a gross
purchase price of $5,493,000 and subject to two first mortgage loans. Prior to
the purchase, the Company held a 5% interest in the partnership which owned
Phase I of the property. The Company sold its partnership interest immediately
prior to this acquisition for $128,000.

In March, May and June 1994, the Company purchased six apartment
properties (in separate transactions) aggregating 1,734 units for a total
purchase price of $50,350,000. Funds for the acquisitions came primarily from
the second phase of the REMIC Financing which closed on June 30, 1994 (see Note
5). The properties are located in Fort Worth and Euless, Texas; Little Rock,
Arkansas; and Raleigh, North Carolina. In September and November 1994, the
Company purchased two apartment properties (in separate transactions)
aggregating 600 units for a total purchase price of $22,633,000. Funds for the
acquisitions came primarily from draws on the line of credit (see Note 7). The
properties are located in Las Vegas, Nevada, and Grapevine, Texas (a Dallas
suburb).

<PAGE>

In January 1993, the Company acquired the 316-unit Bluff Creek
Apartments in Oklahoma City, Oklahoma, for $6,250,000. The acquisition was
financed, in part, by a new three-year first mortgage loan in the amount of
$3,468,000 which was repaid in June 1993. Prior to this acquisition, the Company
held a 32% interest in the partnership that owned the property. On June 4, 1993,
the Company acquired ten properties totaling 2,588 apartment units located in
the Dallas metropolitan area, San Antonio and El Paso, Texas, and Phoenix,
Arizona, for an aggregate cost of approximately $73,836,000. The Company
acquired three other apartment properties in 1993 (in separate transactions)
aggregating 674 units for a total purchase price of $17,450,000. The properties
are located in San Antonio, Corpus Christi and Houston, Texas. Funds for these
acquisitions came primarily from the net proceeds from the sale of common stock
(see Note 11). On December 23, 1993, the Company acquired five properties
totaling 1,349 apartment units located in the Dallas metropolitan area and
Albuquerque, New Mexico, for an aggregate price of approximately $43,610,000.
Funds for this acquisition came primarily from the net proceeds from the first
phase of the REMIC Financing which closed December 22, 1993 (see Note 5).

NOTE 3 - NONCASH INVESTING AND FINANCING ACTIVITIES (in thousands)

For the year ended December 31, 1995:
<S> <C>

Conversion of debentures into 1,351,500 shares of common stock as follows -
Principal amount of debentures converted.............................................. $ 13,515
Accrued interest forfeited by debenture holders upon conversion....................... 220
Unamortized debenture issue costs at date of conversion............................... ( 409)
--------
$ 13,326

In connection with the acquisition of the Foxfire Phase I Apartments the
Company assumed first lien mortgage debt and other liabilities as follows -
Fair value of property acquired.................................................... $ 5,154
Mortgage debt assumed.............................................................. ( 2,798)
Tenant security deposits, property tax, accrued interest
and other assets and liabilities assumed........................................ 77
---------
$ 2,433

For the year ended December 31, 1994:

Conversion of debentures into 1,484,900 shares of common stock as follows -
Principal amount of debentures converted.............................................. $ 14,849
Accrued interest forfeited by debenture holders upon conversion....................... 115
Unamortized debenture issue costs at date of conversion............................... ( 617)
--------
$ 14,347

In connection with the acquisitions of the Turtle Creek Apartments and the
Sunset Pointe Apartments, the Company assumed first lien mortgage debt and
other liabilities as follows -
Fair value of property acquired.................................................... $ 22,454
Mortgage debt assumed.............................................................. ( 14,058)
Tenant security deposits, property tax and accrued interest
liabilities assumed............................................................. ( 190)
---------

$ 8,206
</TABLE>

<PAGE>

NOTE 4 - MORTGAGE NOTES RECEIVABLE

As of December 31, 1994, the Company had a seven-year purchase money
all-inclusive note receivable collateralized by the Highland Oaks Apartments
with a balance outstanding of $3,636,000. Monthly installments of $31,875,
including principal and interest at 9.625% per annum, were payable on the
underlying first mortgage loan until its maturity in April 1995. In February
1995, the maturity date was extended to April 30, 1995. On April 27, 1995, the
borrower repaid the notes.

On June 4, 1993, the Company acquired the first mortgage loan on the
Phase I Foxfire Apartments in Dallas (in which the Company held a 5% partnership
interest) for $2,645,000. Under the terms of a modified loan agreement, the
Company also advanced an additional $162,000 for capital improvements to the
property.
On June 16, 1995, the borrower repaid the note in full.

In 1993, the Company purchased for $4,751,000 the first mortgage loans
on the Phase II Foxfire Apartments in Dallas and the Pecan Grove Apartments in
Austin. The Company also held the first mortgage loan on the Windridge
Apartments. As a result of the Company's 1994 purchase of the remaining
partnership interests in the Pecan Grove Apartments and the Windridge
Apartments, the related notes receivable and notes payable have been discharged.
The Company held a majority interest in the Phase II Foxfire Apartments and
accordingly, the mortgage note receivable held by the Company and the related
mortgage note payable have been eliminated for consolidated financial reporting
purposes at December 31, 1994. In June 1995, the partnership owning the Phase II
Foxfire Apartments refinanced its mortgage and repaid the Company's mortgage
note receivable.

NOTE 5 - MORTGAGE LOANS PAYABLE

General - Mortgage loans payable are collateralized by land, buildings
and improvements and are non-recourse to the Company. Such debt bears interest
at a weighted average rate of approximately 7.9%, and consists of interest rates
ranging from 7.01% to 8.50%. Such debt has a weighted average maturity of 5.4
years, with maturity or call dates ranging from 1996 to 2025. The carrying
values of the mortgage loans payable approximate fair value.

