<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                               ----------------
                                       
                                  FORM 10-K/A      
 
(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, 1998
 
                                      OR
 
[_]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: 1-12588
 
                               ----------------
 
                      CENTERTRUST RETAIL PROPERTIES, INC.
              (Exact name of registrant as specified in charter)
 
                  Maryland                                 95-4444963
        (State or other jurisdiction                   (I.R.S. Employer
     of incorporation or organization)                Identification Number)
 
          3500 Sepulveda Boulevard, Manhattan Beach, California 90266
              (Address of principal executive offices) (Zip Code)
 
                                (310) 546-4520
              Registrant's telephone number, including area code
 
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION> 
             Title of Each Class                 Name of Each Exchange on Which Registered
             -------------------                 -----------------------------------------
<S>                                            <C>
   COMMON STOCK, PAR VALUE $.01 PER SHARE                 NEW YORK STOCK EXCHANGE
       7 1/2% CONVERTIBLE SUBORDINATED                    NEW YORK STOCK EXCHANGE
        DEBENTURES DUE 2001, SERIES A                     
</TABLE>
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                                NONE REGISTERED
                               (Title of Class)
 
                               ----------------
 
  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 at least 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: [_]
     
  The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $125,477,000 (computed on the basis of $11.375
per share), which was the last sale price on the New York Stock Exchange on
April 28, 1999.      
     
  As of April 28, 1999, $24,437,348 shares of Common Stock, Par Value $.01 Per
Share, were outstanding.      
                           
                      DOCUMENTS INCORPORATED BY REFERENCE      
             
  None.      
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<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>     
<CAPTION>
 Item                                                                      Page
 ----                                                                      ----
 <C>  <S>                                                                  <C>
                                     PART I
  1.  BUSINESS...........................................................    1
  2.  PROPERTIES.........................................................    6
  3.  LEGAL PROCEEDINGS..................................................   20
  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................   20
                                    PART II
  5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
      MATTERS............................................................   21
  6.  SELECTED FINANCIAL DATA............................................   22
  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS..............................................   23
  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................   30
  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE...............................................   52
                                    PART III
 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................   52
 11.  EXECUTIVE COMPENSATION.............................................   55
 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....   59
 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................   60
                                    PART IV
 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...   60
 SIGNATURES............................................................... S-1
</TABLE>      
<PAGE>
 
                                    PART I
 
ITEM 1. BUSINESS
 
  CenterTrust Retail Properties, Inc., a Maryland corporation, dba Center
Trust (the "Company"), is a self-administered and self-managed real estate
investment trust. The Company engages in the ownership, management, leasing,
acquisition, development and redevelopment of retail shopping centers in the
western United States.
 
  As of December 31, 1998, the Company owned a portfolio comprised of
interests in 63 retail shopping centers (the "Properties"). See "Item 2--
Properties." The Company is the sole general partner of CT Operating
Partnership, L.P., a California limited partnership (the "Operating
Partnership" or "OP") and owns an 83.6% interest therein. Of the 63
Properties, 55 are owned directly by the Operating Partnership. CT Finance,
Inc., a Delaware corporation, is wholly owned by the Company and is the 1%
general partner of CT Finance Partnership, L.P., a California limited
partnership ("CTFP"). The Operating Partnership is the 99% limited partner of
CTFP. CTFP owns six of the Properties. The Operating Partnership is the sole
member of King Mineral, LLC, a California limited liability company ("KMLLC"),
and CenterTrust Retail Properties Finance III, LLC, a Nevada limited liability
company ("CTRPFIII"), each of which own one of the Properties. CTFP, KMLLC and
CTRPFII are collectively referred to as the "Finance Partnerships." The
Company conducts substantially all of its operations through the Operating
Partnership and generally has full, exclusive and complete responsibility and
discretion in the management and control of the Operating Partnership.
 
  On June 1, 1997 the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") with LF Strategic Realty Investors, L.P. and
Prometheus Western Retail, LLC, affiliates of Lazard Freres Real Estate
Investors, LLC (together "LFREI"), providing for LFREI to invest a total of up
to $235 million in common stock, par value $.01 per share (the "Common
Stock"), of the Company (the "Transaction"). Pursuant to the Stock Purchase
Agreement the Company will sell an aggregate of 15,666,666 shares of Common
Stock to LFREI at a price of $15.00 per share, for an aggregate purchase price
of $235 million (the "Total Equity Commitment"). On August 14, 1997, the
stockholders of the Company approved the Transaction.
 
  As of December 31, 1998, the Company has sold 13,406,434 shares to LFREI
under the terms of the Transaction for aggregate proceeds of $201.1 million.
The remaining 2,260,232 shares of Common Stock for aggregate proceeds of $33.9
million will be sold on or prior to May 19, 1999. As of December 31, 1998,
LFREI owned 52.9% of the outstanding Common Stock.
 
  After LFREI acquires the remaining 2,260,232 shares (and assuming no other
change in the number of outstanding shares), LFREI will own approximately
56.8% of the outstanding Common Stock (37.3% on a diluted basis, assuming the
exchange of partnership units in the Operating Partnership ("OP Units") for
shares of Common Stock and conversion of the Company's 7 1/2% Convertible
Subordinated Debentures and 7 1/4% Exchangeable Subordinated Debentures
(collectively the "Debentures") into shares of Common Stock (herein referred
to as "Diluted Basis")).
 
  Subject to certain restrictions, in the event that the Company issues or
sells shares of capital stock for cash, LFREI will be entitled to purchase or
subscribe for, either as part of such issuance or in a concurrent issuance,
that portion of the total number of shares to be issued equal to LFREI's
proportionate holdings of Common Stock prior to such issuance (but not to
exceed 37.5% of the offering).
 
  For a period of five years from August 14, 1997 (the "Standstill Period")
and for any additional standstill extension term, LFREI and its affiliates may
not (i) acquire beneficial ownership of more than 49.9% of the outstanding
shares of Common Stock, on an Adjusted Fully Diluted Basis (as defined below),
or (ii) sell, transfer or otherwise dispose of any shares of Common Stock
except in accordance with certain specified limitations (including a
requirement that the Company, in its sole and absolute discretion, approve any
transfer in a negotiated transaction that would result in the transferee
beneficially owning more than 9.8% of the Company's capital stock). As used
herein, the term "Adjusted Fully Diluted Basis" shall mean on a Diluted Basis,
except that shares of Common Stock issuable upon conversion of the Company's
outstanding Debentures or upon
 
                                       1
<PAGE>
 
exercise of options granted under management benefit plans shall not be
included. After giving effect to the sale of 15,666,666 shares to LFREI, and
assuming no other change in the number of outstanding shares, LFREI will own
48.1% of the Common Stock on an Adjusted Fully Diluted Basis. In the event
that the number of outstanding shares were to increase for any reason
(including as a result of issuance of Common Stock upon conversion or exercise
of the outstanding Debentures or management stock options), then LFREI would
be allowed to acquire additional shares of Common Stock, up to 49.9% on an
Adjusted Fully Diluted Basis. In addition to the above, LFREI has the right to
nominate four members to the Company's Board of Directors. Although LFREI will
not be able to take action on behalf of the Company without the concurrence of
the other members of the Company's Board of Directors, they may be able to
exert substantial influence over the Company's affairs. Further, LFREI is
entitled to receive access to certain operating statements and other financial
reports used in operating the Company on a monthly basis.
 
  In 1997, the Company entered into an agreement (the "Separation Agreement")
with Alexander Haagen, Sr., Charlotte Haagen and Alexander Haagen, III
(collectively the "Haagen Family") in connection with their retirement from
the Company. Under the terms of the Separation Agreement, the Haagen Family
received $2.7 million in cash, vesting of all granted stock options and
restricted stock awards, and the granting and vesting of previously committed
restricted stock awards. In addition, for certain defined periods the Company
agreed to continue to provide the Haagen Family certain medical benefits and
administrative assistance. During 1997, the Company recorded a non-recurring
charge of $9.4 million in connection with the Separation Agreement. Further,
the Company has agreed to purchase, or cause to have purchased, substantially
all of the Haagen Family's ownership interests in the Company on May 25, 1999
for a total of $58.8 million (the "Haagen Obligation").
 
  The Company, through the Operating Partnership, employs a staff of 138 full-
time real estate professionals with extensive experience, knowledge of local
markets and an established track record with national, regional and local
retailers. The Company believes that the expertise and relationships developed
by these professionals enhance the Company's ability to attract and retain
high quality tenants.
 
Business Risks
 
  This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
anticipated in the forward-looking statements as a result of a number of
factors, including, but not limited to, those listed below and elsewhere in
this document. The following factors should be considered in addition to the
other information contained herein in evaluating the Company and its business.
 
Real Estate Investment Risks
 
  Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of
income generated and expenses incurred. If the Properties do not generate
sufficient income to meet operating expenses, including debt service and
capital expenditures, the Company's results of operations and ability to make
distributions to its shareholders may be adversely affected. The performance
of the economy in each of the areas in which the Company's properties are
located affects occupancy, market rental and vacancy rates and expenses, and,
consequently, has an impact on the revenues from the Properties and their
underlying values.
 
  Revenues from the Company's Properties may be further adversely affected by,
among other things, the general economic climate; local economic conditions in
which the Properties are located, such as oversupply of space or a reduction
in demand for rental space; the attractiveness of the Properties to tenants;
competition from other available space; the ability of the Company to provide
for adequate maintenance and insurance and increased operating expenses
(including real estate taxes and utilities) which may not be passed through to
tenants; and the expense of periodically renovating, repairing and re-leasing
space. There is also the risk that as leases on the Properties expire, tenants
will enter into new leases on terms that are less favorable to the Company.
Revenues and real estate values may also be adversely affected by such factors
as applicable laws (e.g., the Americans With Disabilities Act of 1990 and tax
laws), interest rate levels and the availability and terms of financing.
 
                                       2
<PAGE>
 
  Most of the leases of the Company's retail Properties, as is common with
many multi-tenant shopping centers, provide for tenants to reimburse the
Company for a portion (frequently based upon the portion of total retail space
in the Property that is occupied by the tenant) of the common area
maintenance, real estate taxes, insurance and other operating expenses of the
Property. To the extent that a Property has vacant leaseable space, not only
will the Company be deprived of the base rent that it would receive if the
vacant space were occupied, but the Company itself will have to bear the
unreimbursed expense applicable to such vacant space. If a Property is
mortgaged to secure the payment of indebtedness and if the Company is unable
to meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the Property or the exercise of other remedies by the
mortgagee. Likewise, if a Property suffers sustained reductions in revenues,
the Company may sustain a writedown of the asset value and a related charge to
earnings.
 
Lack of Operating History With Respect to Acquisition Properties
 
  During 1998, the Company acquired 19 properties consisting of approximately
29 million square feet of GLA. These properties may have characteristics or
deficiencies currently unknown to the Company that affect their valuation or
revenue potential, and it is also possible that the operating performance of
these Properties may decline under the Company's management. As the Company
acquires additional properties, the Company will be subject to risks
associated with managing new properties, including lease-up and tenant
retention. In addition, the Company's ability to manage its growth effectively
will require it to successfully integrate its new acquisitions into its
existing management structure. No assurance can be given that the Company will
be able to succeed with such integration or to effectively manage additional
properties or that newly acquired properties will perform as expected.
 
General Illiquidity of Real Estate
 
  Equity real estate investments are generally illiquid. Such illiquidity will
tend to limit the ability of the Company to vary its portfolio promptly in
response to changes in economic or other conditions or meet certain of its
strategic objectives of disposing of certain non-strategic assets. In
addition, the Internal Revenue code of 1996, as amended (the "Code") places
certain limits or prohibitive taxes which may limit the ability of a real
estate investment trust ("REIT") to sell certain properties, which may affect
the Company's ability to sell properties without adversely affecting returns
to holders of Common Stock.
 
Geographic Concentration
 
  The Company's Properties are all located in the western United States. This
concentration of Properties subjects the Company to the strengths or
weaknesses of the various local economies in which the Company owns property.
For example, the performance of the economy in each locality affects
occupancy, market rental rates and expenses and, consequently, has an impact
on the revenues from the Company's Properties and their underlying values.
 
Competition
 
  Numerous retail properties compete with the Company's Properties in
attracting tenants to lease space. Some of these competing properties are
newer and better located or designed and may offer lower expenses or be better
capitalized than the Company's Properties. The number of competitive
commercial properties in a particular area could have a material adverse
effect on the Company's ability to lease space in its Properties and on the
rents charged. In addition, retailers at the Properties face increasing
competition from outlet malls, discount shopping clubs, mail order and e-
commerce.
 
  Additionally, the Company may be competing for investment opportunities with
entities which have substantially greater financial resources than the
Company. These entities may generally be able to accept more risk than the
Company can prudently manage.
 
                                       3
<PAGE>
 
Risk Associated with Financial Condition of Tenants
 
  At any time, a tenant of the Properties may seek the protection of the
bankruptcy laws, which could result in the rejection and termination of such
tenant's lease and thereby adversely affect the Company's results of
operations and ability to make distributions to its stockholders. Although the
Company has not experienced material losses from tenant bankruptcies, no
assurance can be given that tenants will not file for bankruptcy protection in
the future, or if any tenants file, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant
from time to time may experience a downturn in its business which may weaken
its financial condition and result in the failure to make rental payments when
due. If tenant leases are not affirmed following bankruptcy or if a tenant's
financial condition weakens, the Company's results of operations and ability
to make distributions to its stockholders may be adversely affected.
 
Dependence on Key Personnel
 
  The executive officers of the Company have substantial experience in owning,
operating, managing, acquiring and developing shopping centers. The Company
believes that its success will depend in large part upon the efforts of such
persons. The Company has entered into employment agreements with certain of
its executive officers which provide for their continued employment with the
Company and contain certain non-compete provisions. There can be no assurance
that these executive officers will remain in the employ of the Company,
notwithstanding their potential liability for damages to the Company if they
should terminate their employment. In the event key management personnel do
not remain in the employ of the Company, the Company could be adversely
affected.
 
Consequences of Failure to Qualify as a REIT
 
  The Company operates so as to qualify as a REIT under Sections 856-860 of
the Code. Under those sections of the Code, the Company must distribute
annually to its stockholders at least 95% of its taxable income and must meet
certain other asset and income tests. Dividends to stockholders from a
qualified REIT are deductible by such REIT in calculating its income tax
liability. As a result, pre-tax income of the Company flows through to its
stockholders who are taxed on the income on their individual income tax
returns, thus eliminating the "double taxation" inherent in regular
corporations. REITs are subject to a number of organizational and operational
requirements. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain federal, state and local taxes on its income and property.
 
Environmental Matters
 
  Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of such
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may be potentially liable for removal or
remediation costs. Certain environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties may seek
recovery from owners or operators of real properties for personal injuries
associated with asbestos-containing materials. The Company may be potentially
liable for removal or remediation costs, as well as certain other costs,
including governmental fines and costs related to injuries to
 
                                       4
<PAGE>
 
persons and property, resulting from the environmental condition of its
Properties, regardless of whether the Company itself actually contributed to
such condition.
 
Risks of Leverage
 
  Like many owners of real estate, the Company relies on borrowings to assist
it in acquiring, developing and holding its properties. The Company currently
has a line of credit facility that has secured and unsecured portions and also
owns various Properties that are encumbered by deeds of trust or mortgages to
various lenders. Neither the Charter nor the Bylaws of the Company limit the
amount of indebtedness the Company may incur. Although financial covenants
contained in the Company's $250 million revolving line of credit (the "Credit
Facility") limit the amount of additional indebtedness the Company may incur,
those
covenants currently would permit the Company to incur substantial additional
indebtedness. The Company has utilized the Credit Facility to finance certain
recent acquisitions and may use the Credit Facility to fund the acquisition of
additional properties and for other general corporate purposes. A portion of
the Credit Facility is currently secured by certain Properties owned by the
Company and the Credit Facility requires that the Company comply with a number
of financial covenants. The Company is also obligated by other indebtedness
secured by individual Properties. There can be no assurances that the Company
will be able to meet its debt service obligations or to comply with the
financial covenants in its debt instruments and, to the extent that it cannot,
the lenders typically would be entitled to demand immediate repayment of the
related indebtedness and to commence foreclosure proceedings against the
property securing such indebtedness, thereby subjecting the Company to the
risk of loss of some or all of its assets, including certain of its
Properties. Adverse economic conditions could cause the terms on which
borrowings become available to be unfavorable. In such circumstances, if the
Company is in need of capital to repay indebtedness in accordance with its
terms or otherwise, it could be required to liquidate one or more investments
in Properties at unfavorable prices. The Company will be subject to the risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest, the risk of increases in interest rates on indebtedness (such as
borrowings under the Credit Facility) which bears interest at floating rates,
the risk that existing indebtedness cannot be refinanced or that the terms of
such refinancing will not be as favorable as the terms of existing
indebtedness. The Company's mortgage indebtedness (other than indebtedness
under the Credit Facility) is generally nonrecourse to the Company. However,
even with respect to nonrecourse mortgage indebtedness, the lenders may have
the right to recover deficiencies from the Company in certain circumstances,
including fraud, misapplication of funds and environmental liabilities.
 
Effect of Various Market Factors on Price of Common Stock
 
  A variety of factors may influence the price of the Company's Common Stock
in public trading markets. The Company believes that investors generally
perceive REITs as yield-driven investments and compare the annual yield from
distributions by REITs with yields on various other types of financial
instruments. Thus an increase in market interest rates generally could
adversely affect the market price of the Company's Common Stock. Similarly, to
the extent that the investing public has a negative perception of companies in
the retail business or REITs that own and operate retail shopping centers and
other properties catering to retail tenants, the value of the Company's Common
Stock may be negatively impacted in comparison to shares of other REITs owning
other types of properties and catering to different types of tenants.
 
                                       5
<PAGE>
 
ITEM 2. PROPERTIES
 
  As of December 31, 1998, the Properties consisted of 49 community shopping
centers, 2 regional malls and 12 single tenant facilities, containing in the
aggregate approximately 12.4 million square feet of total gross leasable area
("GLA"). Approximately 10.2 million square feet of GLA is owned by the
Company, and the balance is owned by certain anchor retailers. The majority of
the Properties are located throughout Southern California, including 14 in Los
Angeles County, 7 in San Diego County, 2 in Orange County, 4 in San Bernardino
County, 2 in Riverside County, 2 in Imperial County and 1 in Ventura County.
Based on published industry sources, the Company believes that the geographic
concentration of the Properties establishes it as one of the leading fully
integrated owners, managers and developers of retail shopping centers in the
western United States. In addition to its Southern California Properties the
Company has 11 Properties in Northern and Central California, 7 Properties in
Arizona, 3 Properties in Oregon, 9 Properties in Washington and 1 Property in
Nevada.
 
  The Company's single tenant facilities range in size from approximately
36,800 square feet of total GLA to approximately 119,000 square feet of total
GLA. The Company's community shopping centers range in size from approximately
66,000 square feet of total GLA to approximately 626,000 square feet of total
GLA. The Company's regional malls range in size from approximately
820,000 square feet of GLA to approximately 1,248,000 square feet of GLA.
 
  The Properties are designed to attract local and regional area customers and
are typically anchored by one or more nationally or regionally known
retailers. Depending on the market focus of a specific Property, major
retailers at a Property may include value-oriented discount stores,
supermarkets, membership warehouses, traditional department stores, fashion-
oriented department stores, shops or well-known specialty retailers. Several
of the Properties contain an entertainment component such as a theater
multiplex. Anchor leases are typically for initial terms of 10 to 35 years,
with one or more renewal options available to the lessee upon expiration of
the initial term. By contrast, smaller shop leases are typically for 5 to 10
year terms. The longer term of the anchor leases helps to protect the Company
against significant vacancies and to insure the presence of anchor retailers
who draw consumers to the Company's retail centers. The shorter term of the
smaller shop leases allows the Company to adjust rental rates for non-anchor
store space on a regular basis and upgrade the overall tenant mix. Anchor
leases are generally for lower base rents than leases for smaller shop
tenants. The lower base rents paid by anchor retailers may be offset, in part,
through periodic escalations and/or the payment of percentage rents. Certain
anchor retailers at some of the Properties occupy space not owned by the
Company and therefore do not pay base rent to the Company.
 
 
                                       6
<PAGE>
 
  During 1998, the Company continued the acquisition program it commenced in
1997 and significantly expanded its portfolio of community shopping centers in
the western United States. As a result of its acquisition strategy, the
Company acquired 19 properties in 1998, aggregating approximately 2.9 million
square feet of Company owned GLA, with an aggregate purchase price of $309.9
million. The 1998 acquisitions consisted of the following:
 
<TABLE>
<CAPTION>
                                                                            Company
                                                                             Owned
   Date Acquired                Property Name                Location         GLA
   -------------                -------------                --------       -------
   <S>                 <C>                             <C>                  <C>
   January 20, 1998    Covington Square                Kent, WA             151,427
   March 11, 1998      Pavilions Centre                Federal Way, WA      200,209
   March 27, 1998      Bakersfield Shopping Center     Bakersfield, CA       14,115
   March 27, 1998      Center of El Centro             El Centro, CA        178,889
   March 27, 1998      Loma Square                     San Diego, CA        210,704
   March 27, 1998      Vineyards Market Place          Rancho Cucamonga, CA  56,035
   March 27, 1998      North County Plaza              Carlsbad, CA         153,325
   March 31, 1998      Southpointe Plaza               Sacramento, CA        83,543
   April 30, 1998      Sixth Avenue Plaza              Tacoma, WA           139,107
   April 30, 1998      Southern Palms Center           Tempe, AZ            254,863
   May 1, 1998         Mineral King Plaza              Visalia, CA           39,060
   May 12, 1998        Madera Marketplace              Madera, CA           168,596
   May 18, 1998        Fairwood Center                 Renton, WA           208,082
   June 24, 1998       Charleston Plaza                Las Vegas, NV        222,594
   June 25, 1998       Kyrene Village                  Chandler, AZ         161,174
   June 29, 1998       Sunrise Place Center            Tucson, AZ            40,974
   August 20, 1998     North Mountain Village          Phoenix, AZ           94,379
   August 26, 1998     Torrance Promenade              Torrance, CA         263,228
   September 24, 1998  Mountain Square Shopping Center Upland, CA           273,280
</TABLE>
 
  During 1997, the Company acquired 8 properties, aggregating approximately
844,000 square feet of GLA, with an aggregate purchase price of $91 million.
The acquisitions consisted of the following:
 
<TABLE>
<CAPTION>
                                                                  Company
                                                                   Owned
   Date Acquired            Property Name            Location       GLA
   -------------            -------------            --------     -------
   <S>                <C>                        <C>              <C>
   August 11, 1997    Ross Center                Portland, OR     132,465
   August 11, 1997    Pacific Linen              Lynwood, WA       69,432
   August 11, 1997    Vancouver Park Place       Vancouver, WA     77,989
   October 31, 1997   Frontier Village           Lake Stevens, WA 153,320
   December 9, 1997   Marshall's Plaza           Modesto, CA       79,000
   December 19, 1997  Rheem Valley               Moraga, CA       153,941
   December 26, 1997  Silverdale Shopping Center Silverdale, WA    67,330
   December 31, 1997  Westgate North             Tacoma, WA       110,251
</TABLE>
 
  The acquisitions were principally funded through proceeds from the sale of
common stock to LFREI, the issuance of OP Units and borrowings on the
Company's Credit Facility.
 
  Fifty-four of the Properties are owned by the Company in fee and nine are
held by the Company under long-term ground leases. Included in the long-term
ground leases are two partially-owned properties (the "Partially-Owned
Properties"), in which the Company, through the Operating Partnership, owns,
directly or indirectly, partnership interests, as described below.
 
  The Operating Partnership owns a 75% managing general partnership interest
in the partnership that owns Kenneth Hahn Plaza and a 85% managing general
partnership interest in Haagen-Central Partnership, the general
 
                                       7
<PAGE>
 
partnership which is the managing general partner of, and holds a 40% interest
in, the partnership that owns Vermont-Slauson Shopping Center. Therefore, the
Operating Partnership holds the equivalent of a 34% interest in Vermont-
Slauson Shopping Center.
 
  The Operating Partnership is the managing general partner of each such
partnership, with control over day-to-day operations of the Partially-Owned
Properties. The Company may have certain fiduciary responsibilities to its
outside partners which it will need to consider when making decisions relating
to the Partially-Owned Properties. The consent of the Company's outside
partners may be required for any sale, transfer or encumbrance of the
Partially-Owned Properties. In addition, the sale, transfer, assignment or
pledge of partnership interests in the partnerships which own the Partially-
Owned Properties require the prior written consent of the other partners or
are subject to certain rights of first refusal.
 
  During 1998, the Company sold its single tenant Sears Hollywood facility to
a related party for gross proceeds of $5.4 million, resulting in a net gain of
$1.1 million. In addition, the Company also purchased from a related party,
the Manhattan Beach, California building in which its corporate headquarters
are located for $3.2 million.
 
  In early 1999, the Company began to market Empire Center, a community
shopping center, located in Fontana, California, and comprised of 262,000
square feet of Company owned GLA. Management expects that the property will be
sold within one year. As such, the property has been written down to its
estimated fair value, less estimated closing costs, resulting in a charge of
$21.7 million which has been recorded in the 1998 financial statements.
 
  Subsequent to December 31, 1998, the Company sold two of its Properties, the
194,000 square foot City Center in San Francisco, California, and the 119,000
square feet Sam's Club in Fountain Valley, California, one of the Company's
single tenant facilities for gross proceeds of $47 million which resulted in a
combined book gain of approximately $21.1 million. In addition, the Company
purchased Randolph Plaza, a 179,000 square foot community center located in
Tucson, Arizona, for approximately $9.5 million. The acquisition was funded
with proceeds from the Company's Credit Facility. Randolph Plaza is anchored
by Fry's, Walgreen's and MacFrugal's.
 
  The tables on the following pages provide information regarding the physical
descriptions of the Properties, the tenants and the debt secured by the
Properties.
 
                                       8
<PAGE>
 
Description of Properties
 
  The following table sets forth the physical description and anchor tenant
information with respect to the Properties as of December 31, 1998.
 
<TABLE>
<CAPTION>
                     Year of                              Total
                   Construction                         Shopping                         GLA
                     (or Most      Ownership     Land    Center    Company  GLA to be Available
                      Recent       Interest      Area      GLA    Owned GLA   Built   for Lease
                   Renovation)  (Expiration)(1) (Acres) (Sq. Ft.) (Sq. Ft.) (Sq. Ft.) (Sq. Ft.)
                   ------------ --------------- ------- --------- --------- --------- ---------
<S>                <C>          <C>             <C>     <C>       <C>       <C>       <C>
COMMUNITY
SHOPPING CENTERS
Pacific Northwest
Covington Square.      1986           Fee         14.5    155,370   151,427     --      151,427
 Covington, WA
Fairwood Shopping
Center...........     (1995)          Fee           20    208,082   208,082     --      208,082
 Renton, WA
Frontier Village
Shopping Center..      1993           Fee         15.7    153,320   153,320     --      153,320
 Lake Stevens, WA
Gresham Town
Fair.............      1988           Fee         25.6    264,649   264,649     --      264,649
 Gresham, OR
The Medford
Center...........     (1998)          Fee         30.1    404,169   319,423  26,000     345,423
 Medford, OR
Pacific Linen
Plaza............      1988           Fee          4.6     69,432    69,432     --       69,432
 Lynnwood, WA
Pavilions'
Centre...........      1995           Fee           17    200,209   200,209     --      200,209
 Federal Way, WA
Ross Center......      1987           Fee           10    132,465   132,465     --      132,465
 Portland, OR
Silverdale
Shopping Center..      1990           Fee            6     67,330    67,330     --       67,330
 Silverdale, WA
Sixth Avenue
Plaza............      1986           Fee         11.6    139,107   139,107     --      139,107
 Tacoma, WA
Vancouver Park
Place............      1987           Fee          6.4     77,989    77,989     --       77,989
 Vancouver, WA
Westgate North
Shopping Center..      1980           Fee         13.3    112,592   110,251     --      110,251
 Tacoma, WA
                                                 -----  --------- ---------  ------   ---------
 Subtotal Pacific
 Northwest.......                                174.8  1,984,714 1,893,684  26,000   1,919,684
                                                 -----  --------- ---------  ------   ---------
Northern &
Central
California
Bakersfield
Shopping Center..      1978           Fee          9.3     14,115    14,115     --       14,115
 Bakersfield, CA
The City Center..     (1992)          Fee          6.8    194,193   194,193     --      194,193
 San Francisco,
 CA
Madera
Marketplace......      1992           Fee         14.5    294,059   168,596     --      168,596
 Madera, CA
Marshall's Plaza.      1989           Fee            5     86,200    79,000     --       79,000
 Modesto, CA
<CAPTION>
                                 Anchor or
                             Principal Tenants
                             -----------------
<S>                <C>
COMMUNITY
SHOPPING CENTERS
Pacific Northwest
Covington Square.  Safeway, Payless Drugs
 Covington, WA
Fairwood Shopping
Center...........  Safeway, Pic 'N Save, ACE Hardware
 Renton, WA        Quality Food Centers
Frontier Village
Shopping Center..  Safeway, Bartell Drugs
 Lake Stevens, WA
Gresham Town
Fair.............  Ross Stores, Emporium, GI Joes,
 Gresham, OR       Craft Warehouse
The Medford
Center...........  Cinemark Theatres, Sears, Emporium,
 Medford, OR       Payless(2), Safeway(2), Circuit City
Pacific Linen
Plaza............  Pacific Linen, Payless ShoeSource,
 Lynnwood, WA      Men's Wearhouse
Pavilions'
Centre...........  Quality Food Centers, Barnes & Noble,
 Federal Way, WA   Blockbuster Music, Petco
Ross Center......  Ross Stores, Michaels, Pier 1 Imports
 Portland, OR
Silverdale
Shopping Center..  Ross Stores
 Silverdale, WA
Sixth Avenue
Plaza............  Sears, Drug Emporium
 Tacoma, WA
Vancouver Park
Place............  T.J. Maxx, Pier 1 Imports
 Vancouver, WA
Westgate North
Shopping Center..  Quality Food Centers
 Tacoma, WA
 Subtotal Pacific
 Northwest.......
Northern &
Central
California
Bakersfield
Shopping Center..
 Bakersfield, CA
The City Center..  Toys 'R' Us, Mervyn's, Office Depot,
 San Francisco,
 CA                Good Guys
Madera
Marketplace......  Wal-Mart(2), J.C. Penney, Pak-N-Sav
 Madera, CA
Marshall's Plaza.  Marshall's, Good Guys
 Modesto, CA
</TABLE>
 
                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                       Year of                               Total   Company
                     Construction                          Shopping   Owned               GLA
                       (or Most      Ownership      Land    Center     GLA   GLA to be Available
                        Recent        Interest      Area   GLA (Sq.   (Sq.     Built   for Lease
                     Renovation)  (Expiration)(1)  (Acres)   Ft.)     Ft.)   (Sq. Ft.) (Sq. Ft.)
                     ------------ ---------------- ------- --------- ------- --------- ---------
<S>                  <C>          <C>              <C>     <C>       <C>     <C>       <C>
Mineral King
 Plaza...........        1983           Fee         10.9     115,336  39,060     --      39,060
 Visalia, CA
Rheem Valley.....        1990           Fee         18.4     178,312 153,941     --     153,941
 Moraga, CA
Rosedale Village
 Shopping Center.        1991           Fee         10.6     217,006 127,527     --     127,527
 Bakersfield, CA
Southpointe              1982           Fee           18     193,193  83,543     --      83,543
 Plaza...........
 Sacramento, CA
                                                    ----   --------- -------   -----    -------
 Subtotal
  Northern &
  Central
  California.....                                   93.5   1,292,414 859,975     --     859,975
                                                    ----   --------- -------   -----    -------
Southern
 California
Advantage/Sportmart
 Shopping Center.       (1988)          Fee         10.3     117,860 117,860     --     117,860
 San Diego, CA
Center of El
 Centro..........        1980           Fee           17     178,889 178,889     --     178,889
 El Centro, CA
Country Fair
 Shopping Center.        1992           Fee         17.3     211,807 168,367     --     168,367
 Chino, CA
Covina Town
 Square..........       (1997)          Fee         35.5     358,600 358,600   8,000    366,600
 Covina, CA
Date Palm Center.        1987           Fee           11     117,362 117,362   4,000    121,362
 Cathedral City,
  CA
El Camino North..        1982           Fee           54     450,894 324,394     --     324,394
 Oceanside, CA
Empire Center....        1993           Fee         60.5     626,496 261,996   4,645    266,641
 Fontana, CA
Fire Mountain
 Center..........        1987     Fee/Ground Lease   9.4      93,778  93,778     --      93,778
 Oceanside, CA                         (2038)
Fullerton Town
 Center..........        1987           Fee         21.7     391,347 278,647     --     278,647
 Fullerton, CA
Gardena Gateway
 Center..........        1990           Fee          9.7      65,987  65,987     --      65,987
 Gardena, CA
Huntington
 Center..........       (1989)      Ground Lease     3.9     110,244 110,244     --     110,244
 Huntington
  Beach, CA                            (2032)
Kenneth Hahn
 Plaza...........        1987       Ground Lease    14.5     162,665 162,665   2,800    165,465
 Los Angeles, CA                       (2052)
La Verne Towne
 Center..........        1986           Fee         19.1     231,143 231,143     --     231,143
 La Verne, CA
Lakewood Plaza...       (1989)      Ground Lease    11.1     113,511 113,511     --     113,511
 Bellflower, CA                        (2032)
Loma Square......        1980           Fee         15.8     210,704 210,704     --     210,704
 San Diego, CA
<CAPTION>
                                   Anchor or
                               Principal Tenants
                               -----------------
<S>                  <C>
Mineral King
 Plaza...........    Vons(2), Longs Drugs(2)
 Visalia, CA
Rheem Valley.....    T.J. Maxx, Longs Drugs(2)
 Moraga, CA
Rosedale Village
 Shopping Center.    Savemart, Payless Drugs, Kmart(2)
 Bakersfield, CA
Southpointe
 Plaza...........    Target(2), Big 5 Sporting Goods
 Sacramento, CA
 Subtotal
  Northern &
  Central
  California.....
Southern
 California
Advantage/Sportmart
 Shopping Center.    Advantage (Lucky), SportMart
 San Diego, CA
Center of El
 Centro..........    Sears, Mervyn's
 El Centro, CA
Country Fair
 Shopping Center.    Albertsons(2), PETsMART, Rite-Aid,
 Chino, CA           Staples, T.J. Maxx
Covina Town
 Square..........    Home Depot, Staples, PETsMART,
 Covina, CA          Michael's, AMC Theatres
Date Palm Center.    Sam's Club (Wal-Mart)
 Cathedral City,
  CA
El Camino North..    Mervyn's(2), Toys 'R' Us(2),
 Oceanside, CA       Ross Stores
Empire Center....    Target(2), Mervyn's(2),
 Fontana, CA         Miller's Outpost, Ross Stores
Fire Mountain
 Center..........    Strouds, Lamps Plus,
 Oceanside, CA       Trader Joe's, Bookstar
Fullerton Town
 Center..........    Price Club(2), AMC Theatres,
 Fullerton, CA       Toys 'R' Us, Office Depot
Gardena Gateway
 Center..........    Rite-Aid, 99 Ranch Market
 Gardena, CA
Huntington
 Center..........    Toys 'R' Us, Lucky
 Huntington
  Beach, CA
Kenneth Hahn
 Plaza...........    Food 4 Less, Pic 'N Save,
 Los Angeles, CA     Rite-Aid, Super Trak Auto
La Verne Towne
 Center..........    Target, Albertson's
 La Verne, CA
Lakewood Plaza...    Lucky, Staples
 Bellflower, CA
Loma Square......    T.J. Maxx, Circuit City, Sav-on Drugs,
 San Diego, CA       Staples, Super Crown Books
</TABLE>
 
                                       10
<PAGE>
 
<TABLE>
<CAPTION>
                     Year of                              Total
                   Construction                         Shopping                         GLA
                     (or Most      Ownership     Land    Center    Company  GLA to be Available
                      Recent       Interest      Area      GLA    Owned GLA   Built   for Lease
                   Renovation)  (Expiration)(1) (Acres) (Sq. Ft.) (Sq. Ft.) (Sq. Ft.) (Sq. Ft.)
                   ------------ --------------- ------- --------- --------- --------- ---------
<S>                <C>          <C>             <C>     <C>       <C>       <C>       <C>
Montebello Town
 Square..........      1992           Fee         24.5    250,438   250,438     --      250,438
 Montebello, CA
Mountain Square
 Shopping Center.      1988           Fee         15.8    273,280   273,280     --      273,280
 Upland, CA
North County
 Plaza...........      1987           Fee         16.9    153,325   153,325   8,500     161,825
 Carlsbad, CA
Parkway Place....     (1989)     Ground Lease      9.7    120,460   120,460     --      120,460
 Escondido, CA                       (2037)
Pomona Gateway
 Center..........     (1993)          Fee          9.8    108,887   108,887     --      108,887
 Pomona, CA
San Fernando
 Mission Plaza...      1991           Fee          4.9     67,192    67,192     --       67,192
 San Fernando, CA
Torrance
 Promenade.......     (1991)          Fee           19    263,228   263,228     --      263,228
 Torrance, CA
Vermont-Slauson
 Shopping Center.      1981      Ground Lease     10.3    169,744   169,744     --      169,744
 Los Angeles, CA                     (2070)
Vineyards
 Marketplace.....      1991           Fee          6.7    106,765    56,035  14,188      70,223
 Rancho
  Cucamonga, CA
                                                 -----  --------- ---------  ------   ---------
 Subtotal
  Southern
  California.....                                428.4  4,954,606 4,256,736  42,133   4,298,869
                                                 -----  --------- ---------  ------   ---------
Southwest
Charleston Plaza.      1989           Fee         23.5    271,744   222,594     --      222,594
 Las Vegas, NV
Kyrene Village
 Shopping Center.      1987           Fee         14.4    161,174   161,174     --      161,174
 Chandler, AZ
North Mountain
 Village.........      1985           Fee           15    147,510    94,379     --       94,379
 Phoenix, AZ
Southern Palms
 Center..........      1980           Fee         26.1    254,863   254,863     --      254,863
 Tempe, AZ
Sunrise Place
 Center..........     (1992)          Fee          8.5    143,999   143,999     --      143,999
 Tucson, AZ
                                                 -----  --------- ---------  ------   ---------
 Subtotal
  Southwest......                                 87.5    979,290   877,009     --      877,009
                                                 -----  --------- ---------  ------   ---------
TOTAL COMMUNITY
 SHOPPING
 CENTERS.........                                784.2  9,211,024 7,887,404  68,133   7,955,537
                                                 -----  --------- ---------  ------   ---------
REGIONAL MALLS
Baldwin Hills
 Crenshaw Plaza..      1988           Fee           42    819,604   359,604     --      359,604
 Los Angeles, CA
<CAPTION>
                                  Anchor or
                              Principal Tenants
                              -----------------
<S>                <C>
Montebello Town
 Square..........  Sears, Toys 'R' Us, AMC Theatres, Petco
 Montebello, CA
Mountain Square
 Shopping Center.  Home Depot, Staples, Pavilions
 Upland, CA
North County
 Plaza...........  Marshall's, Michael's, Kids 'R' Us
 Carlsbad, CA
Parkway Place....  Advantage (Lucky), Office Depot
 Escondido, CA
Pomona Gateway
 Center..........  Vons, Pic 'N' Save
 Pomona, CA
San Fernando
 Mission Plaza...  KV-Mart (Vons)
 San Fernando, CA
Torrance
 Promenade.......  Ross, Marshall's, Office Depot,
 Torrance, CA      Linens 'n Things, Bookstar,
                   Sears Homelife, Loehmann's, Kids 'R' Us
Vermont-Slauson
 Shopping Center.  Ralphs, Kmart, Sav-on Drugs
 Los Angeles, CA
Vineyards
 Marketplace.....  Albertson's(2), Sav-on Drugs
 Rancho
  Cucamonga, CA
 Subtotal
  Southern
  California.....
Southwest
Charleston Plaza.  Home Base, Lucky(2), Sav-on Drugs
 Las Vegas, NV
Kyrene Village
 Shopping Center.  Basha's, Kyrene Lanes
 Chandler, AZ
North Mountain
 Village.........  Fry's Food & Drug(2), T. J. Maxx,
 Phoenix, AZ       Greenbacks
Southern Palms
 Center..........  Mega Foods, Heilig Meyer Furniture,
 Tempe, AZ         Coomers Craft Mall
Sunrise Place
 Center..........  Smith's Food & Drug
 Tucson, AZ
 Subtotal
  Southwest......
TOTAL COMMUNITY
 SHOPPING
 CENTERS.........
REGIONAL MALLS
Baldwin Hills
 Crenshaw Plaza..  Sears(2), Robinsons-May(2),
 Los Angeles, CA   Lucky, T.J. Maxx,
                   Sony/Magic Johnson Theaters
</TABLE>
 
                                       11
<PAGE>
 
<TABLE>
<CAPTION>
                   Year of
                 Construction                           Total                            GLA
                   (or Most      Ownership     Land    Shopping   Company   GLA to be Available
                    Recent       Interest      Area   Center GLA Owned GLA    Built   for Lease
                 Renovation)  (Expiration)(1) (Acres) (Sq. Ft.)  (Sq. Ft.)  (Sq. Ft.) (Sq. Ft.)
                 ------------ --------------- ------- ---------- ---------- --------- ----------
<S>              <C>          <C>             <C>     <C>        <C>        <C>       <C>
Media City
 Center.........     1992      Ground Lease     37.1   1,248,015    818,405     --       818,405
 Burbank, CA                       (2078)
                                               -----  ---------- ----------  ------   ----------
TOTAL REGIONAL
 MALLS..........                                79.1   2,067,619  1,178,009     --     1,178,009
                                               -----  ---------- ----------  ------   ----------
SINGLE TENANT
 FACILITIES
Home Base.......    (1988)          Fee          8.7     107,165    107,165     --       107,165
 Glendora, CA
Kmart...........     1990           Fee          8.7     104,204    104,204     --       104,204
 Phoenix, AZ
Kmart...........     1990           Fee          8.8      86,479     86,479     --        86,479
 Banning, CA
Kmart...........     1990           Fee          9.1      86,479     86,479     --        86,479
 El Centro, CA
Kmart...........     1990           Fee          6.8      86,479     86,479     --        86,479
 Los Banos, CA
Kmart...........     1990           Fee          6.2      86,479     86,479     --        86,479
 Madera, CA
Kmart...........     1990           Fee          8.3      86,479     86,479     --        86,479
 Rocklin, CA
Oracle Road.....    (1989)          Fee          8.1     102,400    102,400     --       102,400
 Tucson, AZ
Vons............    (1989)          Fee          3.5      36,800     36,800     --        36,800
 Escondido, CA
Vons............    (1993)     Ground Lease      9.8     102,400    102,400     --       102,400
 Simi Valley, CA                   (2023)
Sam's Club......    (1988)     Ground Lease      9.8     114,722    114,722     --       114,722
 Downey, CA                        (2009)
Sam's Club......    (1988)          Fee         11.5     119,126    119,126     --       119,126
 Fountain
  Valley, CA
                                               -----  ---------- ----------  ------   ----------
TOTAL SINGLE
 TENANT
 FACILITIES.....                                99.3   1,119,212  1,119,212     --     1,119,212
                                               -----  ---------- ----------  ------   ----------
TOTAL ALL
 PROPERTIES.....                               962.6  12,397,855 10,184,625  68,133   10,252,758
                                               -----  ---------- ----------  ------   ----------
<CAPTION>
                                Anchor or
                            Principal Tenants
                            -----------------
<S>              <C>
Media City
 Center......... Macy's, IKEA(2), Sears(2), Mervyn's(2),
 Burbank, CA     AMC Theatres, Sports Chalet, CompUSA,
                 Barnes & Noble, Virgin Megastore
TOTAL REGIONAL
 MALLS..........
SINGLE TENANT
 FACILITIES
Home Base....... Home Base
 Glendora, CA
Kmart........... Kmart
 Phoenix, AZ
Kmart........... Kmart
 Banning, CA
Kmart........... Kmart
 El Centro, CA
Kmart........... Kmart
 Los Banos, CA
Kmart........... Kmart
 Madera, CA
Kmart........... Kmart
 Rocklin, CA
Oracle Road..... Montgomery Ward
 Tucson, AZ
Vons............ Vons
 Escondido, CA
Vons............ Vons
 Simi Valley, CA
Sam's Club...... Sam's Club (Wal-Mart)
 Downey, CA
Sam's Club...... Sam's Club (Wal-Mart)
 Fountain
  Valley, CA
TOTAL SINGLE
 TENANT
 FACILITIES.....
TOTAL ALL
 PROPERTIES.....
</TABLE>
------
(1) The date indicated is the expiration date of any ground lease after giving
    effect to all renewal periods.
 