REMIC Financing - The Company, through wholly-owned subsidiaries,
closed a $100,000,000 first mortgage financing package (the "REMIC Financing").
The two $50,000,000 phases of the REMIC Financing closed on June 30, 1994 and
December 22, 1993. The REMIC Financing is collateralized by 27 of the Company's
wholly-owned properties, bears interest at an average fixed rate of 7.75% per
annum and is non-recourse to the Company. Monthly principal and interest
payments in the amount of $821,893 are required. The first phase of the REMIC
Financing matures on December 10, 2000, at which time the principal balance of
this phase is expected to be approximately $39,953,000, and the second phase of
the REMIC Financing matures on February 10, 2001, at which time the principal
balance of this phase is expected to be approximately $41,735,000. The balance
of the REMIC Financing as of December 31, 1995 and 1994 was $96,212,000 and
$98,511,000, respectively.

The REMIC Financing requires that a debt service coverage ratio of not
less than 1.9 to 1.0 be maintained on the mortgaged properties (to be computed
quarterly on the basis of the trailing four quarters). If such debt service
coverage ratio falls to less than 1.6 to 1.0, after notice and failure to cure
(which could be effected by paying down the principal), the Company is required
to deposit all collections from the mortgaged properties into a debt service
coverage reserve account until such time as the debt service coverage ratio
equals or exceeds 1.9 to 1.0. As of December 31, 1995, the Company is in
compliance.

The mortgage loan documents also require the Company to maintain escrow
deposits with the REMIC trustees for: (i) "basic carrying costs," i.e.,
insurance premiums, property taxes and management fees; (ii) capital
improvements, at a rate of $100 per year per apartment unit; and (iii) tenant
security deposits. As of December 31, 1995 and 1994, the Company had such escrow
deposits with the REMIC trustees aggregating $8,347,000 and $8,258,000,
respectively.

<PAGE>

Other Mortgage Loans - In addition to the REMIC Financing, the Company
has five non-recourse first mortgages payable including: (i) a first mortgage
payable secured by the Sunset Pointe Apartments in the principal amount of
$8,873,000, which matures on June 1, 1996, bears interest at 8.5%, requires
monthly interest only payments of $62,850 through March 1, 1996 and monthly
payments of $105,937 from April 1, 1996 through June 1, 1996; (ii) a first
mortgage payable secured by the Turtle Creek Apartments in the principal amount
of $5,110,000, which bears interest at 8.5%, requires monthly payments of
principal and interest of $40,353 and matures on October 1, 1999; (iii) a first
mortgage payable secured by the High Ridge Apartments in the principal amount of
$4,693,000, which bears interest at 8.5%, requires monthly payments of principal
and interest of $36,335 and matures on January 1, 2000; (iv) a first mortgage
payable secured by Phase I of the Foxfire Apartments in the principal amount of
$2,791,000, which bears interest at the cost of funds index, as published by the
San Francisco National Bank, plus 2.75%, adjusted monthly, requires monthly
payments of principal and interest of $20,073 and matures on July 1, 2025; and
(v) a first mortgage payable secured by Phase II of the Foxfire Apartments in
the principal amount of $997,000, which bears interest at the cost of funds
index, as published by the San Francisco National Bank, plus 2.75%, adjusted
monthly, requires monthly payments of principal and interest of $7,169 and
matures on July 1, 2025.

In June 1994, the Company closed a construction mortgage note in the
maximum amount of $10,864,000 for the development of the Oak Forest Apartments.
The note which is recourse to the Company, bears interest at LIBOR plus 2.25%
and has an original maturity date of June 30, 1997, with two optional one-year
extensions. At December 31, 1995, the outstanding balance of the note was
$10,609.000.

Under the terms of the loans, principal amortization requirements at
December 31, 1995 are as follows for each of the next five years (in thousands):
<TABLE>
<CAPTION>

Normal Balloon
Amortization Payments Total
<S> <C> <C> <C>

1996 $ 2,604 $ 8,873 $ 11,477
1997 2,813 2,813
1998 3,038 3,038
1999 3,263 15,500 18,763
2000 3,262 44,470 47,732
Subsequent years 3,728 41,735 45,463
-------- -------- -------
$ 18,708 $ 110,578 $ 129,286
========= ========= ========
</TABLE>

During 1993, the Company purchased the first mortgage loans on the
Phase II Foxfire Apartments in Dallas and the Pecan Grove Apartments in Austin
(properties in which the Company held, majority interests). The Pecan Grove
first mortgage loan had a balance of $3,785,000 at December 31, 1993. The loan
was discharged when the Company purchased the balance of the ownership interest
in the Pecan Grove Apartments in 1994. The Phase II Foxfire (Dallas) first
mortgage loan had a balance of $1,023,000 at December 31, 1994. Concurrent with
the Company's acquisition of the loan, the mortgage note agreement was modified
whereby an additional $74,000 was advanced to the property for capital
improvements. In June 1995, the partnership that owned Phase II Foxfire
refinanced the note. In August 1995, the Company purchased the remaining
interest in the property and assumed the mortgage payable.

As a result of the sale of common stock in June 1993, the Company
retired all of the remaining first mortgage indebtedness on its wholly-owned
properties for $11,836,000 and purchased the first mortgage note underlying the
mortgage note receivable on the Highland Oaks Apartments for $3,188,000 (see
Note 4). Interest rates on these mortgage loans ranged from 8.75% to 9.5% per
annum.

<PAGE>

NOTE 6 - CONSTRUCTION LOANS PAYABLE

The construction projects are financed with construction loans for
approximately 70% of the estimated project costs. The Company funds the initial
30% of the estimated project costs from available funds or from draws on its
line of credit (see Note 7). Thereafter, construction lenders fund construction
costs upon periodic draws in accordance with specific construction loan
agreements.