(2) Indicates Anchor Not Owned.
 
                                       12
<PAGE>
 
Property Performance Summary
 
  The following table sets forth, on a property-by-property basis, the GLA
leased to anchor tenants, pad tenants and shop tenants, as of December 31,
1998:
 
<TABLE>
<CAPTION>
                         Total Leased GLA      Available GLA to be                      Annualized   Average    Annual
                     -------------------------    GLA      Built   Total GLA Percentage    Base     Base Rent Percentage
   Property Name     Anchor(1) Pad(2)  Shop(3) (sq. ft.) (sq. ft.) (sq. ft.) leased(4)    Rent(5)    psf(6)    Rent(7)
   -------------     --------- ------- ------- --------- --------- --------- ---------- ----------- --------- ----------
<S>                  <C>       <C>     <C>     <C>       <C>       <C>       <C>        <C>         <C>       <C>
COMMUNITY SHOPPING
CENTERS
Pacific Northwest
Covington Square..     70,837      --   69,124   11,466      --      151,427    92.4    $ 1,515,541  $10.83    $    --
Fairwood Shopping
Center............    102,399   10,954  84,670   10,059      --      208,082    95.2      2,138,985   10.80         --
Frontier Village
Shopping Center...     68,473   22,023  61,624    1,200      --      153,320    99.2      1,521,416   10.00      96,679
Gresham Town Fair.    159,282   26,587  66,619   12,161      --      264,649    95.4      2,209,146    8.75      17,188
The Medford
Center............    196,032    9,432  54,379   59,580   26,000     345,423    81.3      1,984,677    7.41     248,280
Pacific Linen
Plaza.............     25,000      --   42,244    2,188      --       69,432    96.8        908,297   13.51         --
Pavilions' Centre.     80,056      --   71,847   48,306      --      200,209    75.9      2,533,958   16.68         --
Ross Center.......     53,331    7,000  68,544    3,590      --      132,465    97.3      1,482,720   11.51      12,223
Silverdale
Shopping Center...     29,020      --   34,615    3,695      --       67,330    94.5        755,314   11.87         --
Sixth Avenue
Plaza.............     73,166      --   53,811   12,130      --      139,107    91.3        969,499    7.64         --
Vancouver Park
Place.............     33,938   14,100  29,151      800      --       77,989    99.0        918,016   11.89      88,087
Westgate North
Shopping Center...     37,902   13,336  55,513    3,500      --      110,251    96.8      1,187,960   11.13      53,778
                      -------  ------- -------  -------   ------   ---------            -----------  ------    --------
 Subtotal Pacific
 Northwest........    929,436  103,432 692,141  168,675   26,000   1,919,684    91.1     18,125,529   10.46     516,235
                      -------  ------- -------  -------   ------   ---------            -----------  ------    --------
Northern & Central
California
Bakersfield
Shopping Center...        --       --   12,740    1,375      --       14,115    90.3         89,651    7.04         --
The City Center...    177,584      --   15,329    1,280      --      194,193    99.3      2,817,824   14.61         --
Madera
Marketplace.......     92,278      --   72,763    3,555      --      168,596    97.9      1,688,378   10.23         --
Marshall's Plaza..     43,000      --   34,875    1,125      --       79,000    98.6      1,128,166   14.49         --
Mineral King
Plaza.............        --       --   32,860    6,200      --       39,060    84.1        517,559   15.75         --
Rheem Valley......     51,009    5,150  90,928    6,854      --      153,941    95.5      1,644,732   11.18       3,290
Rosedale Village
Shopping Center...     72,324    6,658  45,704    2,841      --      127,527    97.8      1,373,269   11.01         --
Southpointe Plaza.        --       --   81,193    2,350      --       83,543    97.2        990,477   12.20      43,302
                      -------  ------- -------  -------   ------   ---------            -----------  ------    --------
 Subtotal Northern
 & Central
 California.......    436,195   11,808 386,392   25,580      --      859,975    97.0     10,250,056   12.28      46,592
                      -------  ------- -------  -------   ------   ---------            -----------  ------    --------
Southern
California
Advantage/Sportmart
Shopping Center...    105,210   12,650     --       --       --      117,860   100.0      1,358,610   11.53       4,682
Center of El
Centro............    149,300    5,623  18,616    5,350      --      178,889    97.0        654,618    3.77     114,845
Country Fair
Shopping Center...     96,225   24,341  27,801   20,000      --      168,367    88.1      1,934,245   13.04      30,163
Covina Town
Square............    266,383   13,583  49,654   28,980    8,000     366,600    91.9      4,957,045   15.04      85,700
Date Palm Center..     99,919      --   16,318    1,125    4,000     121,362    99.0      1,746,247   15.02         --
El Camino North...     96,600  130,611  67,246   29,937      --      324,394    90.8      3,564,190   12.10       9,058
Empire Center.....     50,967   15,690  84,751  110,588    4,645     266,641    57.8      1,512,306    9.99         --
Fire Mountain
Center............     44,481   14,580  24,465   10,252      --       93,778    89.1      1,636,656   19.59      72,300
</TABLE>
 
                                       13
<PAGE>
 
<TABLE>
<CAPTION>
                        Total Leased GLA       Available GLA to be                      Annualized  Average    Annual
                   ---------------------------    GLA      Built   Total GLA Percentage    Base    Base Rent Percentage
  Property Name    Anchor(1) Pad(2)   Shop(3)  (sq. ft.) (sq. ft.) (sq. ft.) leased(4)   Rent(5)    psf(6)    Rent(7)
  -------------    --------- ------- --------- --------- --------- --------- ---------- ---------- --------- ----------
<S>                <C>       <C>     <C>       <C>       <C>       <C>       <C>        <C>        <C>       <C>
Fullerton Town
 Center..........    177,653  19,722    60,510   20,762      --      278,647    92.5     3,918,186   15.19        --
Gardena Gateway
 Center..........     41,300   5,062    18,225    1,400      --       65,987    97.9       978,481   15.15     28,244
Huntington
 Center..........    105,879   4,365       --       --       --      110,244   100.0     1,285,121   11.66        --
Kenneth Hahn
 Plaza...........     97,186  11,798    41,325   12,356    2,800     165,465    92.4     1,431,865    9.35        --
La Verne Towne
 Center..........    158,860   1,940    46,203   24,140      --      231,143    89.6     1,210,250    5.85      1,230
Lakewood Plaza...     93,342   4,365    15,804      --       --      113,511   100.0     1,267,897   11.17        --
Loma Square......     96,514     --    107,370    6,820      --      210,704    96.8     2,705,831   13.27        --
Montebello Town
 Square..........    210,533   7,879    25,167    6,859      --      250,438    97.3     2,716,149   11.15        --
Mountain Square
 Shopping Center.    186,036     --     47,619   39,625      --      273,280    85.5     2,911,461   12.46     18,900
North County
 Plaza...........     43,610  28,720    71,170    9,825    8,500     161,825    93.6     2,071,890   14.44        --
Parkway Place....     91,127  12,917    13,756    2,660      --      120,460    97.8     1,228,084   10.43     10,198
Pomona Gateway
 Center..........     96,418   6,487     2,492    3,490      --      108,887    96.8       937,467    8.89        --
San Fernando
 Mission Plaza...     50,508   2,293    14,391      --       --       67,192   100.0       898,979   13.38        --
Torrance
 Promenade.......    211,883  20,496    30,849      --       --      263,228   100.0     4,076,086   15.49        --
Vermont-Slauson
 Shopping Center.    142,411   3,720    23,613      --       --      169,744   100.0       977,447    5.76        --
Vineyards
 Marketplace.....     21,415     --     30,116    4,504   14,188      70,223    92.0       761,907   14.79        --
                   --------- ------- ---------  -------   ------   ---------            ----------   -----    -------
 Subtotal
  Southern
  California.....  2,733,760 346,842   837,461  338,673   42,133   4,298,869    92.0    46,741,018   11.92    375,320
                   --------- ------- ---------  -------   ------   ---------            ----------   -----    -------
Southwest
Charleston Plaza.    153,131   9,226    43,212   17,025      --      222,594    92.4     2,126,442   10.34        --
Kyrene Village
 Shopping Center.     95,957   5,120    57,902    2,195      --      161,174    98.6     1,162,944    7.32        --
North Mountain
 Village.........     41,215     --     53,164      --       --       94,379   100.0       863,450    9.15        --
Southern Palms
 Center..........     28,000  20,025   126,046   80,792      --      254,863    68.3     1,608,805    9.24     18,300
Sunrise Place
 Center..........    103,025   5,100    28,694    7,180      --      143,999    95.0       813,912    5.95        --
                   --------- ------- ---------  -------   ------   ---------            ----------   -----    -------
 Subtotal
  Southwest......    421,328  39,471   309,018  107,192      --      877,009    87.8     6,575,553    8.54     18,300
                   --------- ------- ---------  -------   ------   ---------            ----------   -----    -------
 TOTAL COMMUNITY
  SHOPPING
  CENTERS........  4,520,719 501,553 2,225,012  640,120   68,133   7,955,537    91.9    81,692,156   11.26    956,447
                   --------- ------- ---------  -------   ------   ---------            ----------   -----    -------
REGIONAL MALLS
Baldwin Hills
 Crenshaw Plaza..    141,554  29,610   155,948   32,492      --      359,604    91.0     5,846,519   17.87    118,621
Media City
 Center..........    467,961  48,984   226,410   75,050      --      818,405    90.8    11,456,397   15.41    135,610
                   --------- ------- ---------  -------   ------   ---------            ----------   -----    -------
 TOTAL REGIONAL
  MALLS..........    609,515  78,594   382,358  107,542      --    1,178,009    90.9    17,302,916   16.16    254,231
                   --------- ------- ---------  -------   ------   ---------            ----------   -----    -------
</TABLE>
 
                                       14
<PAGE>
 
<TABLE>
<CAPTION>
                        Total Leased GLA          Available GLA to be                                      Average    Annual
                   -----------------------------     GLA      Built   Total GLA   Percentage  Annualized  Base Rent Percentage
  Property Name    Anchor(1)  Pad(2)    Shop(3)   (sq. ft.) (sq. ft.) (sq. ft.)   leased(4)  Base Rent(5)  psf(6)    Rent(7)
  -------------    ---------  -------  ---------  --------- --------- ----------  ---------- ------------ --------- ----------
<S>                <C>        <C>      <C>        <C>       <C>       <C>         <C>        <C>          <C>       <C>
SINGLE TENANT
FACILITIES
Home Base--
Glendora.........    107,165      --         --        --       --       107,165    100.0         870,180    8.12          --
Kmart--Phoenix
AZ...............    104,204      --         --        --       --       104,204    100.0         551,576    5.29          --
Kmart--Banning
CA...............     86,479      --         --        --       --        86,479    100.0         457,744    5.29          --
Kmart--El Centro
CA...............     86,479      --         --        --       --        86,479    100.0         507,915    5.87          --
Kmart--Los Banos
CA...............     86,479      --         --        --       --        86,479    100.0         365,373    4.22          --
Kmart--Madera CA.     86,479      --         --        --       --        86,479    100.0         415,951    4.81          --
Kmart--Rocklin
CA...............     86,479      --         --        --       --        86,479    100.0         411,132    4.75          --
Oracle Road......    102,400      --         --        --       --       102,400    100.0         537,600    5.25          --
Vons--Escondido
CA...............     36,800      --         --        --       --        36,800    100.0         312,800    8.50          --
Vons--Simi Valley
CA...............    102,400      --         --        --       --       102,400    100.0         907,959    8.87          --
Sam's Club--
Downey CA........    110,822    3,900        --        --       --       114,722    100.0         731,811    6.38      137,800
Sam's Club--
Fountain Valley
CA...............    110,784    8,342        --        --       --       119,126    100.0       1,058,990    8.89      177,300
                   ---------  -------  ---------   -------   ------   ----------             ------------  ------   ----------
 TOTAL SINGLE
 TENANT
 FACILITIES......  1,106,970   12,242        --        --       --     1,119,212    100.0       7,129,031    6.37      315,100
                   ---------  -------  ---------   -------   ------   ----------             ------------  ------   ----------
 TOTAL ALL
 PROPERTIES......  6,237,204  592,389  2,607,370   747,662   68,133   10,252,758     92.7    $106,124,103  $11.23   $1,525,778
                   =========  =======  =========   =======   ======   ==========             ============  ======   ==========
PERCENT OF TOTAL
GLA..............      60.83%    5.78%     25.43%     7.29%    0.67%      100.00%
                   =========  =======  =========   =======   ======   ==========
</TABLE>
----
(1) Anchor tenants are defined as those retail tenants occupying more than
    25,000 square feet of GLA, 10% of a Property's aggregate GLA, or which
    represent a significant drawing power for the Property.
(2)  "Pad" tenants means freestanding single tenants.
(3)  Includes certain office space.
(4)  Based upon Total GLA, excluding GLA to be built.
(5)  Total annualized base rents of the Company for leases signed as of
     December 31, 1998, excluding (i) percentage rents, (ii) additional
     amounts payable by tenants such as common area maintenance, real estate
     taxes and other expense reimbursements and (iii) future contractual rent
     escalations or cost of living increases.
(6)  Calculated as total annualized base rent divided by GLA actually leased
     as of December 31, 1998.
(7)  Annual percentage rent reported during 1998.
 
                                       15
<PAGE>
 
  The following table sets forth, as of December 31, 1998, square footage of
GLA leased to national, regional and local retail tenants and the annualized
base rent generated from such:
 
<TABLE>
<CAPTION>
                                                            Average
                                               %of Total  Annual Base Percent of
                                   Annualized  Annualized  Rent Per     Total
Type of Tenant                     Base Rent   Base Rent  Square Foot Leased GLA
--------------                    ------------ ---------- ----------- ----------
<S>                               <C>          <C>        <C>         <C>
National(1)...................... $ 73,211,629    68.99%    $10.44       73.40%
Regional(2)......................    9,560,399     9.01%     11.21        9.00%
Local(3).........................   23,352,075    22.00%     14.76       17.60%
                                  ------------   ------                 ------
                                  $106,124,103   100.00%    $11.23      100.00%
                                  ============   ======                 ======
</TABLE>
--------
(1) National tenant refers to a business operating in three or more
    metropolitan areas located in at least three separate states.
(2) Regional tenant refers to a business operating in more than one
    metropolitan area in one or two states. Includes financial institutions.
(3) Local tenant refers to a business operating in only one metropolitan area.
 
  The following table sets forth, as of December 31, 1998 the annualized base
rent of all of the Properties, the percentage of annualized base rent, the
average rent per square foot and the percentage leased, broken down by type of
tenant:
 
<TABLE>
<CAPTION>
                                                               Average
                                                  %of Total  Annual Base
                                      Annualized  Annualized  Rent Per   Percent
Type of Space                         Base Rent   Base Rent  Square Foot Leased
-------------                        ------------ ---------- ----------- -------
<S>                                  <C>          <C>        <C>         <C>
Anchor.............................. $ 55,461,349    52.26%    $ 8.89     96.83%
Pad.................................    8,902,290     8.39%     15.03     88.06%
Shop................................   41,760,464    39.35%     15.99     84.92%
                                     ------------   ------
  TOTAL............................. $106,124,103   100.00%    $11.23     92.70%
                                     ============   ======
</TABLE>
 
 
                                      16
<PAGE>
 
Tenant Concentration
 
  The following table sets forth, as of December 31, 1998, information as to
anchor and/or national retail tenants which individually accounted for at
least 1.0% of total annualized base rent of the Properties:
 
<TABLE>
<CAPTION>
                                                 Percentage
                                                  of Total    Total   Percentage
                            Number   Annualized  Annualized  Tenant    of Total
    Retail Tenant(1)       of Stores  Base Rent  Base Rent     GLA       GLA
    ----------------       --------- ----------- ---------- --------- ----------
<S>                        <C>       <C>         <C>        <C>       <C>
AMC Theatres.............       6    $ 5,907,780    5.57%     259,842    2.55%
Safeway/Vons.............       9      4,541,856    4.28%     533,019    5.23%
SAM's Club/Wal-Mart
 Stores..................       3      3,138,834    2.96%     321,525    3.16%
Lucky Stores, Inc........       5      3,081,453    2.90%     308,170    3.03%
Kmart Group..............       7      2,927,871    2.76%     619,103    6.08%
Toys "R' Us..............       6      2,593,180    2.44%     236,091    2.32%
TJX......................       9      1,959,110    1.85%     247,614    2.43%
Home Depot...............       2      1,875,930    1.77%     200,549    1.97%
Sears Roebuck & Co.......       5      1,797,587    1.69%     320,722    3.15%
Fred Meyers
 (Ralphs/FFL/QFC)........       5      1,650,745    1.56%     196,674    1.93%
Home Base................       2      1,645,570    1.55%     212,572    2.09%
Office Depot.............       5      1,523,537    1.44%     124,841    1.23%
Barnes & Noble...........       4      1,465,822    1.38%      70,276    0.69%
Ross Stores, Inc. .......       6      1,381,171    1.30%     170,012    1.67%
Payless ShoeSource, Inc..      18      1,326,065    1.25%      61,527    0.60%
Magic Johnson Theatres...       1      1,288,210    1.21%      67,579    0.66%
The Limited..............       8      1,169,530    1.10%      63,457    0.62%
Dayton Hudson
 (Mervyn's/Target).......       3      1,131,500    1.07%     261,938    2.57%
Staples..................       4      1,105,729    1.04%      94,159    0.92%
                              ---    -----------   -----    ---------   -----
  TOTAL..................     108    $41,511,480   39.12%   4,369,670   42.90%
                              ===    ===========   =====    =========   =====
</TABLE>
--------
(1) Excludes non-owned Anchors.
 
Tenant Lease Expirations and Renewals
 
  The following table sets forth, as of December 31, 1998, tenant lease
expirations for the next ten years at the Properties, assuming that no tenants
exercise renewal options:
 
<TABLE>
<CAPTION>
                                   Approx.                    Average Base     Percent of
                                   GLA of                       Rent Per      Total Leased
                          No. of  Expiring   Annualized Base   Square Foot   Square Footage
                          Leases    Leases       Rent of          Under      Represented by
Lease Expiration Year    Expiring (Sq. Ft.)  Expiring Leases Expiring Leases Expiring Leases
---------------------    -------- ---------  --------------- --------------- ---------------
<S>                      <C>      <C>        <C>             <C>             <C>
Month-to-Month..........    152     286,614   $  3,499,557       $12.21            3.04%
1999....................    193     427,087      6,444,743        15.09            4.53
2000....................    186     575,140      7,902,424        13.74            6.09
2001....................    228     773,008      9,964,073        12.89            8.19
2002....................    177     717,842      9,152,486        12.75            7.61
2003....................    124     569,375      6,485,181        11.39            6.03
2004....................     64     665,175      6,505,412         9.78            7.05
2005....................     41     393,388      5,283,201        13.43            4.17
2006....................     47     331,741      4,796,975        14.46            3.52
2007....................     42     398,602      4,862,944        12.20            4.22
2008....................     30     493,284      5,342,266        10.83            5.23
Thereafter..............    118   3,805,707     35,884,841         9.38           40.33
                          -----   ---------   ------------                       ------
  TOTAL.................  1,402   9,436,963   $106,124,103       $11.23          100.00%
                          =====   =========   ============                       ======
</TABLE>
 
 
                                      17
<PAGE>
 
Debt Secured by Properties
 
  The following table summarizes the outstanding indebtedness secured by the
Company's Properties as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
                                                             Interest     Maturity
          Lender                       Property                Rate         Date   Balance
          ------                       --------            -------------  -------- --------
 <S>                        <C>                            <C>            <C>      <C>
 Mortgage Loans:
 Connecticut General Life
  Insurance Company......   Gresham Town Fair                  7.500%     04/01/99 $  9,442
 The Prudential Insurance
  Company of America.....   Loma Square                        9.310%     08/15/99   18,881
 Massachusetts Mutual
  Life Insurance Company.   Fire Mountain Center              10.250%     10/01/99    7,383
 The Travelers Insurance
  Company................   Home Base--Glendora                9.500%     10/01/99    6,058
 Metropolitan Life
  Insurance Company......   Vons--Escondido                    9.300%     11/01/99    2,686
 Principal Mutual Life
  Insurance Company......   North Mountain Village             8.250%     05/01/01    8,234
 Aid Association for
  Lutherans..............   Gardena Gateway Center            10.050%     02/15/02    6,641
 Metropolitan Life
  Insurance Company......   Date Palm Center                  10.450%     07/31/02    9,391
 The Travelers Insurance
  Company................   North County Plaza                10.375%     01/31/03   15,890
 Sun Life Assurance
  Company of Canada......   Fairwood Shopping Center           8.375%     02/01/04    7,458
 Aetna Life Insurance
  Company................   Covina Town Square                 9.600%     09/01/04   17,807
 Nomura Asset Capital
  Corporation (3)........   Tranche A                          8.938%     04/01/05   22,377
 DLJ Mortgage Acceptance
  Corp...................   Charleston Plaza                   8.050%     01/01/06   15,415
 Teachers Insurance and
  Annuity Association
  of America.............   Pavilions Centre                   7.440%     08/01/06   24,542
 Column Financial, Inc...   Mineral King Plaza                 9.680%     08/01/06    3,761
 Eastrich #79 Corporation
  (AEW) (1)..............   Loan #1                           11.450%     10/15/06   29,607
 Eastrich #79 Corporation
  (AEW) (2)..............   Loan #2                           10.900%     10/15/06    9,538
 Nomura Asset Capital
  Corporation (3)........   Tranche B                          9.000%     04/01/10   33,236
 Aid Association for
  Lutherans..............   Westgate North Shopping Center     8.300%     04/01/14    6,066
                                                                                   --------
 Total Mortgage Loans
  Payable................                                      9.321%(6)            254,413
                                                                                   --------
 CRA--Certificates of
  Participation, Series
  1985...................   Baldwin Hills Crenshaw Plaza       5.11%      12/01/14   30,000
 CDC--Certificates of
  Participation, Series
  1985...................   Kenneth Hahn Plaza                 5.11%      12/01/15    6,000
 Secured Line of Credit--
  Chase Manhattan Bank
  (4)....................                                  LIBOR+1-1.375% 12/31/00  200,895
                                                                                   --------
 Total secured debt(5)...                                                          $491,308
                                                                                   ========
</TABLE>
--------
(1) Secured by KMart--Rocklin, KMart--El Centro, KMart--Banning, KMart--Los
    Banos, KMart--Madera, KMart--Phoenix, Advantage, Huntington Beach, Oracle
    Road and Simi Valley. Crosscollateralized with AEW Loan 2.
 