On January 13, 1994, the Company closed a construction mortgage note in
the maximum amount of $19,800,000 for the development of the Promontory Pointe
Apartments in San Antonio, Texas. The note, which is recourse to the Company,
bears interest at a variable rate based on LIBOR plus 2.25% and has an original
maturity date of January 13, 1996, with an optional six-month extension. In
December 1995, the mortgage note was modified whereby the original maturity was
extended to July 12, 1996, with three optional one-year extensions. At December
31, 1995 and 1994, the outstanding balance was $17,573,000 and $4,584,000,
respectively.

In June 1994, the Company closed a construction mortgage note in the
maximum amount of $7,354,000 for the development of Ashley Oaks Phase II in San
Antonio, Texas. The note, which is recourse to the Company, bears interest at
LIBOR plus 2.25% with an original maturity date of June 30, 1997, with two
optional one-year extensions. At December 31, 1995, the outstanding balance of
this note is $6,297,000. At December 31, 1994, no draws had been funded on this
note.

In December 1994, the Company closed a construction mortgage note in
the maximum amount of $12,402,000 for the development of the Sierra Palms
Apartments in Chandler, Arizona. The note, which is recourse to the Company,
bears interest at a variable rate based on LIBOR plus 2.25% and has an original
maturity date of December 29, 1996, with three optional one-year extensions. At
December 31, 1995, the outstanding balance was $3,884,000. At December 31, 1994,
no draws had been funded on this note.

In April 1995, the Company closed a construction mortgage note in the
maximum amount of $10,700,000 for the development of the Copper Mill Apartments
in Durham, North Carolina. The note, which is recourse to the Company, bears
interest at a variable rate based on LIBOR plus 2% and has an original maturity
date of April 13, 1997, with three one-year extensions, each at the Company's
option. At December 31, 1995, the outstanding balance was $4,501,000.

In September 1995, the Company closed a construction mortgage loan in
the maximum amount of $18,250,000 for the development of the Providence Court
Apartments in Charlotte, North Carolina. The note, which is recourse to the
Company, bears interest at a variable rate based on LIBOR plus 2% and has an
original maturity date of March 12, 1998, with two one-year and one six-month
extensions, each at the Company's option. At December 31, 1995, the outstanding
balance was $1,000.

For the years ended December 31, 1995 and 1994, the Company has capitalized
interest expense of approximately $2,561,000 and $739,000, respectively, related
to construction and development of properties.

<PAGE>

NOTE 7 - REVOLVING LINE OF CREDIT

On September 15, 1994, the Company obtained a revolving line of credit
in the maximum amount of $75,000,000. The line of credit, which is recourse to
the Company, has a revolving period of 18 months, with a one-year extension at
the lender's option, followed by an amortization period of two years. In October
1995, the Company requested and received a one-year extension to March 1997. The
extension modified the interest rate during the revolving period from LIBOR plus
1.75% to LIBOR plus 1.50%. The agreement requires quarterly payments of a
non-use fee equal to .25% per year calculated on the average unused portion of
the line of credit. The Company can currently draw up to a total of $41,800,000
on the line of credit, which is secured by first liens on seven of the Company's
wholly-owned properties. This amount may be increased as additional properties
are added as security for the line of credit.

NOTE 8 - CONVERTIBLE DEBENTURES

In 1992, the Company concluded an initial public offering of
$55,000,000 in principal amount of 8% Convertible Debentures Due 2003. The
Debentures could be converted into shares of common stock at any time after
October 15, 1993 on the basis of $10.00 per share. In September 1995, the
Company called the Debentures for redemption on October 16, 1995. As of October
16, 1995, $8,875,000 of the outstanding Debentures at September 30, 1995, were
converted to 887,500 shares of common stock. The remaining $14,000 in Debentures
were redeemed on October 16, 1995.

During the year ended December 31, 1995 prior to call date, $4,640,000
in principal amount of Debentures due were converted to 464,000 shares of common
stock. In addition, $220,000 of accrued Debenture interest that was forfeited by
Debenture holders and $409,000 of unamortized Debenture issue costs were
reclassified to equity.

During the year ended December 31, 1994, $14,849,000 in principal
amount of Debentures was converted to 1,484,900 shares of common stock. In
addition, $115,000 of accrued Debenture interest that was forfeited by Debenture
holders during 1994 and $617,000 of unamortized Debenture issue costs were
reclassified to equity.

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company - The Company generally receives a computer services fee,
and property and asset management fees in consideration for services provided
for properties in which the Company has ownership interests. The Company
received fees for these services aggregating $68,000 in 1995, $75,000 in 1994
and $92,000 in 1993 from affiliated, unconsolidated partnerships which have been
included in other income for financial reporting purposes.

In connection with the Company's acquisition of the remaining
partnership interests in the Sunflower Apartments in 1993, two of the Executive
Officers and a Director of the Company received a total of $172,000 as
consideration for their partnership interests.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Office and equipment leases - The Company is obligated under a
five-year lease for its main office in Dallas, Texas, which commenced in 1994.
The Company is also obligated under leases for its regional offices. The
regional office leases have terms ranging from nine months to five years.
Minimum annual future rental payments under all leases are $278,000 in 1996,
$248,000 in 1997, $234,000 in 1998, $171,000 in 1999 and $7,000 in 2000. The
related rental expense in 1995, 1994 and 1993 was $261,000, $243,000 and
$120,000, respectively.

NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT)

Capital stock - Common stockholders are entitled to one vote for each
share held on all matters presented for a vote of stockholders. There is no
right of cumulative voting in connection with the election of Directors.
Stockholders are entitled to receive pro rata, any dividends declared by the
Board of Directors in their discretion from funds legally available therefor.
Upon liquidation or dissolution, stockholders are entitled to share ratably in
all assets available for distribution to the stockholders, subject to the right
of the holders of the Debentures then outstanding and to the rights of any
preferred class of the Company's securities (if any are outstanding). The common
stock issued is fully paid and non-assessable, has no conversion rights, and is
not subject to redemption, except under certain circumstances determined by the
Board of Directors.