(2) Secured by Lakewood, Sam's Club--Downey, and Parkway Place,
    Crosscollateralized with AEW Loan 1.
 
(3) Secured by San Fernando Mission, Rosedale, Country Fair, Fullerton, La
    Verne, and Sam's Club--Fountain Valley.
 
(4) Secured by Media City Center, Montebello Town Square, The City Center,
    Medford Shopping Center, Empire Center, Ross Center, Pacific Linen,
    Vancouver Park Place, Sunrise Place, Marshalls Plaza, Ross Plaza--
    Silverdale, Covington, Vineyards Marketplace, Frontier Village, Rheem
    Valley, Sixth Avenue, Madera Market Place, SouthPointe Plaza, Kyrene
    VIllage and Torrance Promenade.
 
(5) Excludes $6.1 million in Community Facility District Bonds at Empire
    Center.
 
(6) Weighted average interest rate on mortgage debt.
 
                                      18
<PAGE>
 
  Aggregate future principal payments by year on the balance of mortgage
indebtedness as of December 31, 1998 is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                               Scheduled
                                              Amortization Scheduled
   Year                                         Payments   Maturities    Total
   ----                                       ------------ ----------   --------
   <S>                                        <C>          <C>          <C>
   1999......................................   $ 4,661     $ 43,780    $ 48,441
   2000......................................     4,372      200,895(1)  205,267
   2001......................................     4,778        8,105      12,883
   2002......................................     5,077        8,842      13,919
   2003......................................     4,779       14,434      19,213
   2004......................................     4,685       22,625      27,310
   2005......................................     4,380       20,953      25,333
   2006......................................     3,329       59,780      63,109
   2007......................................     1,107          --        1,107
   2008......................................     1,199          --        1,199
   Thereafter................................     9,140       64,387      73,527
                                                -------     --------    --------
     Total...................................   $47,507     $443,801    $491,308
                                                =======     ========    ========
</TABLE>
--------
(1) Amount represents balance outstanding on the secured line of credit which
    is due on December 31, 2000.
 
Other Assets of the Company
 
  The Company's interest in Media City Center (Burbank, California) includes
an interest in two promissory notes issued by the Redevelopment Burbank Agency
of the City of Burbank (the "Burbank Agency") which mature on February 1,
2016. The first note, which is nonrecourse to the Burbank Agency, is unsecured
and was issued by the Burbank Agency on November 15, 1989 with an $18.5
million principal amount and bears interest at 9.25% per annum. On each semi-
annual payment date the Burbank Agency is required to make payments on the
note to the extent of 70% of the real property tax increment generated by
Media City Center, with certain exceptions. The second note is secured by
certain tax revenues and was issued by the Burbank Agency on December 6, 1990
with a $33 million initial principal amount and bears interest at 9.25% per
annum. The note is nonrecourse to the Burbank Agency but is secured by certain
real property tax increments generated by the property as well as certain
sales and use taxes generated by the property. On each semi-annual payment
date the Burbank Agency is required to make payments on the note only to the
extent of such tax items, less rent paid by Macy's (formerly Bullock's). Any
amount which accrues under the notes that is not required to be paid is added
to the principal amount of such notes. Any principal or interest due on either
of the notes which has not been paid (due to the permitted reductions and
limitation on payments described above) as of their respective maturity dates
will be forgiven, and it is not likely that the full face amount of the notes
and the interest thereon will be paid by such maturity dates. During the years
ended December 31, 1998, 1997 and 1996, the Company recognized income of
approximately $2,633,000, $2,656,000 and $2,797,000, respectively, pursuant to
the terms of such agency note agreements.
 
  Under similar commitments from the Community Redevelopment Agencies of the
Cities of Fullerton and Chino, other income was recognized for the years ended
December 31, 1998, 1997 and 1996 from Fullerton Town Center of $52,000,
$48,000, and $57,000 respectively, and Country Fair Shopping Center of
$146,000, $147,000 and $146,000 respectively. Such commitments expire in 2013
and 2001 for Fullerton and Chino, respectively, and any balance owing to the
Company at expiration will be forgiven and discharged.
 
  Such commitments have not been recorded as assets in the Company's financial
statements as they are contingent in nature.
 
                                      19
<PAGE>
 
Environmental And Other Regulatory Requirements
 
  Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal
or remediation of certain hazardous or toxic substances on or in its
properties. Such laws may impose such liability without regard to whether the
Company knew of, or was responsible for, the presence of such hazardous or
toxic substances. The costs of investigation, removal, or remediation of such
substances may be substantial and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the
owner's ability to sell such real estate or to borrow using such real estate
as collateral. In connection with its ownership and operation of properties,
the Company may be potentially liable under such laws and may incur costs in
responding to such liabilities. No assurance can be given that any existing
environmental studies with respect to any of the Properties will reveal all
environmental liabilities, that any prior owner or tenant of a Property did
not create any material environmental condition not known to the Company, that
future laws, ordinances or regulations will not impose any material
environmental liability, or that a material environmental condition does not
otherwise exist as to any one or more Properties.
 
  Pursuant to an Environmental Indemnity Agreement, as modified by the
Separation Agreement, the transferors of eight of the 36 properties acquired
at the time of the Company's formation in December 1993 (the "Original
Properties") have agreed to provide certain indemnities to the Company for
environmental liabilities that may arise with respect to any contamination on
or affecting the condition of the Original Properties which was known as of
December 27, 1993 or which becomes known after December 27, 1993 as a result
of additional environmental testing commenced prior to December 27, 1993.
Pursuant to the transfer documents with respect to Rosedale Village, Gresham
Town Fair, Medford Center and LaVerne Towne Center (the "1994 Acquisition
Properties"), the transferors of such properties provided certain indemnities
with respect to environmental liabilities to the Company. Because
responsibility for such matters is being retained by the transferors no
liabilities have been recorded in the financial statements of the Company with
respect to such matters. For the Properties acquired during 1998 and 1997
where the Company's due diligence identified existing or potential
environmental contamination, the Company either obtained indemnifications from
the sellers or had remediation work paid for by the seller. For all other
Properties acquired, based on the Company's due diligence, the Company does
not believe that it has exposure to material environmental clean up cost.
 
  The Properties are subject to the Americans with Disabilities Act of 1990
(the "ADA"). The ADA has separate compliance requirements for "public
accommodations" and "commercial facilities" but generally requires that all
public facilities be made accessible to people with disabilities. These
requirements became effective in 1992. Although the Company believes that the
Properties are substantially in compliance with the present requirements of
the ADA, the Company may incur additional costs of complying with the ADA in
the future. However, the Company does not believe that such costs of
compliance will have a material effect on the Company.
 
ITEM 3. LEGAL PROCEEDINGS
 
  The Company is subject to various legal proceedings and claims that arise in
the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted with
certainty, management believes, based on currently available information, that
the final outcome of such matters will not have a material adverse effect on
the financial position or results of operations of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  During the fourth quarter of 1998, no matters were submitted for a vote of
stockholders of the Company.
 
                                      20
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
 
  The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "CTA." At February 28, 1999, the Company had approximately 177
stockholders of record and approximately 6,000 beneficial owners. The
following table sets forth quarterly high and low sales prices of the Common
Stock and the dividends paid by the Company with respect to each period.
 
<TABLE>
<CAPTION>
                                                                       Dividends
                                                                       Declared
   Three months ended:                                  High     Low   Per Share
   -------------------                                  ----     ---   ---------
   <S>                                                 <C>     <C>     <C>
    December 31, 1998................................. $12.938 $ 9.500   $0.36
    September 30, 1998................................  15.750  10.813    0.36
    June 30, 1998.....................................  17.000  13.750    0.36
    March 31, 1998....................................  18.000  16.250    0.36
    December 31, 1997.................................  18.250  15.500    0.36
    September 30, 1997................................  16.875  15.250    0.36
    June 30, 1997.....................................  16.250  13.000    0.36
    March 31, 1997....................................  16.000  13.750    0.36
</TABLE>
 
  Distributions included a return of capital component of approximately 82.5%,
72% and 76%, for the years ended December 31, 1998, 1997 and 1996,
respectively. In addition, 1998 distributions included a 5.3% capital gain
return. All distributions will be made by the Company at the discretion of the
Board of Directors and will depend on the earnings of the Company, its
financial condition and such other factors as the Board of Directors deems
relevant. The historical return of capital component of the Company's
distributions is not indicative of the return of capital component of future
distributions, which may be lower than previous years. In order to qualify for
the beneficial tax treatment accorded to real estate investment trusts under
the Internal Revenue Code, the Company is required to make distributions to
holders of its shares which will be at least 95% of the Company's "real estate
investment trust taxable income," as defined in Section 857 of the Code.
 
                                      21
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The following table sets forth selected financial data for the Company. The
following data should be read in conjunction with management's discussion and
analysis of financial condition and results of operations and all of the
financial statements and notes thereto included elsewhere in this Form 10-K.
 
<TABLE>
<CAPTION>
                                        Year ended December 31
                            ---------------------------------------------------
                               1998       1997       1996      1995      1994
                            ----------  ---------  --------  --------  --------
                              (In thousands, except per share & property
                                                 data)
<S>                         <C>         <C>        <C>       <C>       <C>
Statements of Operations
 Data:
Total revenues............  $  130,495  $  88,961  $ 87,719  $ 81,323  $ 73,199
                            ----------  ---------  --------  --------  --------
Expenses:
  Interest................      48,385     36,083    35,516    32,304    27,952
  Property operating
   costs..................      40,500     27,720    27,780    28,379    23,395
  Depreciation and
   amortization...........      24,313     18,333    17,118    20,018    18,695
  Writedown of Asset Held
   for Sale...............      21,685        --        --        --        --
  Non-recurring items.....         --       9,355     9,044       --        --
  General and
   administrative.........       5,835      2,941     2,917     3,014     1,164
                            ----------  ---------  --------  --------  --------
Total expenses............     140,718     94,432    92,375    83,715    71,206
                            ----------  ---------  --------  --------  --------
Loss before other items...     (10,223)    (5,471)   (4,656)   (2,392)    1,993
Equity in income of
 management company.......         --          19       --          4       137
Gain on Sale of Rental
 Properties...............       1,055        --      2,406       --        --
Minority interests........       1,055      1,229       245       (20)     (460)
Extraordinary items.......         --        (422)      --        --        --
                            ----------  ---------  --------  --------  --------
Net (loss) income.........  $   (8,113) $  (4,645) $ (2,005) $ (2,408) $  1,670
                            ==========  =========  ========  ========  ========
Net (loss) income per
 share, basic.............  $    (0.38) $   (0.35) $  (0.17) $  (0.20) $   0.14
                            ==========  =========  ========  ========  ========
Dividends per share.......  $     1.44  $    1.44  $   1.44  $   1.44  $   1.44
                            ==========  =========  ========  ========  ========
Weighted average shares of
 common stock outstanding.      21,519     13,312    12,024    11,964    11,678
                            ==========  =========  ========  ========  ========
Number of operating
 Properties (at end of
 period)..................          63         46        38        40        40
Gross Leasable Area owned
 (sq. ft.)
 (at end of period) ......      10,185      7,217     6,570     6,740     6,450
<CAPTION>
                                          As of December 31,
                            ---------------------------------------------------
                               1998       1997       1996      1995      1994
                            ----------  ---------  --------  --------  --------
<S>                         <C>         <C>        <C>       <C>       <C>
Balance Sheet Data:
Rental Properties before
 accumulated depreciation.  $1,074,629  $ 783,279  $659,565  $653,058  $618,427
Total assets..............     987,021    710,713   594,876   605,777   590,030
Total debt and other
 liabilities..............     697,419    519,441   434,603   421,561   385,258
Minority interests........      49,231     41,433    43,647    16,765    18,433
Redeemable Common Stock...       9,903      8,385       --        --        --
Stockholders' equity......     230,468    141,454   116,626   167,451   186,339
<CAPTION>
                                        Year ended December 31
                            ---------------------------------------------------
                               1998       1997       1996      1995      1994
                            ----------  ---------  --------  --------  --------
<S>                         <C>         <C>        <C>       <C>       <C>
Other Data:
Funds from Operations(1):
  Basic...................  $   36,301  $  21,924  $ 20,893  $ 17,075  $ 20,249
  Diluted.................      50,169     35,793    34,765    30,943    34,230
Cash Flows From:
  Operating Activities....  $   32,528  $  19,559  $ 22,414  $ 19,910  $ 21,387
  Investing Activities....    (219,430)  (110,192)  (20,522)  (32,075)  (44,553)
  Financing Activities....     189,925     88,305       362    11,326    19,978
</TABLE>
--------
(1) The Company computes funds from operations ("FFO") on both a basic and a
    diluted basis and considers Operating Partnership Units as the equivalent
    of shares for the purpose of these computations. The diluted basis assumes
    the conversion of the convertible and exchangeable debentures into shares
    of common stock as well as other common stock equivalents. For further
    discussion of FFO, see Item 7--Management's Discussion and Analysis of
    Results of Operations.
 
 
                                      22
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K.
 
  The following discussion of Financial Condition and Results of Operations
contains certain forward-looking statements that are subject to risk and
uncertainty. Investors and potential investors in the Company's securities are
cautioned that a number of factors could adversely affect the Company's
ability to obtain these results, including (a) the inability to lease
currently vacant space in the Company's properties; (b) the inability of
tenants to pay contractual rent and other expenses; (c) bankruptcies of
tenants; (d) decisions by tenants, and anchor retailers who own their own
space, to close stores at the Company's properties; (e) increases in certain
operating costs at the Company's properties; (f) decreases in rental rates
available from tenants leasing space at the Company's properties; (g)
unavailability of financing for acquisition, development and redevelopment of
properties by the Company; (h) increases in interest rates; (i) ability to
dispose of properties; (j) environmental issues; (k) governmental compliance
issues and (l) a general economic downturn resulting in lower retail sales
and, in turn, store closures, rent delinquencies, reduced percentage rents and
other downward pressure on occupancies and rents at retail properties.
 
Results of Operations
 
 Comparison of the year ended December 31, 1998 to the year ended December 31,
1997.
 
  Total revenues increased by $41.5 million to $130.5 million for the year
ended December 31, 1998 from $89.0 million for the year ended December 31,
1997. The increase was primarily a result of the acquisition of 19 properties
during 1998 and 8 properties in the latter part of 1997. The acquired
properties account for $36.9 million of the increase. Covina Town Square and
Medford Center, properties where the Company opened new theaters in early 1998
and late 1997, respectively, accounted for $3.8 million of the remaining
difference. The balance of the increase came from growth from the existing
portfolio.
 
  Interest expense increased by $12.3 million to $48.4 million for the year
ended December 31, 1998 from $36.1 million for the year ended December 31,
1997. The increase is principally a function of borrowings on the Company's
line of credit which increased $92.2 million and the assumption of $96.0
million in mortgage debt. The principal purpose of such debt was to finance
acquisitions.
 
  Property operating costs increased $12.8 million from $27.7 million for the
year ended December 31, 1997 to $40.5 million for the year ended December 31,
1998. The acquired properties referred to above accounted for $8.7 million of
the increase over the prior year. $2.5 million of the increase relates to
increases at Medford Center and Covina Town Center as well as increased
operating costs at the Company's two regional malls.
 
  Depreciation and amortization expense increased by $6.0 million to $24.3
million for the year ended December 31, 1998 from $18.3 million for the year
ended December 31, 1997. This increase was a result of an overall increase in
rental properties.
 
  General and administrative costs increased $2.9 million from $2.9 million
for the year ended December 31, 1997 to $5.8 million for the year ended
December 31, 1998. During 1998, the Emerging Issues Task Force issued EITF 97-
11, "Accounting for Internal Costs Related to Real Estate Property
Acquisitions," which prohibits the capitalization of internal costs associated
with the acquisition of properties. This ruling, along with costs related to
abandoned acquisitions, accounted for $1.5 million of the increase. The
balance of the increase was principally a result of the additional staffing
required to accommodate the growth within the Company.
 
  As of December 31, 1998, the Company recorded a writedown of an asset held
for sale of $21.7 million. The write down resulted from the Company's decision
to sell Empire Center, located in Fontana, California. The Company expects to
complete the sale of this asset in 1999 and therefore the property was written
down to its fair market value, less estimated closing costs.
 
                                      23
<PAGE>
 
  During the fourth quarter of 1997, the Company recorded a $9.4 million non-
recurring charge related to the Separation Agreement. This consists of $2.7
million in cash payment made in January 1998, vesting of outstanding stock
options and restricted stock grants, granting and vesting of previously
committed restricted stock awards and the value attributed to the Company's
agreement to repurchase, or cause to have repurchased, substantially all of
the Haagen Family's ownership in the Company at a minimum price of $17 per
share.
 
  During 1998, the Company sold a single tenant facility for a net gain on
sale of $1.1 million.
 
  During 1997, the Company incurred an extraordinary loss on the early
extinguishment of debt of $422,000 related to the write-off of unamortized
deferred financing costs.
 
  Loss before other items increase by $4.7 million from $5.5 million at
December 31, 1997 to $10.2 million at December 31, 1998.
 
 Comparison of the year ended December 31, 1997, to the year ended December
31, 1996.
 
  Operating revenues increased by $1.3 million to $89.0 million for the year
ended December 31, 1997 from $87.7 million for the year ended December 31,
1996. The increase was primarily a result of the acquisition of eight
properties during the third and fourth quarters of 1997. These increases were
partially offset by the loss of revenue at the former Sears store at Covina
Town Square and the loss of revenue resulting from the closure of the IKEA
Store at Empire Center.
 
  Interest expense increased by $0.6 million from $35.5 million for the year
ended December 31, 1996 to $36.1 million for the year ended December 31, 1997.
The increase is principally a function of borrowings on the Company's line of
credit to finance its recent acquisitions.
 
  Property operating costs were consistent from December 31, 1997 to 1996
decreasing from $27.8 million to $27.7 million. Increases related to
acquisitions were offset by decreases resulting from two properties undergoing
redevelopment.
 
  Depreciation and amortization expense increased by $1.2 million from $17.1
million for the year ended December 31, 1996 to $18.3 million for the year
ended December 31, 1997. This increase was a result of an overall increase in
investment in rental properties.
 
  During the fourth quarter of 1997, the Company recorded a $9.4 million
charge related to the Separation Agreement. This consists of $2.7 million in
cash payment made in January 1998, vesting of outstanding stock options and
restricted stock grants, granting and vesting of previously committed
restricted stock awards and the value attributed to the Company's agreement to
repurchase, or cause to have repurchased, substantially all of the Haagen
Family's ownership in the Company at a minimum price of $17 per share.
 
  During 1996 the Company recorded a non-recurring non-cash charge of $6.9
million to increase the reserve against the receivable for straight-line
rents. Also in 1996 the Company recorded a non-cash charge of $2.1 million
related to the write-off of the net book value of a building which was
demolished.
 
  During 1996, the Company sold two single tenant facilities for a net gain on
sale of $2.4 million.
 
  During 1997, the Company incurred an extraordinary loss on the early
extinguishment of debt of $422,000 related to the write-off of unamortized
deferred financing costs.
 
  Loss before other items increased by $0.8 million from $4.7 million for the
year ended December 31, 1996 to $5.5 million for the year ended December 31,
1997 for the reasons stated above.
 