The Company declared a special dividend to each record holder of shares
of common stock on March 17, 1995, of one non-transferable right for each share
held on such date. Four rights entitled the holder to purchase one share of
common stock at a price of $11.875 per share (the "Rights Transaction"). On
April 10, 1995, the Rights Transaction concluded with 985,440 shares purchased
for total proceeds of $11,702,100. The net proceeds of approximately $11,400,000
were used to repay a portion of the line of credit.

In April 1995, the Company concluded a public offering of 1,714,560
shares of common stock at a price of $11.875 per share for gross proceeds of
$20,360,400. The net proceeds of approximately $18,600,000 were used to repay a
portion of the line of credit. During 1995, non-qualified options were exercised
to purchase 275,000 shares of common stock at exercise prices ranging from
$11.00 to $13.00. As of December 31, 1995, the Company had outstanding
20,319,405 shares of common stock and 1,718,000 non-qualified options to
purchase common stock (of which 204,500 were vested) at exercise prices ranging
from $11.00 to $13.00 per share.

On June 3, 1993, the Company closed its public offering of 10,350,000
shares of common stock at a price of $13.50 per share. The net proceeds from the
offering (in the amount of $130,684,000) and the net proceeds from the REMIC
Financing (See Note 5) were applied as follows: (i) approximately $141,146,000
(aggregate purchase price) to acquire a total of 19 apartment properties
totaling 4,927 units (see Note 2); (ii) approximately $10,820,000 to acquire
first mortgage debt on certain properties in which the Company held an interest;
(iii) approximately $8,407,000 to retire all of the remaining debt on its
wholly-owned properties; (iv) $12,500,000 to repay the revolving line of credit
debt; and (v) approximately $2,600,000 as a reserve for additions to properties.

During 1994, non-qualified options were exercised to purchase 55,000
shares of common stock at an exercise price of $11.00 each. In addition,
$14,849,000 in principal amount of Debentures were converted to 1,484,900 shares
of common stock. As of December 31, 1994, the Company had outstanding 16,182,019
shares of common stock and non-qualified options to purchase 1,467,000 shares of
common stock (of which 161,500 were vested) at exercise prices ranging from
$11.00 to $13.625 per share. The Company also had outstanding $13,529,000 in
principal amount of Debentures (convertible into 1,352,900 shares of common
stock).

<PAGE>

Effective April 1, 1994, the Company entered into an employment
agreement with an officer of the Company, Senior Vice President for the
Charlotte Regional Office of the Company. In connection with this agreement, the
officer purchased from the Company 115,000 shares of the Company's common stock
for approximately $1,509,000 ($13.125 per share). In January 1995, his
employment agreement was terminated, and pursuant to that agreement, the Company
repurchased such shares at the purchase price he paid and cancelled such shares.

For the Company to qualify as a REIT under the Internal Revenue Code,
not more than 50% in value of its outstanding common stock may be owned,
directly or indirectly, by five or fewer individuals. In order to meet these
requirements, the Directors of the Company are given power to refuse to
recognize the transfer of a sufficient number of shares of common stock to
maintain or bring the ownership of common stock of the Company into conformity
with such requirements and to refuse the transfer of common stock to persons
whose acquisitions thereof would result in a violation of such requirements.

Dividends - The Company paid dividends of $.25 per share of common
stock for the first three quarters of 1995. The Company also declared a dividend
of $.25 per share for the fourth quarter of 1995 (which it paid on January 17,
1996). Eighty-seven percent of the dividends paid in 1995 were characterized as
ordinary income and eight percent of the dividends were characterized as capital
gains for federal income tax purposes and five percent of the 1995 dividends
were a return of capital.

The Company paid dividends of $.22 per share of common stock for the
first quarter of 1994. The Company paid dividends of $.23 per share of common
stock for the second, third and fourth quarters of 1994. Eighty-seven percent of
the dividends paid in 1994 were characterized as ordinary income for federal
income tax purposes and 13 percent of the 1994 dividends were a return of
capital.

The characterization of the dividends for federal income tax purposes
is made based upon the earnings and profits of the Company, as defined in the
Internal Revenue Code, for the years ended December 31, 1995, 1994 and 1993,
respectively.

Beginning in 1995, the Company introduced a dividend reinvestment
program that will allow its shareholders to acquire additional common shares
from the Company at a 5% discount to the fair market price. The dividend
reinvestment program also permits stockholders to purchase a limited number of
additional shares of common stock on the same basis by making optional cash
payments.

Stock Option Plans - In May 1992, the Company adopted an incentive and
non-qualified stock option plan (the "Stock Option Plan") for the purpose of
attracting and retaining the Company's directors, executive officers and other
key employees (including any officer or director who is also an employee). A
maximum of 1,200,000 shares of common stock were reserved for issuance under the
Stock Option Plan. The Stock Option Plan allows for the grant of "incentive" and
"non-qualified" options (within the meaning of the Internal Revenue Code) that
are exercisable at a price that is at least equal to the fair market value of
the shares of common stock at the date of the grant as established by the
Compensation Committee of the Board of Directors. In May 1994, the Company's
stockholders approved an amendment to the Stock Option Plan that increased the
amount of shares reserved for issuance under the Stock Option Plan by 600,000
shares to a maximum of 1,800,000 shares. In 1995, the Company's stockholders
approved the 1995 Omnibus Incentive Plan, which provides for the granting of
stock options, SAR's, restricted shares and performance units. Under the 1995
plan, 3,000,000 shares were reserved for issuance subject to the limitation that
the aggregate number of shares underlying outstanding awards (including those
outstanding under the 1992 plan) not exceed approximately 10% of the Company's
outstanding capital stock on a fully diluted basis. The shares vest over a
period of up to 5 years and once vested must be exercised within 5 years. The
Company accounts for its options to purchase shares of common stock in
accordance with APB No. 25.

<PAGE>

During 1993, the Company granted options covering 75,000 shares of
common stock to other key employees of the Company. These options also vest 20%
per year over five years. The options have an exercise price equal to the
closing market price of the stock at the date of grant (exercise prices range
from $13.625 to $14.75); and once vested, these options may be exercised over a
period of five years from the date of vesting.

During 1994, the Company granted 600,000 options to purchase a like
number of shares of common stock at an exercise price of $13.00 and 100,000
options to purchase a like number of shares at $11.00. The exercise prices
reflect the closing price of the shares on the date of each grant. The options
vest over a period of up to five years (the first vesting date generally being
one year from the date of grant). Once vested, these options may be exercised
over a period of five years from the date of vesting. Additionally, 233,000
options previously granted were forfeited (and became available for reissuance)
due to employee attrition.

During 1995, 626,000 options to purchase shares of common stock at
exercise prices ranging from $11.50 to $13.00 each were granted pursuant to the
Company's non-qualified employee stock option plan, and 100,000 options
previously granted were forfeited due to employee attrition. As of December 31,
1995, the Company had outstanding 1,718,000 options to purchase common stock (of
which 204,500 are vested).

Rights Agreement - In August 1994, the Company declared a dividend of
one right (the "Right") for each outstanding share of the Company's common
stock. The Rights do not become detached from the common stock until the
occurrence of a triggering event such as a tender offer or acquisition by a
person (or related parties) of 10% or more of the Company's outstanding common
stock. At that time, the Rights (which expire in August 2004) may be exercised,
except by the party causing the triggering event, to purchase for $30 an amount
of common stock from the Company having an aggregate market value of $60.

NOTE 12 - PROFIT SHARING AND SAVINGS PLAN

The Company has a 401(k) plan for all full-time employees who have been
employed for at least 12 months. Eligible employees may contribute up to 15% of
their gross pay, subject to certain limitations. In 1995, 1994 and 1993 the
Company matched 50% of the amount contributed by the employee, up to 10% of the
employee's gross pay. In 1995, 1994 and 1993, expenses include $76,000, $53,000
and $44,000, respectively, representing the employer's matching contribution to
the plan.

NOTE 13 - QUARTERLY FINANCIAL DATA (Unaudited)

Unaudited summarized financial data by quarter for 1995 and 1994 is as
follows (in thousands, except per share data):

<TABLE>

Quarter Ended: March 31 June 30 September 30 December 31
- -------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>

1995
Total revenues......................... $ 16,928 $ 17,525 $ 18,508 $ 18,901
Net income............................. 2,995 3,363 3,383 3,290

Earnings per share:
Net income......................... $ .18 $ .19 $ .18 $ .16

Quarter Ended: March 31 June 30 September 30 December 31
- -------------- -------- ------- ------------ -----------
1994
Total revenues......................... $ 12,624 $ 13,668 $ 15,644 $ 16,992
Net income............................. 2,237 2,128 2,564 3,034
Earnings per share:
Net income......................... $ .15 $ .14 $ .16 $ .19

<PAGE>

SOUTH WEST PROPERTY TRUST INC. Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
(in thousands)

Costs Capitalized Gross Amount Carried
Initial Cost Subsequent to Acquisition at Close of Period
-------------------- ---------------------------- ------------------------------

Buildings Exchange Buildings
and Net or and
Encum- Improve- Improve- Purchase Improve-
Property brance Land ments ments(a) Property Land ment Total
- -------- -------- ---- -------- ----------- ------ --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Wholly-Owned:
Alvarado (d) $ 841 $ 6,170 $ 154 $ 911 $ 6,254 $ 7,165
Ashley Oaks (c) 813 5,440 525 813 5,965 6,778
Autumnwood (c) 1,132 7,548 521 1,132 8,069 9,201
Bluff Creek (c) 1,041 8,082 353 117 1,054 8,539 9,593
Bluffs (d) 320 3,510 957 933 406 5,314 5,720
Catalina (d) 851 4,823 230 851 5,053 5,904
Chandler's Mill (d) 971 5,519 623 971 6,142 7,113
Citiscape (d) 1,091 7,301 203 1,091 7,504 8,595

Cobblestone (c) 1,458 9,719 583 1,458 10,302 11,760

Creeks (c) 600 4,020 1,885 600 5,905 6,505
Dove Park 1,224 6,935 908 1,224 7,843 9,067
Foxfire (Amarillo) (d) 420 6,379 1,218 420 7,597 8,017
Foxfire (Dallas) 3,788 (f) 827 6,162 80 370 913 6,526 7,439
Greenway Park (c) 679 4,547 132 679 4,679 5,358
Harbour Pointe (e) 1,367 7,771 478 1,367 8,249 9,616
High Ridge 4,693 820 7,394 379 2,292 890 9,995 10,885
Hunters Ridge (e) 788 4,464 552 788 5,016 5,804
Lakeridge (c) 721 5,266 362 721 5,628 6,349
Oak Forest 10,609 1,387 15,176 1,387 15,176 16,563
Oak Park (e) 1,805 11,090 734 1,805 11,824 13,629
Park Trails (d) 610 4,086 333 610 4,419 5,029
Pavilion (d) 2,401 13,605 775 2,422 14,359 16,781