                                      24
<PAGE>
 
 Selected Property Financial Information
 
  Net Operating Income (defined as operating revenues less property operating
costs) for the Company's properties was as follows:
 
<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                         -----------------------
                                                          1998    1997    1996
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   Stabilized Properties:
     Regional Malls..................................... $17,156 $17,074 $16,407
     Community Centers..................................  65,379  36,200  35,681
     Single Tenants.....................................   7,000   7,624   7,583
   Other Income.........................................     460     343     268
                                                         ------- ------- -------
   Net Operating Income................................. $89,995 $61,241 $59,939
                                                         ======= ======= =======
</TABLE>
 
  The following summarizes the percentage of leased GLA (excluding non-owned
GLA) as of:
 
<TABLE>
<CAPTION>
                                          December 31, December 31, December 31,
                                              1998         1997         1996
                                          ------------ ------------ ------------
   <S>                                    <C>          <C>          <C>
   Retail Properties:
     Regional Malls......................     90.9%        91.3%        92.5%
     Community Centers...................     91.9         93.8         93.0
     Single Tenants......................    100.0        100.0        100.0
   Aggregate Portfolio...................     92.7         94.6         95.8
</TABLE>
 
  During 1998 the Company signed leases for approximately 340,000 square feet
and renewed approximately 196,000 square feet of community centers leases at
rates approximately 4.0% higher than previous rates. Such signed leases
resulted in an increase in the overall rent per square foot of the Company's
portfolio to $11.23 per square foot at December 31, 1998 from $10.96 per
square foot at December 31, 1997.
 
Liquidity Sources and Requirements
 
  The Company intends to meet its short term cash requirements from cash
generated from operations. The Company anticipates that revenues generated
from the Company's real estate will be sufficient to cover operating expenses,
debt service requirements and dividends to shareholders.
 
  In December 1997, the Operating Partnership entered into a new revolving
line of credit with a maximum borrowing limit of $250 million (the "Credit
Facility"). The Credit Facility will primarily provide continued funding for
the Company's acquisitions, stock repurchase program and redevelopment
activities. The Credit Facility expires in December 2000. At February 28,
1999, outstanding borrowings on the Credit Facility were approximately $186.0
million, with an additional $4.8 million having been utilized to provide
letters of credit.
 
  To the extent that borrowings under the Credit Facility are less than the
outstanding commitment from LFREI the interest rate on such portion will be
London Inter-Bank Offering Rate ("LIBOR") plus 100 basis points. To the extent
the borrowings are in excess of the outstanding LFREI commitment such excess
will bear interest at LIBOR plus 137.5 basis points.
 
  As of December 31, 1998, the Company had sold 13,406,434 shares, to LFREI
under the terms of the Transaction for aggregate proceeds of $201.1 million.
The Company will sell the remaining 2,260,232 shares to LFREI for proceeds of
$33.9 million on or prior to May 19, 1999.
 
  Mortgage loans maturing of $43.8 million in 1999 and $8.1 million in 2001,
as well as significant amounts due from 2002 to 2015, may require refinancing.
Additionally, the Company's secured line of credit is due in 2000 and the
convertible debentures of $138.6 million and exchangeable debentures of $30.0
million are due in
 
                                      25
<PAGE>
 
2001 and 2003, respectively. The Company believes, based on the collateral
available within the Properties, that it will be able to effect such
refinancings.
 
  The Company anticipates continuing to execute its Stock Repurchase program,
acquisition and redevelopment strategy during the next 12 months. The Company
believes that such activities will be funded from the LFREI Equity Commitment,
the Company's Credit Facility, future debt refinancings and financings, and
the disposition of certain non-strategic assets. The Company also expects that
these proceeds will be used to fund the Haagen Obligation of $58.8 million.
 
Funds from Operations
 
  The Company considers Funds From Operations ("FFO") to be an alternative
measure of the performance of an equity REIT since such measure does not
recognize depreciation and amortization expenses as operating expenses. FFO is
defined, as outlined in the March 1995 white paper, by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income plus
depreciation and amortization, excluding non-real estate assets, less gains on
sales of properties. Additionally, the definition also permits FFO to be
adjusted for significant non-recurring items.
 
  The Company computes FFO on both a basic and a diluted basis. The diluted
basis assumes the conversion of the convertible and exchangeable debentures
into shares of common stock. The following table summarizes the Company's
computation of FFO and provides certain additional disclosures (dollars in
thousands):
 
<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                     -------------------------
                                                      1998     1997     1996
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
Net Loss...........................................  $(8,113) $(4,645) $(2,005)
Adjustments to reconcile net loss to funds from
 operations:
Depreciation and Amortization:
  Buildings and improvements.......................   15,980   12,161   11,615
  Tenant improvements and allowances...............    5,768    4,635    4,284
  Leasing costs....................................    2,407    1,451    1,163
Gain on Sale of Asset..............................   (1,055)     --    (2,406)
Write down of Asset Held for Sale..................   21,685      --       --
Non-recurring charges, net.........................      --     9,355    9,044
Minority Interests.................................   (1,634)  (1,810)    (802)
Extraordinary Loss on Early Extinguishment of Debt.      --       422      --
Other..............................................    1,263      355      --
                                                     -------  -------  -------
Funds from Operations, basic.......................   36,301   21,924   20,893
Debenture interest expense.........................   12,568   12,569   12,573
Amortization of debenture financing costs..........    1,300    1,300    1,299
                                                     -------  -------  -------
Funds from Operations, diluted.....................  $50,169  $35,793  $34,765
                                                     =======  =======  =======
</TABLE>
 
  Funds from operations, on a basic basis, increased to $36.3 million for the
year ended December 31, 1998, as compared to $21.9 million for the same period
in 1997. On a diluted basis, assuming conversion of the debentures and other
common stock equivalents, funds from operations increased to $50.2 million
from $35.8 million. The increase in funds from operations is principally a
function of acquisitions made during 1998 and the latter part of 1997. During
1998 and 1997, the Company recorded a writedown on assets held for sale of
$21.7 million and non-recurring charges of $9.4 million, respectively. The
1997 charge related to the retirement of the Haagen Family while the 1998
charge relates to the estimated loss on the pending sale of Empire Center.
Such items were not included in the computation of FFO as the Company
considers them to be significant non-recurring events that if deducted would
materially distort the comparative measurement of Company performance.
 
                                      26
<PAGE>
 
  Funds from operations do not represent cash flows from operations as defined
by Generally Accepted Accounting Principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Further, the
methodology for computing FFO utilized by the Company may differ from that
utilized by other equity REITs and, accordingly may not be comparable to such
other REITs.
 
Cash Flows
 
  Net cash provided by operations for the year ended December 31, 1998 was
$32.5 million compared to $19.6 million for the prior year, an increase of
$12.9 million. The principal reason for the increase in net cash from
operations is the properties acquired during 1998, as discussed in Results of
Operations above.
 
  Net cash used by investing activities increased by $109.2 million to $219.4
million from $110.2 million for the prior year. The increase is a direct
result of the acquisitions made during 1998 of $309.9 million. In addition to
cash, the Company also assumed mortgage debt and issued OP units in connection
with certain of its acquisitions. Net cash provided by financing activities
was $189.9 million for the year ended December 31, 1998, an increase of
$101.6 million from the prior year. This increase includes $141 million in
proceeds from the sale of common stock to LFREI. In addition, the Company
increased by $92.2 million, the amount outstanding on its secured line of
Credit.
 
  Net cash provided by operations for the year ended December 31, 1997 was
$19.6 million compared to $22.4 million for the prior year. The principal
reasons for the decrease in net cash from operations are discussed in Results
of Operations above.
 
  Net cash used by investing activities increased by $89.7 million to $110.2
million from $20.5 million for the prior year. The increase is a direct result
of the acquisitions made during 1997 of $91.4 million. Net cash provided by
financing activities was $88.3 million for the year ended December 31, 1997,
an increase of $87.9 million from the prior year. This increase includes $58.7
million in proceeds from the sale of common stock to LFREI. In addition, the
Company drew an additional $44 million against its secured line of Credit.
These increases were offset by increased restricted cash requirements, the
costs of obtaining both equity and debt financing and an increase in dividends
and distributions as a result of the issuance of common stock and OP units.
 
Inflation
 
  The Company's long-term leases contain provisions designed to mitigate the
adverse impact of inflation on its results from operations. Such provisions
include clauses enabling the Company to receive percentage rents based upon
tenants' gross sales, which generally increase as prices rise, and/or, in
certain cases, escalation clauses, which generally increase rental rates
during the terms of the leases. Such escalation clauses are often related to
increases in the CPI or similar inflation indices. In addition, many of the
Company's leases are for terms of less than ten years, which permits the
Company to seek to increase rents upon re-rental at market rates if rents are
below then existing market rates. Many of the Company's leases require the
tenants to pay a pro rata share of operating expenses, including common area
maintenance, real estate taxes, insurance and utilities, thereby reducing the
Company's exposure to increases in costs and operating expenses resulting from
inflation.
 
Adoption of Accounting Standards
 
  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement is effective for financial statements
issued for fiscal years beginning after June 15, 1999. The Company has not yet
analyzed the impact of adopting this statement.
 
  In March 1998, the Emerging Issues Task Force issued EITF 97-11, "Accounting
for Internal Costs Related to Real Estate Property Acquisitions." As a result,
the Company no longer capitalizes internal costs incurred in
 
                                      27
<PAGE>
 
connection with its real estate acquisitions. This change resulted in an
increase in general and administrative costs in 1998 of $1.5 million.
 
Year 2000 Compliance
 
  The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process information containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send tenant invoices,
provide building services or engage in similar normal business activities. In
addition, there is a possibility that the Company may be unable to provide an
adequate operating environment for some of its tenants due to the failure of
building mechanical or security systems. The Company could be subject to
litigation for failure to provide and adequate operating environment for its
tenants as a result of such Year 2000 related system disruptions. More
immediately, the tenants could cease paying rent which could impact the
Company's liquidity. There is also a possibility that if any of the Company's
major tenants do not become Year 2000 compliant on schedule, such tenant's
operations and financial condition could be adversely affected, which may
impact the tenant's ability to meet its rent obligations.
 
  The Company has identified three areas of concern regarding Year 2000
Compliance; (i) internal information technology systems including the
Company's network hardware and software; (ii) computer and other operational
systems at its properties; and (iii) systems of significant third party
vendors and tenants.
 
  The Company has evaluated its internal information technology systems and
has concluded that its most significant systems are currently Year 2000
compliant. The Company will continue to evaluate the readiness of its other
less significant systems in order to identify and correct potential Year 2000
issues.
 
  The Company is also in the process of evaluating computer and other
operational systems at its properties that may have embedded microprocessors
with potential Year 2000 issues. The potential Year 2000 issues at the
properties principally relate to automated utility systems such as heating,
ventilation and air conditioning systems and security and safety devices such
as lighting systems and alarms. The Company is in the process of identifying
the areas and systems that use embedded microprocessors to determine whether
any modifications are necessary. The Company expects to make any necessary
modifications by the end of the third quarter of 1999.
 
  The Company places a high degree of reliance on computer systems of third
parties such as vendors and tenants. The Company has completed a survey of all
third parties with whom it does significant business to determine their Year
2000 Compliance readiness and the extent to which the Company is vulnerable to
any third party Year 2000 issues. The Company has received statements of
compliance from its primary third party vendors and tenants which state that
their systems will be in compliance prior to December 31, 1999. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems,
would not have a material adverse effect on the Company. The Company believes
it has viable alternatives for each of its significant vendors.
 
  The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which the
Company plans to complete the Year 2000 modifications and testing processes
are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ from those plans as information not currently known to
the Company becomes available.
 
                                      28
<PAGE>
 
  The Company is in the process of developing contingency plans for its
internal information technology systems, its properties and its significant
third party vendors in the event that the Company experiences Year 2000
issues. It is anticipated that such plans will be complete in sufficient time
prior to December 31, 1999.
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 
  The Company is exposed to market risk primarily due to fluctuations in
interest rates. Specifically, the risk resulting from increasing LIBOR based
interest rates as interest on the Company's Credit Facility of $200.9 million
is tied to various LIBOR interest rates. The Credit Facility matures December
31, 2000. The Company is also subject to market risk resulting from
fluctuations in the general level of U.S. interest rates as $260.5 million of
the Company's debt is based on a weighted average fixed rate of 9.321%. As a
result, the Company will be obligated to pay contractually agreed upon rates
of interest on its fixed rate debt, unless management refinances its existing
fixed rate debt and potentially incur substantial prepayment penalties. The
$36 million of tax-exempt certificates of participation are tied to a general
index of AAA rated tax free municipal bonds.
 
  The following table provides information about the Company's interest rate
sensitive financial instruments, including, amounts due at maturity, principal
amortization, weighted average interest rates and fair market values as of
December 31, 1998 (in thousands):
 
<TABLE>
<CAPTION>
                                                                                             Fair Market
                           1999      2000     2001     2002     2003    Thereafter  Total       Value
                          -------  --------  -------  -------  -------  ---------- --------  -----------
<S>                       <C>      <C>       <C>      <C>      <C>      <C>        <C>       <C>
Interest Rate Sensitive
 Liabilities:
 Credit Facility........           $200,895                                        $200,895   $200,895
 Average Interest Rate..             LIBOR+                                          LIBOR+
                                       1.38%                                           1.38%
 Fixed Rate Debt........  $48,441  $  4,372  $12,883  $13,919  $19,213   $161,663  $260,491   $280,378
 Weighted Average
  Interest Rate.........    9.107%    9.321%   8.250%  10.284%  10.375%     9.287%    9.321%
 Tax Exempt
  Certificates..........                                                 $ 36,000  $ 36,000   $ 36,000
 Average Interest Rate..                                                    5.110%    5.110%
                                                                                    497,386
</TABLE>
 
                                      29
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and
Stockholders of Center Trust:
 
  We have audited the accompanying consolidated balance sheets of Center Trust
and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedules listed in the Index at
Item 14.A.2. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
 
                                          Deloitte & Touche LLP
 
Los Angeles, California
March 2, 1999
 
                                      30
<PAGE>
 
                                  CENTER TRUST
 
                          CONSOLIDATED BALANCE SHEETS
 
                           December 31, 1998 and 1997
                       (in thousands, except share data)
 
<TABLE>
<CAPTION>
                                                             1998       1997
                                                          ----------  --------
<S>                                                       <C>         <C>
                         ASSETS
                         ------
Rental properties (Notes 2, 3, 4 and 5).................. $1,074,629  $783,279
  Accumulated depreciation and amortization..............   (141,785) (121,202)
                                                          ----------  --------
Rental properties, net...................................    932,844   662,077
Cash and cash equivalents (Note 2).......................      6,636     3,613
Tenant receivables, net (Note 2).........................     13,543     6,017
Other receivables (Note 2)...............................      7,984     7,575
Restricted cash (Note 4).................................      5,437     9,435
Deferred charges, net (Note 2)...........................     18,682    19,759
Other assets.............................................      1,895     2,237
                                                          ----------  --------
    TOTAL................................................ $  987,021  $710,713
                                                          ==========  ========
          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------
LIABILITIES:
  Secured Debt (Notes 4 and 10).......................... $  497,386  $313,660
  7 1/2% Convertible subordinated debentures (Notes 5 and
   10)...................................................    138,599   138,599
  7 1/4% Exchangeable subordinated debentures (Notes 5
   and 10)...............................................     30,000    30,000
  Accrued dividends and distributions (Note 7)...........     10,931     7,371
  Accrued interest.......................................      5,873     5,604
  Accounts payable and other accrued expenses (Note 11)..      6,718     8,482
  Accrued construction costs.............................      1,955    10,996
  Tenant security and other deposits.....................      5,957     4,729
                                                          ----------  --------
    Total liabilities....................................    697,419   519,441
                                                          ----------  --------
MINORITY INTERESTS (Notes 1, 2 and 12):
  Operating Partnership (4,978,240 and 4,280,789 units
   issued as of December 31, 1998 and 1997,
   respectively).........................................     47,215  39,685
  Other Minority Interests...............................      2,016     1,748
                                                          ----------  --------
    Total minority interests.............................     49,231    41,433
                                                          ----------  --------
COMMITMENTS AND CONTINGENCIES (Note 12)
REDEEMABLE COMMON STOCK (Note 6):
  590,034 and 510,034 shares outstanding as of December
   31, 1998 and 1997, respectively redeemable on May 25,
   1999 .................................................      9,903     8,385
                                                          ----------  --------
STOCKHOLDERS' EQUITY (Notes 5, 7, and 8):
  Common stock ($.01 par value, 100,000,000 shares
   authorized; 24,756,693 and 15,664,814 shares issued
   and outstanding at December 31, 1998 and 1997,
   respectively).........................................        248       157
  Additional paid-in capital.............................    354,281   223,972
  Accumulated distributions and deficit..................   (124,061)  (82,675)
                                                          ----------  --------
    Total stockholders' equity...........................    230,468   141,454
                                                          ----------  --------
    TOTAL................................................ $  987,021  $710,713
                                                          ==========  ========
</TABLE>
 
                 See Notes to Consolidated Financial Statements
 
 
                                       31
<PAGE>
 
                                  CENTER TRUST
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                      Three Years Ended December 31, 1998
                    (in thousands, except per share amounts)
 
<TABLE>
<CAPTION>
                                                      1998     1997     1996
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
REVENUES (Note 2):
  Rental revenues................................... $94,756  $64,682  $62,538
  Expense Reimbursements............................  28,909   19,204   19,902
  Percentage rents..................................   1,728      982      771
  Other income (Note 2).............................   5,102    4,093    4,508
                                                     -------  -------  -------
      Total revenues................................ 130,495   88,961   87,719
                                                     -------  -------  -------
EXPENSES:
  Interest (Notes 2, 4 and 5).......................  48,385   36,083   35,516
  Property operating costs:
    Common area.....................................  20,393   13,925   13,587
    Property taxes..................................  12,477    7,663    7,488
    Leasehold rentals (Note 12).....................   1,652    1,634    1,624
    Marketing.......................................     685      529    1,121
    Other operating.................................   5,293    3,969    3,960
  Depreciation and amortization (Note 2)............  24,313   18,333   17,118
  Write down of asset held for sale (Note 3)........  21,685      --       --
  Non-recurring charges (Notes 1 and 11)............     --     9,355    9,044
  General and administrative (Note 11)..............   5,835    2,941    2,917
                                                     -------  -------  -------
      Total expenses................................ 140,718   94,432   92,375
                                                     -------  -------  -------
LOSS BEFORE OTHER ITEMS............................. (10,223)  (5,471)  (4,656)
NET GAIN ON SALE OF RENTAL PROPERTIES...............   1,055      --     2,406
EQUITY IN INCOME OF MANAGEMENT COMPANY (Note 11)....     --        19      --
MINORITY INTERESTS (Note 2):
  Operating Partnership.............................   1,323    1,508      526
  Other Minority Interests..........................    (268)    (279)    (281)
                                                     -------  -------  -------
LOSS BEFORE EXTRAORDINARY ITEM......................  (8,113)  (4,223)  (2,005)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
 (Note 4)...........................................     --      (422)     --
                                                     -------  -------  -------
NET LOSS............................................ $(8,113) $(4,645) $(2,005)
                                                     =======  =======  =======
BASIC LOSS PER SHARE (Note 2):
  LOSS BEFORE EXTRAORDINARY ITEM.................... $ (0.38) $ (0.32) $ (0.17)
  EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
   OF DEBT (Note 4).................................     --     (0.03)     --
                                                     -------  -------  -------
  NET LOSS.......................................... $ (0.38) $ (0.35) $ (0.17)
                                                     =======  =======  =======
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       32
<PAGE>
 
                                  CENTER TRUST
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                      Three Years Ended December 31, 1998
                       (in thousands, except share data)
 
<TABLE>
<CAPTION>
                             Common Stock
                           ------------------ Additional  Accumulated      Total
                           Number of           Paid-In   Distributions Stockholders'
                             Shares    Amount  Capital    and Deficit     Equity
                           ----------  ------ ---------- ------------- -------------
<S>                        <C>         <C>    <C>        <C>           <C>
JANUARY 1, 1996..........  12,024,042   $120   $206,297    $ (38,966)    $167,451
Adjustment to Minority
 Interest in OP (Note 2).         --     --     (31,509)         --       (31,509)
Exercise of stock options
 (Note 8)................         336    --           4          --             4
Net Loss.................         --     --         --        (2,005)      (2,005)
Dividends declared (Note
 7)......................         --     --         --       (17,315)     (17,315)
                           ----------   ----   --------    ---------     --------
DECEMBER 31, 1996........  12,024,378    120    174,792      (58,286)     116,626
Issuance of Common Stock
 (Note 1)................   4,006,434     40     58,242          --        58,282
Exercise of Stock Options
 (Note 8)................      36,369      1        441          --           442
Reclassification to
 Redeemable Common
 Stock (Note 6)..........    (510,034)    (5)    (8,380)         --        (8,385)
Restricted Stock Grants
 (Notes 6 and 8).........     101,000      1         65          --            66
Adjustment in connection
 with Haagen Separation
 (Note 11)...............         --     --       4,549          --         4,549
Conversion of OP Units
 into Common Stock and
 adjustment to Minority
 Interest in OP (Note 2).       6,667    --      (5,737)         --        (5,737)
Net Loss.................         --     --         --        (4,645)      (4,645)
Dividends declared (Note
 7)......................         --     --         --       (19,744)     (19,744)
                           ----------   ----   --------    ---------     --------
DECEMBER 31, 1997........  15,664,814    157    223,972      (82,675)     141,454
Issuance of Common Stock
 (Note 1)................   9,400,000     94    140,906          --       141,000
Exercise of Stock Options
 (Note 8)................       2,120    --          25          --            25
Reclassification to
 Redeemable Common
 Stock (Note 6)..........     (80,000)    (1)    (1,517)         --        (1,518)
Restricted Stock Grants
 (Notes 6 and 8).........     207,459      2      1,489          --         1,491
Common Stock Repurchased
 (Note 7)................    (436,700)    (4)    (5,177)         --        (5,181)
Adjustment to Minority
 Interest in OP (Note 2).      (1,000)   --      (5,417)         --        (5,417)
Net Loss.................         --     --         --        (8,113)      (8,113)
Dividends declared (Note
 7)......................         --     --         --       (33,273)     (33,273)
                           ----------   ----   --------    ---------     --------
DECEMBER 31, 1998........  24,756,693   $248   $354,281    $(124,061)    $230,468
                           ==========   ====   ========    =========     ========
</TABLE>
 
 
                See Notes to Consolidated Financial Statements.
 
                                       33
<PAGE>
 
                                  CENTER TRUST
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                      Three Years Ended December 31, 1998
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                                  1998       1997       1996
                                                ---------  ---------  --------
<S>                                             <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................... $  (8,113) $  (4,645) $ (2,005)
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
    Depreciation and amortization of rental
     properties................................    24,313     18,333    17,118
    Amortization of deferred financing costs...     2,898      2,074     2,058
    Net gain on sale of rental properties......    (1,055)       --     (2,406)
    Write down of Asset held for sale..........    21,685        --        --
    Loss on early extinguishment of debt.......       --         422       --
    Non-recurring charge--Haagen Separation....       --       9,355       --
    Non-recurring provision for unbilled
     deferred rent.............................       --         --      6,900
    Non-recurring charge for building
     demolition................................       --          57     2,144
    Equity in income of management company.....       --         (19)      --
    Minority interests in operations...........    (1,055)    (1,229)     (245)
  Net changes in operating assets and
   liabilities.................................    (6,145)    (4,789)   (1,150)
                                                ---------  ---------  --------
      Net cash provided by operating
       activities..............................    32,528     19,559    22,414
                                                ---------  ---------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of rental properties.............  (203,748)   (85,420)      --
  Construction and development costs...........   (21,039)   (24,772)  (21,795)
  Payment of other liabilities.................       --         --     (5,000)
  Proceeds from sale of rental properties......     5,357        --      6,273
                                                ---------  ---------  --------
      Net cash used in investing activities....  (219,430)  (110,192)  (20,522)
                                                ---------  ---------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on mortgage financing.....    (3,813)    (2,464)   (4,883)
  Borrowings on secured line of credit.........   213,568    195,522    28,000
  Repayments of secured line of credit.........  (121,400)  (127,995)   (4,000)
  Repurchase of common stock...................    (5,181)       --        --
  Proceeds from issuance of common stock.......   141,025     58,664       --
  Costs of obtaining financing.................      (939)    (3,118)     (284)
  Decrease (increase) in restricted cash.......     3,998     (6,183)      933
  Dividends to shareholders....................   (29,962)   (18,243)  (17,315)
  Distributions to minority interests..........    (7,371)    (7,878)   (1,965)
  Other........................................       --         --       (124)
                                                ---------  ---------  --------
      Net cash provided by financing
       activities..............................   189,925     88,305       362
                                                ---------  ---------  --------
NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS...................................     3,023     (2,328)    2,254
CASH AND CASH EQUIVALENTS, AT BEGINNING OF
 YEAR..........................................     3,613      5,941     3,687
                                                ---------  ---------  --------
CASH AND CASH EQUIVALENTS, AT END OF YEAR...... $   6,636  $   3,613  $  5,941
                                                =========  =========  ========
NON-CASH TRANSACTIONS:
  Fair value of debt assumed to acquire
   properties.................................. $  95,955  $   6,255       --
                                                =========  =========  ========
  Issuance of operating partnership units to
   acquire properties.......................... $  11,190        --        --
                                                =========  =========  ========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       34
<PAGE>
 
                                 CENTER TRUST
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                      Three Years Ended December 31, 1998
 
1. BUSINESS
 
  CenterTrust Retail Properties, Inc., a Maryland corporation, dba Center
Trust (the "Company") is a self-administered and self-managed real estate
investment trust. The Company engages in the ownership, management, leasing,
acquisition, development and redevelopment of retail shopping centers in the
western United States.
 
  As of December 31, 1998, the Company owned a portfolio comprised of
interests in 63 retail shopping centers (the "Properties"). The Company is the
sole general partner of CT Operating Partnership, L.P., a California limited
partnership (the "Operating Partnership" or "OP") and owns an 83.6% interest
therein. Of the 63 Properties, 55 are owned directly by the Operating
Partnership. CT Finance, Inc., a Delaware corporation, is wholly owned by the
Company and is the 1% general partner of CT Finance Partnership, L.P., a
California limited partnership ("CTFP"). The Operating Partnership is the 99%
Limited Partner of CTFP. CTFP owns six of the Properties. The Operating
Partnership is the sole Member of King Mineral, LLC, a California limited
liability company ("KMLLC") and CenterTrust Retail Properties Finance III,
LLC, a Nevada limited liability company ("CTRPFIII"), each of which own one of
the Properties. CTFP, KMLLC and CTRPFII are collectively referred to as the
Finance Partnerships. The Company conducts substantially all of its operations
through the Operating Partnership and generally has full, exclusive and
complete responsibility and discretion in the management and control of the
Operating Partnership.
 
  On June 1, 1997 the Company entered into a Stock Purchase Agreement with LF
Strategic Realty Investors, L.P. and Prometheus Western Retail, LLC,
affiliates of Lazard Freres Real Estate Investors, LLC, (together "LFREI"),
providing for LFREI to invest a total of up to $235 million in Common Stock of
the Company (the "Transaction"). Pursuant to the Stock Purchase Agreement the
Company will sell an aggregate of 15,666,666 shares of Common Stock to LFREI
at a price of $15.00 per share, for an aggregate purchase price of $235
million (the "Total Equity Commitment"). On August 14, 1997, the Stockholders
of the Company approved the Transaction.
 
  As of December 31, 1998, the Company has sold 13,406,434 shares, to LFREI
under the terms of the Transaction for aggregate proceeds of $201.1 million.
The remaining 2,260,232 Shares of Common Stock for aggregate proceeds of $33.9
million will be sold on or prior to May 19, 1999. As of December 31, 1998,
LFREI owned 52.9% of the outstanding Common Stock.
 
  After LFREI acquires the remaining 2,260,232 shares (and assuming no other
change in the number of outstanding shares), LFREI will own approximately
56.8% of the outstanding Common Stock (37.3% on a Diluted Basis assuming
conversion of OP Units and Debentures).
 
  Subject to certain restrictions, in the event that the Company issues or
sells shares of common stock for cash, LFREI will be entitled to purchase or
subscribe for, either as part of such issuance or in a concurrent issuance,
that portion of the total number of shares to be issued equal to LFREI's
proportionate holdings of Common Stock prior to such issuance (but not to
exceed 37.5% of the offering).
 
  For a period of five years from August 14, 1997 (the "Standstill Period")
and any Standstill Extension Term, LFREI and its affiliates may not (i)
acquire beneficial ownership of more than 49.9% of the outstanding shares of
Common Stock, on an Adjusted Fully Diluted Basis (as defined below), (ii)
sell, transfer or otherwise dispose of any shares of Common Stock except in
accordance with certain specified limitations (including a requirement that
the Company, in its sole and absolute discretion, approve any transfer in a
negotiated transaction that would result in the transferee beneficially owning
more than 9.8% of the Company's common stock). As
 
                                      35
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
used herein, the term Adjusted Fully Diluted Basis shall mean on a Diluted
Basis, except that shares of Common Stock issuable upon conversion of the
Company's outstanding convertible debt or upon exercise of options granted
under management benefit plans shall not be included. After giving effect to
the sale of 15,666,666 shares to LFREI, and assuming no other change in the
number of outstanding shares, LFREI will own 48.1% of the Common Stock on an
Adjusted Fully Diluted Basis. In the event that the number of outstanding
shares were to increase for any reason (including as a result of issuance of
Common Stock upon conversion or exercise of the outstanding convertible debt
or management stock options), then LFREI would be allowed to acquire
additional shares of Common Stock, up to 49.9% on an Adjusted Fully Diluted
Basis. In addition to the above, LFREI has the right to nominate four members
to the Company's Board of Directors. Further, LFREI is entitled to receive
access to certain operating statements and other financial reports used in
operating the Company on a monthly basis.
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
  The Company's significant accounting policies are as follows:
 
  Basis of Presentation--The accompanying financial statements include the
accounts of the Company, the OP and the Finance Partnerships on a consolidated
basis. All significant intercompany transactions and balances have been
eliminated in the consolidated presentation.
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  Minority Interests--Included in minority interest for the years ended
December 31, 1998, 1997 and 1996 is the 16.4%, 20.9% and 26.3% interests,
respectively, in the results of the OP which are owned by various third
parties. At December 31, 1998, 1997 and 1996, 4,978,240, 4,280,789 and
4,286,456 OP Units were held by the minority limited partners, respectively.
The OP Units are exchangeable, subject to maintaining the Company's status as
a REIT, on a one-for-one basis for shares of the Company's common stock or for
cash, at the option of the Company.
 
  In addition, adjustments have been made to minority interest in the OP.
During 1998, 1997 and 1996, adjustments of $5,417,000, $5,737,000 and
$31,509,000 were recorded, principally, as a result of the issuance of
additional shares of common stock and OP Units and the conversion of OP Units
into common stock.
 
  Minority interest also includes the limited partners' share of equity in two
properties. The two properties in which the OP has a general partner interest
are Kenneth Hahn Plaza (75% interest) and Vermont-Slauson Shopping Center (34%
interest). Consolidation accounting is applied to both of the above
partnerships as the OP is deemed to have control over the operations of the
properties.
 
  Rental Properties--Rental properties are stated at cost less accumulated
depreciation. Costs incurred for the acquisition, renovation and betterment of
the properties are capitalized. Maintenance and repairs are charged to income
as incurred. Costs incurred during the initial leasing period of a property
(primarily representing interest, property taxes, and unrecoverable operating
costs) are also capitalized as buildings and improvements. The initial leasing
period is generally defined as that period beginning when basic construction
of the building is complete and ending when substantially all tenant
improvements and additional construction costs have been incurred; however,
such initial leasing period cannot exceed one year.
 
  The Company regularly reviews long-lived assets and intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of
 
                                      36
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
expected future cash flows is less than the carrying amount of the asset, the
Company recognizes an impairment loss equal to the difference between the
estimated fair value and the carrying amount of the asset.
 
  Interest costs incurred with respect to qualified expenditures relating to
the construction of assets are capitalized during the construction period.
Interest capitalized during the years ended December 31, 1998, 1997 and 1996
amounted to $734,000, $843,000 and $400,000, respectively. Cash paid for
interest, net of capitalized interest costs, was $45,218,000, $33,895,000 and
$33,576,000, for the years ended December 31, 1998, 1997 and 1996,
respectively.
 
  Depreciation and Amortization--The cost of buildings and improvements is
depreciated on the straight-line method over estimated useful lives, as
follows:
 
    Buildings--40 years
    Leasehold interests--shorter of lease term or useful life of the
    related property
    Improvements--shorter of lease term or useful life ranging from 10 to
    20 years
 
  Cash and Cash Equivalents--Cash and cash equivalents include highly liquid
investments with original maturities of three months or less.
 
  Deferred Charges--Deferred charges include deferred leasing costs and loan
fees. Leasing costs include an allocation of internal costs associated with
the execution of leases and third-party leasing commissions. Such costs are
amortized on the straight-line basis over the initial lives of the leases,
which range from 5 to 20 years. Deferred financing fees are amortized over the
terms of the respective loans.
 
  Deferred charges are summarized as follows:
 
<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1998      1997
                                                            --------  --------
                                                             (in thousands)
       <S>                                                  <C>       <C>
       Deferred financing costs............................ $ 18,312  $ 17,373
       Deferred leasing costs..............................   16,529    13,406
                                                            --------  --------
         Total deferred charges............................   34,841    30,779
       Accumulated amortization............................  (16,159)  (11,020)
                                                            --------  --------
       Deferred charges, net............................... $ 18,682  $ 19,759
                                                            ========  ========
</TABLE>
 
                                      37
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  Revenue Recognition and Tenant Receivables--Leases with tenants are
accounted for as operating leases. Minimum annual rentals are recognized on a
straight-line basis over the lease term. Unbilled deferred rent represents the
amount by which expected straight-line rental income exceeds rents currently
due under the lease agreement. During the first quarter of 1996 the Company
recorded a non-recurring non-cash charge of $6.9 million to increase the
reserve against the receivable for straight-line rents. The Company
continually evaluates its reserve for unbilled deferred rent and may adjust
its reserve in the future for changes in the retail environment. Total rents
receivable consist of the following:
 
<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                1998     1997
                                                               -------  -------
                                                               (in thousands)
     <S>                                                       <C>      <C>
     Billed tenant receivables................................ $11,443  $ 5,980
     Allowance for uncollectible rent.........................  (2,171)  (2,145)
                                                               -------  -------
     Net billed tenant receivables............................   9,272    3,835
                                                               -------  -------
     Unbilled deferred rent...................................  11,111    9,364
     Allowance for unbilled deferred rent.....................  (6,840)  (7,182)
                                                               -------  -------
     Net unbilled deferred rent...............................   4,271    2,182
                                                               -------  -------
     Tenants receivable, net.................................. $13,543  $ 6,017
                                                               =======  =======
</TABLE>
 
  Included in billed tenant receivables are (1) additional rentals based on
common area maintenance expenses and certain other expenses which are accrued
in the period in which the related expense is incurred and (2) percentage
rents which are accrued on the basis of reported tenant sales.
 
  Other Receivables--In December, 1997 the Company extended a loan to an
executive officer, who resigned from the Company in April 1998, in the amount
of $3,126,000. Interest shall accrue on the unpaid balance of the loan at an
annual rate of 7.45%. The loan is collateralized by all of the former
officer's actual and beneficial ownership interests in the Company. The loan
requires that quarterly payments, equal to the amount of dividends and
distributions paid on the former officer's ownership interests, be made to the
Company. The loan is due in full upon ninety days prior notice. The balance of
the loan as of December 31, 1998 was $2,971,000.
 
  Other Income--In connection with the development of the Media City Center,
commitments in the form of notes receivable (terminating in 2016) were
received from the Community Redevelopment Agency of the City of Burbank (the
"Burbank Agency") aggregating $51,500,000 (plus interest, subject to certain
reductions, as defined). Such commitments are repayable by the Burbank Agency
out of incremental sales and property taxes associated with certain defined
parcels within the property. Management considers amounts receivable under
these notes to be contingent in nature and accordingly has not recorded the
notes receivable. Other income has been recorded with respect to these
commitments generally in proportion to the recording of property tax expense.
Included in other income in connection with such commitments for the years
ended December 31, 1998, 1997 and 1996 is $2,633,000, $2,656,000 and
2,797,000, respectively. At December 31, 1998 and 1997, $3,560,000 and
$3,431,000, respectively, was recorded as other receivables with respect to
such commitments from the Burbank Agency.
 
  Under similar commitments from the Community Redevelopment Agencies of the
Cities of Fullerton and Chino, other income was recognized for the years ended
December 31, 1998, 1997 and 1996 from Fullerton Town Center of $52,000,
$48,000 and $57,000, respectively, and Country Fair Shopping Center of
$146,000, $147,000 and $146,000 respectively.
 
                                      38
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  Income Taxes--The Company has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with the
taxable year ended December 31, 1993. As a result, the Company generally will
not be subject to federal and state income taxation at the corporate level to
the extent it distributes annually at least 95% of its REIT taxable income, as
defined in the Code, to its stockholders and satisfies certain other
requirements. Accordingly, no provision has been made for federal and state
income taxes in the accompanying consolidated financial statements.
 
  As of December 31, 1998 and 1997, the net tax basis of Rental Properties of
the Company was approximately $108,900,000 and $88,200,000, respectively, less
than the net book basis of such assets.
 
  Earnings Per Share--Basic earnings per share is based on the weighted
average number of shares of common stock outstanding during the period and
diluted earnings per share is based on the weighted average number of shares
of common stock outstanding combined with the incremental weighted average
shares that would have been outstanding if all dilutive potential common
shares had been issued. The basic and diluted weighted average number of
shares of common stock used in the computation for the years ended December
31, 1998, 1997 and 1996 were 21,519,034, 13,312,311 and 12,024,097,
respectively. Units held by limited partners in the Operating Partnership may
be exchanged for shares of common stock of Center Trust on a one-for-one basis
in certain circumstances and therefore are not dilutive. Accordingly, the
increase in weighted average shares outstanding under the diluted method over
the basic method in every period presented is due entirely to the effect of
outstanding options issued under Center Trust's Amended and Restated 1993
Stock Option and Incentive Plan. Basic and diluted earnings were the same for
all periods presented.
 
  Segment Information--The Company operates in one segment, Retail Operating
Properties, and follows the requirements of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information."
 
  Accounting Pronouncements--In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement is effective for financial statements issued for
fiscal years beginning after June 15, 1999. The Company has not yet analyzed
the impact of adopting this statement.
 
  In March 1998, the Emerging Issues Task Force issued EITF 97-11, "Accounting
for Internal Costs Related to Real Estate Property Acquisitions." As a result,
the Company no longer capitalizes internal costs incurred in connection with
its real estate acquisitions. This change resulted in an increase in general
and administrative costs in 1998 of $1.5 million.
 
  Reclassifications--Certain amounts have been reclassified in the 1997 and
1996 financial statements to conform to the 1998 financial statement
presentation.
 
3. RENTAL PROPERTIES
 
  Rental properties consist of the following:
 
<TABLE>
<CAPTION>
                                                               December 31,
                                                            -------------------
                                                               1998      1997
                                                            ---------- --------
                                                              (in thousands)
     <S>                                                    <C>        <C>
     Land.................................................  $  284,344 $155,740
     Leasehold interests..................................      23,097   23,097
     Site improvements....................................      50,357   48,385
     Buildings and improvements...........................     715,045  530,385
     Construction in process..............................       1,786   25,672
                                                            ---------- --------
     Rental Properties, at cost...........................  $1,074,629 $783,279
                                                            ========== ========
</TABLE>
 
                                      39
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  In early 1999, the Company began to market Empire Center, a community
shopping center comprised of 262,000 square feet of company owned GLA.
Management expects that the property will be sold within one year. As such,
the property has been written down to its estimated fair value, less estimated
closing costs, resulting in a charge of $21,685,000 which has been recorded in
the 1998 financial statements.
 
4. SECURED DEBT
 
<TABLE>
<CAPTION>
                                                                 December 31,
                                                               -----------------
                                                                 1998     1997
                                                               -------- --------
                                                                (in thousands)
<S>                                                            <C>      <C>
Secured Line of Credit.......................................  $200,895 $108,727
Notes payable to life insurance companies--interest only and
 interest plus principal; rates ranging from 7.44% to 10.45%;
 maturing April 1999 through April 2014; non-recourse........   140,478   66,219
Notes payable to financial institutions--principal and
 interest paid monthly, at interest rates ranging from 8.05%
 to 9.68%; maturing April 2005 through April 2010; non-
 recourse....................................................    74,789   56,014
Notes payable to pension funds--principal and interest paid
 monthly at 10.90% and 11.45%; maturing October 2006; non-
 recourse....................................................    39,146   40,575
Floating rate tax-exempt certificates of participation--
 interest only at effective rate of 5.11%; maturing December
 2014 through December 2015; non-recourse....................    36,000   36,000
Community Facilities District Special Tax Bonds--interest
 rates ranging from 6.0% to 8.5%; maturing in gradually
 increasing installments through April 2021; non-recourse....     6,078    6,125
                                                               -------- --------
                                                               $497,386 $313,660
                                                               ======== ========
</TABLE>
 
  On December 31, 1997, the OP entered into a new $250 million secured
revolving line of credit with a financial institution (the "Credit Facility").
The Credit Facility expires on December 31, 2000 and borrowings under the
Credit Facility bear interest at a floating rate equal to London Inter-Bank
Offering Rate ("LIBOR") plus 100 basis points (5.63% at December 31, 1998). To
the extent the borrowings are in excess of the remaining LFREI equity
commitment such excess will bear interest at LIBOR plus 137.5 basis points.
 
  Borrowings under the Credit Facility are secured by first mortgage liens on
Montebello Town Square, The City Center, Media City Center, Empire Center,
Medford Center, Pacific Linen Plaza, Ross Plaza, Vancouver Park Place, Sunrise
Place, Frontier Village, Marshalls Plaza, Rheem Valley, Sixth Avenue, Madera
Market Place, SouthPointe Plaza, Kyrene Village Vineyards Marketplace, Ross
Plaza-Silverdale Covington Square and Torrance Promenade. As properties are
acquired, they may be added to the security of the Credit Facility, thereby
increasing the amount available to the Company. The Company has utilized $4.8
million of the Credit Facility to provide various letters of credit. The
Credit Facility is subject to certain conditions, the violation of which may
affect its terms.
 
  Proceeds from the Credit Facility were used to repay amounts outstanding on
the former credit facility. In connection with the repayment of the former
credit facility, the Company incurred an extraordinary loss on the early
extinguishment of debt of $422,000 related to unamortized deferred financing
costs in 1997.
 
  The notes payable are secured by deeds of trust and the assignment of rents
and leases associated with the related properties. Certain of the non-recourse
notes payable are subject to certain conditions, the violation of which may
result in additional recourse being available to the lenders. Certain of the
loans are subject to substantial prepayment penalties, as defined in the
respective loan agreements (See Note 10).
 
                                      40
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  The $6,078,000 Community Facilities District Special Tax Bonds were issued
by the City of Fontana, California, to finance the construction of the
infrastructure for Empire Center. Debt service is provided through a special
tax assessment on the parcels of land within the development. As the amount of
the liability is fixed and determinable and the related assets are subject to
a lien, the liability and corresponding site improvement assets have been
reflected in the financial statements.
 