Pecan Grove (d) 484 3,156 448 835 592 4,331 4,923
Preston Oaks (d) 935 5,301 436 935 5,737 6,672
Preston Trace (c) 1,382 7,797 318 1,382 8,115 9,497
Rock Creek (c) 1,280 6,824 1,963 2,067 1,624 10,510 12,134
Ryan's Mill (c) 771 5,663 384 771 6,047 6,818
Shadow Lake (e) 1,424 8,070 344 1,424 8,414 9,838
Southern Oaks (e) 843 4,776 321 843 5,097 5,940
Summergate (c) 496 3,310 209 496 3,519 4,015
Sunflower (e) 978 3,912 1,097 1,212 1,204 5,995 7,199
Sunset Pointe 8,873 2,166 12,290 214 2,166 12,504 14,670

<PAGE>

SOUTH WEST PROPERTY TRUST INC. Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (Cont.)
December 31, 1995
(in thousands)

Accumu-
lated- Date of Depre-
Depre- Construc- Date ciable
ciation tion Acquired Life
------- -------- -------- ----
<S> <C> <C> <C>

$ 512 1984 1993 5-35
595 1989 1993 5-35
868 1984 1993 5-35
3,922 1984 1993 5-35
3,324 1978 1977 5-35
460 1982 1993 5-35
547 1984 1993 5-35
541 1973 1993 5-35
(g)
1,045 1993 5-35
1984
3,780 1975 1974 5-35
244 1984 1994 5-35
4,429 1975-80 1974 5-35
1,179 1978 1978 5-35
475 1986 1993 5-35
391 1984 1994 5-35
4,678 1979 1978 5-35
343 1981 1994 5-35
608 1984 1993 5-35
148 1995 1995 5-35
597 1980 1994 5-35
424 1983 1993 5-35
1,084 1979(g) 1993 5-35
938 1983-84 1990 5-35
540 1980 1993 5-35
809 1984 1993 5-35
6,651 1979 1977 5-35
653 1985 1993 5-35
457 1984 1994 5-35
281 1982 1994 5-35
391 1984 1993 5-35
3,176 1974 1990 5-35
424 1989 1994 5-35

<CAPTION>
REAL ESTATE AND ACCUMULATED DEPRECIATION Continued
December 31, 1995
(in thousands)

Costs Capitalized Gross Amount Carried
Initial Cost Subsequent to Acquisition at Close of Period
-------------------- ---------------------------- ------------------------------

Wholly-Owned:

Timbercreek (e) 1,621 11,844 4,981 3,218 2,057 19,607 21,664
Turtle Creek 5,110 1,250 6,748 299 1,250 7,047 8,297
Vista Point (d) 757 5,069 153 757 5,222 5,979
Westlake Villas (d) 985 6,536 362 985 6,898 7,883
Wimbledon Court (c) 1,189 8,688 335 1,189 9,023 10,212
Windridge (d) 2,202 8,832 1,439 1,171 2,436 11,208 13,644
Woodscape (c) 1,387 5,219 1,407 1,387 6,626 8,013
Woodtrail (d) 396 3,253 2,360 573 5,436 6,009
---- ------ ------ ------- -------- -------- ------ -----
$145,786 $ 42,713 $ 272,295 $ 29,055 $ 12,21 $ 44,584 $311,694 $ 356,278
------- ------- ------- ------ -------- ------- ------- --------

SOUTH WEST PROPERTY TRUST INC. Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (Cont.)
December 31, 1995
(in thousands)

Accumu-
lated- Date of Depre-
Depre- Construc- Date ciable
ciation tion Acquired Life
------- -------- -------- ----
<S> <C> <C> <C>

12,125 1975-78 1976 5-35
340 1985 1994 5-35
514 1986 1993 5-35
752 1985 1993 5-35
991 1983 1993 5-35
2,765 1979-80 1989 5-35
3,678 1977-82 1985 5-35
3,553 1978 1981 5-35
------
$ 69,232
-------

REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 1995
(in thousands)
Buildings
and
Encum- Improve-
Property brance Land ments
- -------- -------- ---- --------
<S> <C> <C> <C>

Development Properties:
Ashley Oaks - Phase II $ 6,297 $ 330 $ 10,857 (h)
Copper Mill 4,501 1,733 8,443 (h)
Oak Park Phase II 108 140 (h)
Promontory Pointe 17,573 3,215 28,037 (h)
Providence Court 1 3,187 1,470 (h)
Sierra Palms 3,884 1,981 9,929 (h)
Sunset Pointe - Rehab 5 (h)
$ 32,256 $ 10,554 $ 58,881
======== ====== ======

- -----------------------------
See notes on following page.

<PAGE>

REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 1995
(in thousands)

Accumu-
lated-
Depre- Date
ciation Acquired
------- --------
<S> <C> <C>

41 1994
1994
1994
309 1994

1994
2

$ 352
=======
<FN>

NOTES TO SCHEDULE III

(a) Improvements are net of write-offs of fully depreciated assets which
are no longer in use.

(b) Aggregate cost for federal income tax purposes at December 31, 1995
was approximately $334,970,000.

(c) These properties serve as security for the first phase of the REMIC
Financing. The outstanding balance of the first phase of the REMIC
Financing at December 31, 1995 was $47,647,000.

(d) These properties serve as security for the second phase of the REMIC
Financing. The outstanding balance of the second phase of the REMIC
Financing at December 31, 1995 was $48,566,000.

(e) These properties serve as collateral for the Company's line of credit.
The outstanding balance of the line of credit at December 31, 1995 was
$16,500,000.

(f) During 1995, the Company acquired 100% interest in this property.
Prior to 1995, the Company owned 5% of Phase I and 66% of Phase II.

(g) These properties underwent substantial rehabilitation work in 1993
prior to the Company's acquisition.

(h) These amounts represent construction in progress.