  Aggregate future principal payments as of December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
       Years Ending
       December 31,
       ------------                                               (in thousands)
       <S>                                                        <C>
       1999......................................................    $ 48,441
       2000......................................................       4,372
       2001......................................................      12,883
       2002......................................................      13,919
       2003......................................................      19,213
       Thereafter................................................     197,663
                                                                     --------
           Total.................................................    $296,491
                                                                     ========
</TABLE>
 
  Total amount excludes $200,895 outstanding on the secured line of credit
which is due on December 31, 2000.
 
  Restricted cash at December 31, 1998 and 1997 includes reserve funds
established in connection with the tax exempt financing. In addition, at
December 31, 1998 and 1997 restricted cash includes funds restricted for the
completion of certain construction projects. Interest income on such funds
accrues to the benefit of the Company. Restricted cash disbursements require
the approval of the trustees of the respective obligations. The floating rate
tax-exempt certificate of participation requires the Company to maintain
letters of credit equal to the balance outstanding. The cost of such is
factored into the effective rate on such notes.
 
5. SUBORDINATED DEBENTURES
 
  In conjunction with the Company's formation, it issued 7 1/2% Convertible
Subordinated Debentures, Series A and Series B which mature on January 15,
2001. The Convertible Debentures are convertible at any time after issuance
and prior to maturity, into shares of Common Stock of the Company at a
conversion price of $18.00 per share, subject to adjustment under certain
conditions. The Convertible Debentures are not redeemable by the Company prior
to maturity, except for certain reasons primarily intended to protect the
Company's status as a REIT. Interest on the Convertible Debentures is payable
semi-annually in arrears on January 15 and July 15.
 
  The Convertible Debentures are unsecured general obligations of the Company,
subordinate to all existing and future senior indebtedness of the Company, as
defined. The Convertible Debentures are effectively subordinated to all
indebtedness of the OP.
 
  Concurrently, the OP issued 7 1/4% Exchangeable Subordinated Debentures
which mature on December 27, 2003 and are secured by one of the Company's
properties. The Exchangeable Debentures are exchangeable at any time for
Common Stock of the Company at an exchange price of $18.00 per share, except
for certain reasons, primarily intended to protect the Company's status as a
REIT. Interest on the Exchangeable Debentures is payable semi-annually in
arrears on June 27 and December 27.
 
  The Exchangeable Debentures are redeemable by the OP at any time subsequent
to December 27, 1998, at the option of the Company, at 100% of the principal
amount thereof, together with accrued interest.
 
 
                                      41
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Exchangeable Debentures may be put to the OP for cash in the principal
amount thereof together with accrued interest at the election of the holders
at any time on or after December 27, 2000.
 
6. REDEEMABLE COMMON STOCK
 
  In connection with the Separation Agreement, as described in Note 11 below,
the Company has agreed to purchase, or cause to have purchased, from the
Haagen Family, on May 25, 1999, an aggregate of 3,656,818 shares of common
stock and Operating Partnership Units (the "Shares") at a price per share
equal to the greater of $17 or the then current market price (as determined in
accordance with the Separation Agreement). A portion of shares to be
repurchased require that certain stock options be exercised by the Haagen
Family resulting in a net obligation to the Company of $58.8 million. Under
the terms of the Separation Agreement, the Haagen Family may not sell such
shares other than in certain open market transactions on the New York Stock
Exchange. Included in the Shares to be repurchased are 590,034 and
510,034 shares of Common Stock as of December 31, 1998 and 1997, respectively.
 
7. STOCKHOLDERS' EQUITY
 
  In addition to Common Stock, the Company's Charter authorizes the issuance
of 10,000,000 shares of Preferred Stock, par value $.01 per share. No such
shares were issued or outstanding as of December 31, 1998 and 1997. During
1998, the shareholders of the Company approved an increase in the authorized
shares of Common Stock from 50 million to 100 million.
 
  During each of the years ended December 31, 1998, 1997 and 1996, the Company
declared four quarterly distributions of $0.36 per share/unit.
 
  In October 1998, the Board of Directors authorized the Company to repurchase
up to $25 million of its common stock through the open market or in privately
negotiated transactions over a period of twelve months. During 1998, the
Company repurchased 436,700 shares for $5,181,000, including commissions and
other costs.
 
8. STOCK OPTION AND INCENTIVE PLAN
 
  The 1993 Stock Option and Incentive Plan, as amended, (the "Option Plan")
enables executive officers, key employees and directors of the Company to
participate in the ownership of the Company. The Option Plan provides for the
award of a broad variety of stock-based compensation alternatives such as non-
qualified stock options, incentive stock options, and restricted stock, and
provides for the grant to Independent Directors and directors of HPMI of non-
qualified stock options. Options are granted at prices which are not less than
market at date of grant, expire ten years from the date of grant, and are
generally exercisable 25% per year over four years. The Option Plan is
administered by the Compensation Committee of the Board of Directors, which is
authorized to determine the number of shares to be subject thereto and the
terms and conditions thereof. Pursuant to the Option Plan, 2,000,000 shares of
Common Stock were reserved for issuance to eligible participants.
 
                                      42
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  Following is a summary of the stock option activity for the three years
ended December 31, 1998:
 
<TABLE>
<CAPTION>
                                                     Shares     Weighted Average
                                                  Under Options  Exercise Price
                                                  ------------- ----------------
   <S>                                            <C>           <C>
   January 1, 1996...............................     690,646       $15.352
     Granted.....................................       5,000       $12.250
     Exercised...................................        (336)      $11.666
     Cancelled...................................     (91,042)      $15.725
                                                    ---------
   December 31, 1996.............................     604,268       $15.280
     Granted.....................................     546,500       $15.470
     Exercised...................................     (36,369)      $12.153
     Cancelled...................................     (88,016)      $16.120
                                                    ---------
   December 31, 1997.............................   1,026,383       $15.120
     Granted.....................................     948,189       $15.600
     Exercised...................................      (2,120)      $11.661
     Cancelled...................................    (160,685)      $14.535
                                                    ---------
   December 31, 1998.............................   1,811,767       $15.284
                                                    =========
</TABLE>
 
  In addition to the above, during 1998 and 1997, 207,459 and 101,000 shares,
respectively, of restricted stock were issued.
 
  As of December 31, 1998, 1997 and 1996 options exercisable totaled 606,758,
361,827 and 297,449, respectively.
 
  The following table summarizes information about stock options outstanding
at December 31, 1998:
 
<TABLE>
<CAPTION>
                              Number                     Weighted Average     Number
      Range of              Outstanding Weighted Average    Remaining      Exercisable   Weighted Average
   Exercise Prices          At 12/31/98  Exercise Price  Contractual Life As of 12/31/98  Exercise Price
   ---------------          ----------- ---------------- ---------------- -------------- ----------------
   <S>                      <C>         <C>              <C>              <C>            <C>
   $11.625-$13.500.........    293,398      $11.820            7.46          213,432         $11.690
   $14.750-$16.875.........  1,234,369      $15.482            9.09          123,076         $15.020
     $18.000...............    284,000      $18.000            5.25          270,250         $18.000
                             ---------                                       -------         -------
                             1,811,767      $15.284            8.20          606,758         $15.176
                             =========                                       =======         =======
</TABLE>
 
                                      43
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  The weighted average fair value of the stock options granted during 1998,
1997 and 1996 were $2.80, $12.98 and $12.25, respectively. The Company applies
Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for its stock option and incentive plan. Accordingly, no
compensation cost has been recognized as a result of its initial granting of
Stock Options. As a result of the retirement of the Haagen Family (see Note 11
below), the Company accelerated the vesting period of certain stock options
and restricted stock and recorded a charge of approximately $2.7 million in
connection with such acceleration. During 1998 and 1997, the Company recorded
compensation expense of $958,000 and $299,000, respectively related to the
amortization of deferred compensation related to Restricted Stock granted to
certain officers of the Company. Had compensation cost for the Company's
Option Plan been determined based on the fair value at the grant dates for
awards during 1998, 1997, and 1996 consistent with the method of SFAS No. 123,
the Company's net loss and loss per share for the years ended December 31,
1998, 1997, and 1996 would have been increased to the pro forma amounts
indicated below:
 
<TABLE>
<CAPTION>
                                                      1998     1997     1996
                                                     -------  -------  -------
                                                      (in thousands, except
                                                       per share amounts)
     <S>                                             <C>      <C>      <C>
     Net loss:
       As reported.................................. $(8,113) $(4,645) $(2,005)
       Pro forma.................................... $(8,554) $(4,824) $(2,063)
     Net loss per share, basic:
       As reported.................................. $ (0.38) $ (0.35) $ (0.17)
       Pro forma.................................... $ (0.40) $ (0.36) $ (0.17)
</TABLE>
 
  The fair value of options granted under the Company's Option Plan was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for 1998, 1997, and 1996,
respectively: expected life of five years; risk free interest rate of 4.63%,
5.49% and 6.13%; expected dividend yield of 10.11% 8.3% and 9.0%; and expected
volatility of 37.3%, 22.2% and 21.01%.
 
9. FUTURE MINIMUM RENT
 
  The Company has operating leases with tenants that expire at various dates
through 2037 and are either subject to scheduled fixed increases or
adjustments based on the Consumer Price Index. Generally, the leases grant
tenants renewal options and provide certain potential allowances during the
initial lease-up period. Leases also provide for additional or contingent
rents based on certain operating expenses as well as tenants sales volume.
Future minimum rent under operating leases on a cash basis, excluding tenant
reimbursements of certain costs, as of December 31, 1998 is summarized as
follows:
 
<TABLE>
<CAPTION>
     Years Ending
     December 31,
     ------------                                                 (in thousands)
     <S>                                                          <C>
     1999........................................................   $100,566
     2000........................................................     94,592
     2001........................................................     86,762
     2002........................................................     76,845
     2003........................................................     69,259
     Thereafter..................................................    478,058
                                                                    --------
         Total...................................................   $906,082
                                                                    ========
</TABLE>
 
  The Properties are located throughout the western United States. The ability
of the tenants to honor the terms of their respective leases is dependent upon
the economic, regulatory and social factors affecting the communities and
industries in which the tenants operate.
 
                                      44
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
10. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
 
  The following disclosure of estimated fair value was determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessary to interpret market
data and develop the related estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
could be realized upon disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
 
  Billed tenant and other receivables, accounts payable and other liabilities
are carried at amounts which reasonably approximate their fair value.
 
  The fixed rate mortgage notes payable totaling $260,491,000 and $168,933,000
as of December 31, 1998 and 1997, respectively, have fair values of
$280,378,000 and $187,522,000, respectively (excluding prepayment penalties)
as estimated based upon current interest rates available for the issuance of
debt with similar terms and remaining maturities. These notes were subject to
estimated prepayment penalties of $51,189,000 and $35,842,000 at December 31,
1998 and 1997, respectively, which would be required to retire these notes
prior to maturity. The carrying value of floating rate tax-exempt certificates
of participation and the secured line of credit at December 31, 1998 and 1997
approximates their fair value. The fair market values of the Convertible
Debentures at December 31, 1998 and 1997 were $129,590,000 and $140,505,000,
respectively, based on the trading price of the Series A Convertible
Debentures as of December 31, 1998 and 1997. Assuming a trading value
comparable to the Convertible Debentures, the fair value of the Exchangeable
Debentures would be $28,050,000 and $30,413,000 at December 31, 1998 and 1997,
respectively.
 
  The fair value estimates presented herein are based on information available
to management as of December 31, 1998 and 1997. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since those dates, and current estimates of fair
value may differ significantly from the amounts presented herein.
 
11. RELATED PARTY TRANSACTIONS
 
  During 1998, the Company sold its Sears Hollywood facility, a single tenant
facility for proceeds of $5.4 million which resulted in a net gain of $1.1
million. In addition, the Company purchased the Manhattan Beach, California
building in which its corporate headquarters are located for $3.2 million.
Both of the above transactions were with affiliates of Alexander Haagen, Sr.,
the Company's former chairman and were negotiated at arms-length.
 
  On November 24, 1997, the Company entered into an agreement (the "Separation
Agreement") with Alexander Haagen, Sr., Charlotte Haagen and Alexander Haagen,
III (collectively the "Haagen Family") in connection with their retirement
from the Company. Under the terms of the Separation Agreement, the Haagen
Family received $2.7 million in cash, vesting of all granted stock options and
restricted stock awards, and the granting and vesting of previously committed
restricted stock awards. In addition, for certain defined periods the Company
agreed to continue to provide the Haagen Family certain medical benefits and
administrative assistance. Further, the Company has agreed to purchase, or
cause to have purchased, substantially all of the Haagen Family's ownership
interests in the Company on May 25, 1999 (see Note 6).
 
  During 1997, the Company recorded a non-recurring charge of $9.4 million
which reflects the consideration given to the Haagen Family in connection with
the Separation Agreement. Included in accrued expenses as of December 31, 1998
and 1997 is approximately $1.5 million and $4.9 million, respectively, related
to the
 
                                      45
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
Separation Agreement of which $2.7 million in cash was paid on January 2,
1998. The remaining $4.5 million relates to noncash charges for the
acceleration of the vesting of stock options and restricted stock, granting
and acceleration of vesting of previously committed restricted stock awards,
and the value attributed to the Company's obligation to repurchase the Haagen
Family's ownership interests in the Company and has been charged directly to
Additional Paid-in Capital.
 
  Through December 31, 1997, Haagen Property Management, Inc. ("HPMI")
conducted all of the executive, construction, leasing, legal, and property
management functions pursuant to management agreements between the OP and
HPMI. Prior to December 31, 1997, the OP owned a 95% interest in but did not
control HPMI. The investment has been accounted for on the equity basis. No
dividends were paid by HPMI during the two years ended December 31, 1997. HPMI
provides leasing and property management services to other properties owned by
certain third parties. In connection with the Separation Agreement (see
above), the OP purchased the remaining 5% interest, including the voting
interest. As such, the balance sheet of HPMI has been consolidated as of
December 31, 1997.
 
  Summary financial information for HPMI is presented as follows:
 
<TABLE>
<CAPTION>
                                                                   Year Ended
                                                                  December 31,
                                                                  -------------
                                                                   1997   1996
                                                                  ------ ------
                                                                       (in
                                                                   thousands)
     <S>                                                          <C>    <C>
     Revenues.................................................... $7,643 $7,768
     Operating expenses..........................................  7,623  7,768
                                                                  ------ ------
     Net income for the period................................... $   20 $  --
                                                                  ====== ======
     Company's share of net income............................... $   19 $  --
                                                                  ====== ======
</TABLE>
 
  Revenues include services provided by HPMI to the OP which are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                                   Year Ended
                                                                  December 31,
                                                                  -------------
                                                                   1997   1996
                                                                  ------ ------
                                                                       (in
                                                                   thousands)
     <S>                                                          <C>    <C>
     Executive and property management fees...................... $4,013 $4,067
     Leasing and legal fees......................................  2,077  2,508
     Acquisition and construction fees...........................  1,240    622
                                                                  ------ ------
                                                                  $7,330 $7,197
                                                                  ====== ======
</TABLE>
 
  Management fees are expensed by the OP as incurred. Leasing, legal,
acquisition, and construction fees are capitalized and amortized over the
useful lives of the related leases or assets.
 
                                      46
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
12. COMMITMENTS AND CONTINGENCIES
 
  Operating Leases--The Company leases certain of its Properties under long-
term ground leases which are accounted for as operating leases and which
generally provide for contingent rents based on the Company's tenants' sales
volume and renewal options. Five leases expire between 2001 and 2018 and
provide for options to renew for additional periods of 20 to 30 years. Two
additional leases expire in 2012 and 2050. Future minimum rental payments
required during noncancelable lease terms as of December 31, 1998 are
summarized as follows:
 
<TABLE>
<CAPTION>
     Years Ending December 31,
     -------------------------                                     (in thousands)
     <S>                                                           <C>
      1999........................................................    $ 1,579
      2000........................................................      1,577
      2001........................................................      1,499
      2002........................................................      1,270
      2003........................................................      1,207
      Thereafter..................................................     12,983
                                                                      -------
        Total.....................................................    $20,115
                                                                      =======
</TABLE>
 
  Assuming exercise of all renewal options, aggregate future rental payments
as of December 31, 1998 are $53.3 million. Certain of the Company's ground
leases contain participation features. Participation rents paid in accordance
with such terms were $54,000, $51,000 and $105,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
 
  Litigation--The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are generally
covered by insurance. While the resolution of these matters cannot be
predicted with certainty, management believes, based on currently available
information, that the final outcome of such matters will not have a material
adverse effect on the financial statements of the Company.
 
 
                                      47
<PAGE>
 
                                 CENTER TRUST
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
  The following table sets forth the selected quarterly financial data for the
Company for the years ended December 31, 1998 and 1997 (in thousands, except
per share data):
 
<TABLE>
<CAPTION>
                                                 1998 Quarter Ended
                                      -----------------------------------------
                                      December 31 September 30 June 30 March 31
                                      ----------- ------------ ------- --------
   <S>                                <C>         <C>          <C>     <C>
   Total Operating Revenues..........  $ 37,774     $34,188    $31,364 $27,169
                                       ========     =======    ======= =======
   Net (loss) income.................  $(14,855)    $ 3,392    $ 1,570 $ 1,780
                                       ========     =======    ======= =======
   Basic and Diluted (loss) income
    per share........................  $  (0.58)    $  0.15    $  0.08 $  0.10
                                       ========     =======    ======= =======
<CAPTION>
                                                 1997 Quarter Ended
                                      -----------------------------------------
                                      December 31 September 30 June 30 March 31
                                      ----------- ------------ ------- --------
   <S>                                <C>         <C>          <C>     <C>
   Total Operating Revenues..........  $ 23,602     $21,838    $21,338 $22,183
                                       ========     =======    ======= =======
   Net (loss) income.................  $ (6,779)    $   600    $   601 $   933
                                       ========     =======    ======= =======
   Basic (loss) income per share.....  $  (0.44)    $  0.04    $  0.05 $  0.08
                                       ========     =======    ======= =======
   Diluted (loss) income per share...  $  (0.44)    $  0.03    $  0.04 $  0.06
                                       ========     =======    ======= =======
</TABLE>
 
  Included in the fourth quarter of 1998 is the $21.7 million charge related
to the asset held for sale, as described in Note 3. The fourth quarter of 1997
includes the $9.4 million charge related to the Haagen Settlement as described
in Note 11.
 
14. SUBSEQUENT EVENTS
 
  Subsequent to December 31, 1998, the Company sold two of its Properties, the
194,000 square foot City Center in San Francisco, California and 119,000
square foot Sam's Club in Fountain Valley, California, one of the Company's
single tenant facilities. The sales generated proceeds of $47 million which
resulted in a combined net gain of approximately $21.1 million. In addition,
the Company purchased Randolph Plaza, a 179,000 square foot community center
located in Tucson, Arizona for approximately $9.5 million. The acquisition was
funded with proceeds from the Company's credit facility. The Center is
anchored by Fry's, Walgreen's and MacFrugal's.
 
  On February 3, 1999 the Company commenced trading its Common Stock on the
New York Stock Exchange under the ticker symbol CTA.
 
                                      48
<PAGE>
 
                                  CENTER TRUST
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
                  Each of Three Years Ended December 31, 1998
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                                Charged to
                                   Balance at   Costs and               Balance
                                   Beginning   Expenses or              at End
                                    of Year   Rental Revenue Deductions of Year
                                   ---------- -------------- ---------- -------
<S>                                <C>        <C>            <C>        <C>
Year Ended December 31, 1998
  Allowance for uncollectible
   rent...........................   $2,145      $   421      $  (395)  $2,171
  Allowance for unbilled deferred
   rent...........................    7,182          --          (342)   6,840
                                     ------      -------      -------   ------
                                     $9,327      $   421      $  (737)  $9,011
                                     ======      =======      =======   ======
Year Ended December 31, 1997
  Allowance for uncollectible
   rent...........................   $1,617      $ 1,283      $  (755)  $2,145
  Allowance for unbilled deferred
   rent...........................    6,007        1,175          --     7,182
                                     ------      -------      -------   ------
                                     $7,624      $ 2,458      $  (755)  $9,327
                                     ======      =======      =======   ======
Year Ended December 31, 1996
  Allowance for uncollectible
   rent...........................   $1,607      $ 1,607      $(1,597)  $1,617
  Allowance for unbilled deferred
   rent...........................    1,997        9,367       (5,357)   6,007
                                     ------      -------      -------   ------
                                     $3,604      $10,974      $(6,954)  $7,624
                                     ======      =======      =======   ======
</TABLE>
 
                                       49
<PAGE>
 
                                 CENTER TRUST
 
            SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
 
                               December 31, 1998
                                (in thousands)
 
<TABLE>
<CAPTION>
                                        Initial Cost           Costs                        December 31, 1998
                                    ---------------------   Capitalized   ------------------------------------------------------
                                              Buildings     Subsequent              Buildings
                                                 and      to Acquisition/              and                 Accumulated
   Description     Encumbrances (1)   Land   Improvements  Construction     Land   Improvements   Total    Depreciation   Net
   -----------     ---------------- -------- ------------ --------------- -------- ------------ ---------- ------------ --------
<S>                <C>              <C>      <C>          <C>             <C>      <C>          <C>        <C>          <C>
COMMUNITY
SHOPPING CENTERS
 Southern
 California......     $(144,067)    $126,546   $224,760      $ 36,666     $126,546   $261,426   $  387,972  $ (56,503)  $331,469
 Washington......       (38,066)      55,261     70,032         3,823       55,261     73,855      129,116     (1,717)   127,399
 Northern/Central
 California......       (11,102)      26,630     54,713        13,859       26,630     68,572       95,202     (8,796)    86,406
 Southwest.......       (23,649)      23,899     43,315           651       23,899     43,966       67,865     (1,903)    65,962
 Oregon..........        (9,442)      14,769     25,697        16,496       14,769     42,193       56,962     (2,714)    54,248
                      ---------     --------   --------      --------     --------   --------   ----------  ---------   --------
                       (226,326)     247,105    418,517        71,495      247,105    490,012      737,117    (71,633)   665,484
                      ---------     --------   --------      --------     --------   --------   ----------  ---------   --------
SINGLE TENANT
FACILITIES
 Southern
 California......       (26,789)       7,191     22,011         1,241        7,191     23,252       30,443     (7,090)    23,353
 Northern/Central
 California......        (7,440)       2,501     10,002             1        2,501     10,003       12,504     (2,323)    10,181
 Arizona.........        (5,936)       2,855      9,717           218        2,855      9,935       12,790     (2,837)     9,953
                      ---------     --------   --------      --------     --------   --------   ----------  ---------   --------
                        (40,165)      12,547     41,730         1,460       12,547     43,190       55,737    (12,250)    43,487
                      ---------     --------   --------      --------     --------   --------   ----------  ---------   --------
REGIONAL MALLS
 Southern
 California......       (30,000)      24,692    203,623        53,460       24,692    257,083      281,775    (57,902)   223,873
                      ---------     --------   --------      --------     --------   --------   ----------  ---------   --------
                      $(296,491)    $284,344   $663,870      $126,415     $284,344   $790,285   $1,074,629  $(141,785)  $932,844
                      =========     ========   ========      ========     ========   ========   ==========  =========   ========
</TABLE>
-----
(1) Excludes the secured line of credit of $200,895 at December 31, 1998 which
    is secured by various properties.
 