</FN>

<PAGE>

SOUTH WEST PROPERTY TRUST INC. Schedule III
REAL ESTATE RECONCILIATION Continued
(in thousands)

Years ended December 31,

1995 1994 1993
---- ---- ----

Balance, beginning of period.............................. $330,364 $ 247,220 $ 87,750

Additions during period:
Improvements........................................ 6,441 7,764 3,615
Purchase of property................................ 5,880 73,011 134,471
Sale of property.................................... ( 4,563)
Purchase of additional partnership interests........ 1,593 2,176 21,384
Completed construction projects..................... 16,563
Adjustment for rental guaranty...................... 193
-------------- ---- ---

Balance, end of period.................................... $ 356,278 $ 330,364 $ 247,220
-------- ------- -------

ACCUMULATED DEPRECIATION RECONCILIATION

Years ended December 31,

1995 1994 1993
---- ---- ----

Balance, beginning of period.............................. $ 59,443 $ $ 36,422
49,697

Additions during period:
Depreciation........................................ 12,304 9,746 5,616
Sale of property.................................... ( 2,163)
Purchase of additional partnership interests........ 7,659
------------- ------------ -----

Balance, end of period.................................... $ 69,584 $ 59,443 $ 49,697
-------- ------- -------

<PAGE>

INDEX TO EXHIBITS

Filed herewith or
incorporated herein by Sequential
Number Title reference Page Number
<S> <C> <C>

3.1 Articles of Incorporation of the Company, Exhibit 99.1 to Form 10-Q for
as amended the quarter ended June 30,1994
(File No. 1-11224)

3.2 Bylaws of the Company Exhibit 3.2 to Amendment No. 2
to Form S-4 filed July 8, 1992
(File No. 33-48122)

3.3 Rights Agreement dated August 17, 1994 Exhibit 1 to Form 8-K filed
between South West Property Trust Inc. August 17, 1994
and Society National Bank, as Rights (File No. 1-11224)
Agent

4.1 Form of Indenture governing the Convertible Exhibit 4.1 to Amendment No. 2
Debentures to Form S-11 filed July 8, 1992
(File No. 33-48121)

4.2 Form of Convertible Debenture Exhibit 4.2 to Amendment No. 2
to Form S-11 filed July 8, 1992
(File No. 33-48121)

4.3 Form of Certificate representing common Exhibit 4.1 to Form S-2 filed
stock of the Company March 15, 1993
(File No. 33-59528)

10.1 Employment Agreement between the Exhibit No. 10.1 to Form 10-K for
Company and John S. Schneider the year ended December 31, 1994
(File No. 1-11224)

10.2 Employment Agreement between the Exhibit No. 10.2 to Form 10-K for
Company and Lewis H. Sandler the year ended December 31, 1994
(File No. 1-11224)

10.3 Employment Agreement between the Exhibit No. 10.3 to Form 10-K for
Company and Robert F. Sherman the year ended December 31, 1994
(File No. 1-11224)

10.4 1992 Stock Option Plan (as amended) Exhibit 10.5 to Amendment No. 3
to Form S-4 filed July 22, 1992
(File No. 33-48122)

10.5 Lease Agreement dated March 14, 1994 Exhibit No. 10.4 to Form 10-K for
between Sterling Plaza Limited Partnership, the year ended December 31, 1994
as landlord, and the Company, as Tenant (File No. 1-11224)

10.7 Dividend and Interest Reinvestment and Exhibit No. 10.1 to Post-Effective
Share Purchase Plan Amendment No. 2 to Form S-3
filed February 10, 1995
(File No. 33-59526)

</TABLE>

<PAGE>

Filed herewith or
incorporated herein by
reference

Sequential
Number Title Page Number
<S> <C> <C>

10.8 Credit Agreement dated December 1, 1993 Exhibit No. 99.1 to Form 8-K
among SWP Properties, Inc., SWP Woodscape dated December 23, 1993
Woodscape Properties, Inc., and SWP Creeks (File No. 1-11224)
Properties, Inc. and National Westminster
Bank, PLC

10.9 Collection Account Agreement dated December Exhibit No. 99.2 to Form 8-K
1, 1993 among SWP Properties, Inc., SWP dated December 23, 1993
Woodscape Properties, Inc. and SWP Creeks (File No. 1-11224)
Properties, Inc. (Mortgagor), Norwest Bank
Minnesota, N.A. (Account Agent), Southwestern
Property Trust, Inc. (Property Manager), and
Norwest Bank Minnesota, N.A. (Trustee)

10.10 Property Management Agreement dated December Exhibit No. 99.3 to Form 8-K
1, 1993 for properties covered by the Credit dated December 23, 1993
Agreement described in Exhibit No. 10.8 (File No. 1-11224)
hereto between SWP Properties, Inc., SWP
Woodscape Properties, Inc., SWP Creeks
Properties, Inc., and Southwestern Property
Trust, Inc.

10.11 Property Manager Subordination Agreement dated Exhibit No. 99.4 to Form 8-K
December 1, 1993 between National Westminster dated December 23, 1993
Bank, PLC, and Southwestern Property Trust, (File No. 1-11224)
Inc.

10.12 Certificate Purchase Agreement dated December Exhibit No. 99.5 to Form 8-K
22,1993 between SWP Depositor, Inc., dated December 23, 1993
Southwestern Property Trust, Inc., and (File No. 1-11224)
National Westminster Bank, PLC

10.13 Loan Purchase Agreement dated December 22, Exhibit to Form 8-K to Form 8-K
1993 between National Westminster Bank, dated December 23, 1993
PLC and SWP Depositor, Inc. (File No. 1-11224)

10.14 Employment Agreement between the Company Exhibit No. 10.14 to Form 10-K
and David L. Johnston for the year ended December 31,
1994 (File No. 1-11224)

10.15 Employment Agreement between the Company Exhibit No. 10.15 to Form 10-K
and Diana M. Laing for the year ended December 31,
1994 (File No. 1-11224)

10.16 Credit Agreement dated March 1, 1994 between Exhibit 99.1 to Form 10-Q for
SWP REMIC Properties II - A, L.P. and quarter ended March 31, 1994
National Westminster Bank PLC, New York (File No. 1-11224)
New York Branch

10.17 Property Management Agreement dated March Exhibit 99.2 to Form 10-Q for
10, 1994 between SWP REMIC Properties quarter ended March 31, 1994
II-A, L.P. and Southwestern Property Trust, (File No. 1-11224)
Inc.

10.18 Property Manager Subordination Agreement Exhibit 99.3 to Form 10-Q for
dated March 10, 1994 between National quarter ended March 31, 1994
Westminster Bank, PLC, and Southwestern (File No. 1-11224)
Property Trust, Inc.

10.19 Note Purchase Agreement dated March 10, 1994 Exhibit 99.4 to Form 10-Q for
between SWP Depositor, Inc., Southwestern quarter ended March 31, 1994
Property Trust, Inc. and National Westminster (File No. 1-11224)
Bank, PLC

10.20 Form of Promissory Note dated March 10, 1994 Exhibit 99.5 to Form 10-Q for
in connection with REMIC Financing quarter ended March 31, 1994
(File No. 1-11224)

10.21 Form of Mortgage dated March 10, 1994 in Exhibit 99.6 to Form 10-Q for
connection with REMIC Financing quarter ended March 31, 1994
(File No. 1-11224)

10.22 Indenture dated March 10, 1994 between SWP Exhibit 99.1 to Form 10-Q for
Depositor, Inc. and Bankers Trust Company quarter ended June 30, 1994
as Trustee (File No. 1-11224)

10.23 Loan Purchase Agreement dated June 30, 1994 Exhibit 99.2 to Form 10-Q for
between National Westminster Bank, PLC and quarter ended June 30, 1994
SWP Depositor, Inc. (File No. 1-11224)

10.24 Collection Account Agreement dated June 30, Exhibit 99.3 to Form 10-Q for
1994 among SWP REMIC Properties II-A, L.P., quarter ended June 30, 1994
Bankers Trust Company, as Account Agent, (File No. 1-11224)
South West Property Trust, as Property Manager,
and Bankers Trust Company, as Indenture Trustee

10.25 Line of Credit Agreement dated September 15, Exhibit 99.7 to Form 10-Q for
1994 between South West Properties, L.P., quarter ended September 30, 1994
South West Property Trust Inc. and Lehman (File No. 1-11224)
Brothers Holdings Inc.

10.26 Promissory Note dated September 15, 1994 made Exhibit 99.8 to Form 10-Q for
by South West Properties, L.P. in favor of quarter ended September 30, 1994
Lehman Brothers Holdings Inc. in the principal (File No. 1-11224)
amount of $41,000,000

10.27 Form of Deed of Trust and Security Agreement Exhibit 99.9 to Form 10-Q for
dated September 15, 1994 from South West quarter ended September 30, 1994
Properties, L.P. in favor of Robert J. Banta, (File No. 1-11224)
as trustee, and Lehman Brothers Holdings Inc.,
as beneficiary

22.1 Subsidiaries of the Registrant Filed herewith

23.1 Consent of Ernst & Young LLP Filed herewith

</TABLE>

<PAGE>

Exhibit 22.1

Subsidiaries of the Registrant

SOUTH WEST PROPERTY TRUST INC.
SUBSIDIARIES AND AFFILIATES OF THE COMPANY
As of December 31, 1995

SWP Properties, Inc. SWP REMIC Properties II-A, L.P.
SWP Creeks Properties, Inc. Windridge Apartments
SWP Woodscape Properties, Inc. Pecan Grove Apartments
SWPT II Arizona Properties, Inc. Westlake Villas Apartments
SWP REMIC Properties II, Inc. Foxfire (Amarillo) Apartments
South West REIT Holding, Inc. Woodtrail Apartments
SWP Developers, Inc. Bluffs Apartments
Little Rock Apartment Management, Inc. Chandlers Mill Apartments
SWP Depositor, Inc. Alvarado Apartments
SRL Amarillo Investors, Inc. Catalina Apartments
SWP Arkansas Properties, Inc. Citiscape Apartments
Turtle Creek Apartments Park Trails Apartments
MF-SWP Joint Venture Pavilion Apartments
Promontory Pointe Apartments Preston Oaks Apartments
SWP Creeks, L.P. Vista Point Apartments
Creeks Apartments South West Properties, L.P.
SWP Woodscape I, L.P. Sunflower Apartments
Woodscape Apartments Shadow Lake Apartments
SWP Properties I, L.P. Hunters Ridge Apartments
Rock Creek Apartments Timbercreek Apartments
Bluff Creek Apartments Southern Oaks Apartments
Preston Trace Apartments Oak Park Apartments
Wimbledon Court Apartments Dove Park Apartments
Autumnwood Apartments Sunset Pointe Apartments
Cobblestone Apartments Ashley Oaks 2 Apartments
Summergate Apartments Oak Forest Apartments
Lakeridge Apartments Foxfire (Dallas) Apartments
Ryan's Mill Apartments High Ridge Apartments
Greenway Park Apartments Sierra Palms Apartments
Ashley Oaks Apartments Copper Mill Apartments
Providence Court Apartments

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-70858, Form S-3 No. 33-59526, Form S-8 No. 33-67452 (pertaining
to the 1992 Nonqualified Stock Option Plan) of South West Property Trust Inc.
and in the related Prospectuses of our report dated January 30, 1996, with
respect to the consolidated financial statements and schedule of South West
Property Trust Inc. included in this Annual Report (Form 10-K) for the year
ended December 31, 1995.

ERNST & YOUNG LLP

Dallas, Texas
February 20, 1996