                                       50
<PAGE>
 
  The aggregate gross cost of rental property included above for federal income
tax purposes approximated $1,041,000,000 as of December 31, 1998.
 
  The following table reconciles the Historical Cost of Properties from January
1, 1996 to December 31, 1998:
 
<TABLE>
<CAPTION>
                                                    1998       1997      1996
                                                 ----------  --------  --------
   <S>                                           <C>         <C>       <C>
   Balance at beginning of the year............. $  783,279  $659,565  $653,058
     Additions during the year--
       Acquisition of properties................    310,893    91,382       --
       Construction and Development Costs.......      5,852    32,406    13,950
     Deductions during the year--
       Cost of real estate sold.................     (3,710)      --     (5,080)
       Cost of building demolished..............        --        (74)   (2,363)
       Write down of asset held for sale........    (21,685)      --        --
                                                 ----------  --------  --------
   Balance at close of the year................. $1,074,629  $783,279  $659,565
                                                 ==========  ========  ========
</TABLE>
 
  The following table reconciles the Accumulated Depreciation from January 1,
1996 to December 31, 1998:
 
<TABLE>
<CAPTION>
                                                     1998      1997      1996
                                                   --------  --------  --------
   <S>                                             <C>       <C>       <C>
   Balance at beginning of the year............... $121,202  $104,330  $ 90,478
     Additions during the year--
       Depreciation for the year..................   21,465    16,889    15,937
     Deductions during the year--
       Property sold..............................     (882)      --     (1,213)
       Property demolished........................      --        (17)     (872)
                                                   --------  --------  --------
   Balance at close of the year................... $141,785  $121,202  $104,330
                                                   ========  ========  ========
</TABLE>
 
                                       51
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
  None.
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
     
Directors Continuing in Office      
 
<TABLE>     
<CAPTION>
                                                                Director  Term
       Name                                                 Age  Since   Expires
       ----                                                 --- -------- -------
     <S>                                                    <C> <C>      <C>
     R. Bruce Andrews......................................  58   1994    2001
     Robert T. Barnum......................................  53   1997    2000
     Edward D. Fox.........................................  51   1997    2001
     Anthony E. Meyer......................................  37   1997    2000
     Fred L. Riedman.......................................  68   1994    2000
     Arthur P. Solomon.....................................  59   1997    2001
</TABLE>      
     
  R. Bruce Andrews has served as a Director of the Company since February,
1994. Mr. Andrews has been the President and Chief Executive Officer of
Nationwide Health Properties, a REIT specializing in health care properties,
since September, 1989. He served as Chief Financial Officer, Chief Operating
Officer and a director of American Medical International, Inc., an operator of
health care facilities, from 1970 to 1986.      
     
  Robert T. Barnum has served as a Director of the Company since August, 1997.
Mr. Barnum is a private investor and an advisor to private equity funds,
including Texas Pacific Group. He was the President and Chief Operating
Officer of American Savings Bank from 1989 until its sale in 1997. Mr. Barnum
served as the Chief Financial Officer of First Nationwide from 1984 to 1988
and the Krupp Companies, a major national real estate and financial services
firm, from 1982 to 1984. He was a director of Harborside Healthcare until its
sale in 1998 and a director of National Reinsurance until its sale to General
Reinsurance in 1996. He is currently a director of Westcorp, a publicly-held
thrift holding company and Berkshire Mortgage, a privately-held commercial
mortgage banking company.      
     
  Edward D. Fox has served as a Director of the Company since August, 1997 and
in November, 1997 became Interim President and Chief Executive Officer of the
Company, serving in such capacities until accepting the positions on a permanent
basis in March, 1998. He has entered into an employment agreement with the
Company providing for his employment until March, 2001. Prior to joining the
Company, Mr. Fox was founding and managing Partner of CommonWealth Pacific, LLC,
a major developer, owner and strategic advisor for office and mixed use
properties in the western United States. He was a Senior Partner and the
President of Maguire Thomas Partners from 1981 to 1995. Prior to that, Mr. Fox
was with Arthur Andersen, the international accounting and consulting firm,
where he specialized in real estate.      
    
  Anthony E. Meyer has served as a Director of the Company since August, 1997.
He is a Managing Director of Lazard Freres & Co., LLC and a principal of
Lazard Freres Real Estate Investors, LLC. Mr. Meyer was a General Partner and
Co-Founder of Trammell Crow Ventures, a $3 billion real estate investment and
finance affiliate of the Trammell Crow Group from 1984 to 1993. He is a
director of Dermody Properties and Cliveden Limited.      
     
  Fred L. Riedman has served as a Director of the Company since February,
1994. From 1965 to 1998, Mr. Riedman was a partner with the law firm of
Riedman, Dalessi & Dybens. Mr. Riedman is a trustee of the California Museum
Foundation and has also served on the board of directors of the Aquarium of
the Pacific at Long Beach, California since 1995.      

                                      52
<PAGE>

     
  Arthur P. Solomon has served as a Director of the Company since August, 1997
and as Chairman of the Board since November, 1997. From 1987 to April 1999,
Mr. Solomon was a Managing Director of Lazard Freres & Co., LLC and head of
its real estate group. Mr. Solomon has also served as the senior principal of
Lazard Freres Real Estate Investors, LLC. He was a Partner and head of real
estate investment banking at Drexel Burnham Lambert from 1984 to 1987. From
1982 to 1984, Mr. Solomon was Chief Executive Officer of the Krupp Companies
and served in the Johnson Administration on the President's Task Force on
Domestic and Intergovernmental Affairs from 1967 to 1968. Mr. Solomon served
as Executive Vice President and Chief Financial Officer of the Federal
National Mortgage Association (FNMA) from 1980 to 1982.     
       
  Messrs. Barnum, Fox, Meyer and Solomon were each originally designated for
nomination to the Board by Prometheus Western Retail, LLC ("Prometheus")
pursuant to a stockholders agreement between Prometheus, certain of its
affiliates and the Company whereby the Company agreed to support the
nomination and election of such nominees.     
    
Nominees for Election as Director      
 
<TABLE>     
<CAPTION>
                                       Present Position With   Director
        Name                       Age      The Company         Since
        ----                       --- ---------------------   --------
   <C>                             <C> <S>                     <C>
   Stuart J.S. Gulland............  37 Director, Senior Vice     1998
                                        President and Chief
                                        Financial Officer
</TABLE>      

         
    
  Stuart J.S. Gulland has served as a Director of the Company since April, 1998.
Mr. Gulland also serves as the Company's Senior Vice President and Chief
Financial Officer. He has entered into an employment agreement with the Company
providing for his employment until September, 1999. He joined the Company in
April, 1995. Previously, Mr. Gulland specialized in real estate with Deloitte &
Touche, the international accounting and consulting firm. Mr. Gulland is a
Certified Public Accountant and a Chartered Accountant and is a member of the
American Institute of Certified Public Accountants, the California Society of
Certified Public Accountants and the Institute of Chartered Accountants in
England and Wales.      

                                      53
<PAGE>

     
Executive Officers      
     
  The following table sets forth the names, ages and positions of each of the
Company's executive officers.      
 
<TABLE>     
<CAPTION>
      Name                  Age                          Position
      ----                  ---                          --------
   <S>                      <C> <C>
   Edward D. Fox...........  51 President, Chief Executive Officer and Director
 
   Stuart J.S. Gulland.....  37 Senior Vice President, Chief Financial Officer and Director
 
   William P. Hewitt.......  49 Senior Vice President, Leasing
 
   Steven M. Jaffe.........  37 Senior Vice President, General Counsel and Secretary
 
   Joseph F. Paggi, Jr. ...  61 Senior Vice President, Assets

   Edward A. Stokx.........  33 Vice President and Controller
</TABLE>      
     
  In addition to Messrs. Fox and Gulland, whose biographies appear above, the
following persons are executive officers of the Company:      
     
  William P. Hewitt, Senior Vice President, Leasing, joined the Company in
April, 1998 and has entered into an employment agreement with the Company
providing for his employment until April, 2001. Previously, Mr. Hewitt served as
a Senior Vice President of Forest City Development, where he was responsible for
its West Coast commercial real estate portfolio, totaling in excess of five
million square feet. Mr. Hewitt was with Forest City Development since 1988.
From 1984 to 1987, he served as Vice President/Director of Leasing for MacDonald
Group. Mr. Hewitt is a graduate of California State University at Northridge.
          
  Steven M. Jaffe, Senior Vice President, General Counsel, and Secretary of the
Company, has been with the Company since September, 1993 and has entered into an
employment agreement with the Company providing for his employment until
September, 1999. Mr. Jaffe had previously served as counsel for The Alexander
Haagen Company, a predecessor to the Company, since 1990. Prior to his
employment with The Alexander Haagen Company, Mr. Jaffe was an associate with
the Los Angeles law firm of Pircher, Nichols and Meeks. Mr. Jaffe is a member of
the California Bar Association and is a graduate of the University of California
at Berkeley and Hastings College of the Law.      
     
  Joseph F. Paggi, Jr., Senior Vice President, Assets, joined the Company in
April, 1998. From 1993 to 1998 he was Senior Vice President for Blatteis
Realty Co., a 75 year old firm specializing in retail properties nationally.
From 1989 to 1998 Mr. Paggi served as a consultant for Waterfront Renaissance
Associates, owner/developer of Philly Walk, and as a retail development
consultant to Playa Capital Company, LLC, the successor to Maguire Thomas
Partners for the development of Playa Vista, a 1,300 acre mixed-use project
near Marina Del Rey, California. Mr. Paggi was a national retail consultant
for Maguire Thomas Partners from 1988 to 1993. He is a graduate of UCLA and
Loyola University School of Law.      
    
  Edward A. Stokx, Vice President and Controller, joined the Company in
October, 1997. Prior to joining the Company, Mr. Stokx was a Senior Manager
with Deloitte & Touche LLP and in his capacity with Deloitte & Touche LLP was
associated with the Company from 1993 to October, 1997. Mr. Stokx is a
Certified Public Accountant and a member of the American Institute of
Certified Public Accountants and the California Society of Public Accountants.
Mr. Stokx is a graduate of Loyola Marymount University.      
    
Section 16(a) Beneficial Ownership Reporting Compliance      
    
  Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who beneficially own more than 10% of a registered class of the
Company's equity securities to file reports with the Securities and Exchange
Commission and the Company disclosing their initial beneficial ownership of the
Company's equity securities and changes in such ownership.      
    
  To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company by the directors, executive officers and
greater than 10% beneficial owners, all Section 16(a) filing requirements were
satisfied during the fiscal year ended December 31, 1998, except that the
following reports were filed late: (1) one Form 5 with respect to two Section
16(b) exempt transactions in 1998 for each of Messrs. Heineman, Gulland and
Jaffe; (2) one Form 5 with respect to four Section 16(b) exempt transactions in
1998 for Mr. Fox; (3) two Forms 4 with respect to two Section 16(b) exempt
transactions in 1998 for each of Messrs. Andrews and Riedman; (4) two Forms 4
with respect to three transactions in 1998, two of which were Section 16(b)
exempt transactions, for Mr. Stokx; (5) three Forms 4 with respect to three
transactions in 1998, two which were Section 16(b) exempt transactions, for Mr.
Barnum; (6) one Form 4 with respect to three transactions in 1998 for Mr.
Granados; (7) one Form 3 with respect to their appointments as officers in 1998
for each of Messrs. Granados, Hewitt and Paggi; and (8) one Form 3 with respect
to his appointment as an officer in 1997 for Mr. Stokx. In addition, Mr. Bruning
inadvertently failed to file one Form 4 with respect to one transaction in
1998.    
                                      54 
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION
 
             
Summary Compensation Table      
    
  The following table sets forth information concerning the compensation
awarded to, earned by or paid during the fiscal years ended December 31, 1996,
1997 and 1998 to the Company's Chief Executive Officer and five other current
or former executive officers of the Company (the "Named Executive Officers").
     
<TABLE>     
<CAPTION>
                                                         Long Term
                           Annual Compensation         Compensation
                           ----------------------- ---------------------------
                                                   Restricted       Securities
                                                     Stock          Underlying  All Other
 Name and Principal              Salary     Bonus    Awards          Options   Compensation
 Position                  Year ($)(a)       ($)     ($)(b)           (#)(c)       ($)
 ------------------        ---- -------    ------- ----------       ---------- ------------
<S>                        <C>  <C>        <C>     <C>              <C>        <C>
Edward D. Fox............. 1998       0(d)       0 1,012,500(e)      300,000     683,954(d)
 President and Chief       1997  74,000          0         0               0           0
 Executive Officer         1996       0          0         0               0           0 
 
Stuart J.S. Gulland....... 1998 220,488     75,000         0         100,000           0
 Senior Vice President and 1997 177,531          0    77,500(f)       60,000           0
 Chief Financial Officer   1996 138,000     50,000         0               0           0
 
Steven M. Jaffe........... 1998 220,298     75,000         0         100,000           0
 Senior Vice President,    1997 188,462          0    77,500(f)       87,500           0
 General Counsel and       1996 171,657          0         0               0           0
 Corporate Secretary
 
Mark D. Granados(g)....... 1998 251,919          0         0         100,000           0
 Former Vice President,    1997       0          0         0               0           0
 Director of               1996       0          0         0               0           0
 Acquisitions
 
William P. Hewitt......... 1998 172,305          0   100,000(h)      100,000           0
 Senior Vice President,    1997       0          0         0               0           0
 Leasing                   1996       0          0         0               0           0
 
Fred W. Bruning........... 1998 178,888    100,000         0               0     236,000(i)
 Former Senior Vice        1997 311,904     76,501    77,500(f)(j)   100,000           0
 President and             1996 339,700    108,900         0               0           0
 Chief Investment Officer
</TABLE>      

--------
    
(a) Includes accrued vacation paid out.      
     
(b) Represents restricted stock granted under the Restated Plan. All the
    restricted stock vests in equal one-third amounts over a three year period
    except for Mr. Fox's restricted shares which vest over a one year period.
    The value of the restricted stock is calculated by multiplying the closing
    market price of the Company's Common Stock on the date of the grant by the
    number of shares awarded.     
     
(c) Represents options to purchase Common Stock granted under the Restated
    Plan. The 1997 options vest over a three-year period, are also tied to
    stock price performance, and have exercise prices ranging from $15.00 to
    $15.50. The 1998 options vest over a three year period and have exercise
    prices ranging from $15.00 to $16.85. See "--Aggregated Option Exercises
    and Fiscal Year-End Option Value Table."      
     
(d) In lieu of cash compensation, Mr. Fox elected to receive his compensation
    in 1998 in the form of restricted stock. The value of the restricted stock
    is calculated by multiplying the closing market price of the Company's
    Common Stock on the date of the grant by the number of shares awarded.
          
(e) Represents the value of 60,000 shares of restricted stock granted under
    the Restated Plan on March 30, 1998. As of December 31, 1998, none of the
    shares of restricted stock had vested.      
     
(f) Represents the value of 5,000 shares of restricted stock granted under the
    Restated Plan on February 27, 1997. As of December 31, 1998, 1,667 of such
    shares had vested.      
     
(g) Effective April 1, 1999, Mr. Granados resigned from his position with the
    Company. Mr. Granados has been retained as a consultant by the Company.
             
(h) Represents the value of 6,154 shares of restricted stock granted under the
    Restated Plan on April 27, 1998. As of December 31, 1998, none of the
    shares had vested.       
    
(i) Represents amounts paid or to be paid to Mr. Bruning subsequent to his
    resignation from the Company on May 20, 1998 for consulting services. 
         
(j) 3,333 of such shares were canceled upon Mr. Bruning's resignation from the
    Company on May 20, 1998.      

                                      55
<PAGE>
 
         
     
Option/SAR Grants In Last Fiscal Year      
<TABLE>     
<CAPTION>
                                     Individual Grants
                        --------------------------------------------
                                                                         Potential
                                                                     Realizable Value
                                                                     at Assumed Annual
                                                                      Rates of Stock   Alternative
                                                                           Price         to and
                                     Percent of                      Appreciation for  Grant Date
                         Number of     Total                            Option Term       Value
                        Securities  Options/SARs Exercise            ----------------- -----------
                        Underlying   Granted to  of Base                               Grant Date
                        Option/SARs Employees in  Price   Expiration                     Present
         NAME           Granted (#) Fiscal Year   ($/Sh)     Date    5% ($)   10% ($)   Value ($)
         ----           ----------- ------------ -------- ---------- ------- --------- -----------
<S>                     <C>         <C>          <C>      <C>        <C>     <C>       <C>
Edward D. Fox..........   300,000      32.15%     16.875   3/27/08   923,708 4,469,348 (1,387,500)
 President and Chief
 Executive Officer
 
Stuart J.S. Gulland....   100,000      10.72%      15.00   8/20/08   495,403 1,677,283   (275,000)
 Senior Vice President
 and Chief Financial
 Officer
 
Steven M. Jaffe........   100,000      10.72%      15.00   8/20/08   495,403 1,677,283   (275,000)
 Senior Vice President,
 General Counsel and
 Corporate Secretary
 
Mark D. Granados(a)....   100,000      10.72%      15.00   8/20/08   495,403 1,677,283   (275,000)
 Vice President,
 Director of
 Acquisitions
 
William P. Hewitt......   100,000      10.72%      15.00   8/20/08   495,403 1,677,283   (275,000)
 Senior Vice President,
 Leasing
 
Fred W. Bruning(b).....         0          0         --        --        --        --         --
 Former Senior Vice
 President and Chief
 Investment Officer
</TABLE>      

--------
    
(a) Effective April 1, 1999, Mr. Granados resigned from his position with the
    Company. Mr. Granados has been retained as a consultant by the Company.
         
(b) Effective May 20, 1998, Mr. Bruning resigned from his positions with the
    Company.      

                                      56 
<PAGE>

     
Aggregated Option Exercises and Fiscal Year-End Option Value Table      
     
  The following table provides information related to the exercise of stock
options during the year ended December 31, 1998 by each of the Named Executive
Officers and the 1998 fiscal year-end value of unexercised options.      
 
<TABLE>     
<CAPTION>
                                                                            Value of
                                                          Number of        Unexercised
                                                         Unexercised      In-the-Money
                                                      Options at Fy-End Options at Fy-End
                         Shares Acquired    Value       Exercisable/      Exercisable/
  Name                   on Exercise (#) Realized ($) Unexercisable (#) Unexercisable ($)
  ----                   --------------- ------------ ----------------- -----------------
<S>                      <C>             <C>          <C>               <C>
Edward D. Fox...........         0             0            0/300,000    $     0/$    0
Stuart J.S. Gulland.....         0             0       61,875/180,625    $12,891/$4,297
Steven M. Jaffe.........         0             0        8,646/180,784    $ 1,047/$   80
Mark D. Granados(a).....         0             0            0/100,000    $     0/$    0
William P. Hewitt.......         0             0            0/100,000    $     0/$    0
Fred W. Bruning(b)......         0             0       68,750/113,750    $ 8,594/$8,594
</TABLE>      

--------
    
(a) Effective April 1, 1999, Mr. Granados resigned from his position with the
    Company. Mr. Granados has been retained as a consultant by the Company.
         
(b) Effective May 20, 1998, Mr. Bruning resigned from his positions with the
    Company.      
     
Employment and Change-in-Control Agreements      
     
  On November 24, 1997, Alexander Haagen, Sr., Alexander Haagen III, and
Charlotte Haagen resigned from their positions with the Company, and the
Company entered into a Separation Agreement and Release (the "Separation
Agreement") with Alexander Haagen, Sr., Alexander Haagen III, Charlotte
Haagen, and certain related persons (together, the "Haagen Family"). Pursuant
to the Separation Agreement, the Company agreed to pay to the Haagen Family
approximately $2.7 million in cash, to accelerate vesting of all granted stock
options and restricted stock awards, to grant and vest all previously
committed restricted stock awards, and to purchase from the Haagen Family or
cause to be purchased on May 25, 1999, substantially all of the Common Stock
and OP Units owned by the Haagen Family at market price, but no lower than
$17.00 per share. In addition, for certain defined periods the Company agreed
to continue to provide the Haagen Family certain medical benefits and
administration assistance.      
     
  On November 24, 1997, Edward D. Fox was appointed as interim President and
Chief Executive Officer. On March 11, 1998, Mr. Fox accepted the position on a
permanent basis and entered into an employment agreement with the Company
providing for his employment as President and Chief Executive Officer until
March 2001. During the term of such contract, compensation will be paid to Mr.
Fox at the annual rate of $375,000 or should the Board of Directors increase
such salary, at the then present salary. Mr. Fox's employment contract also
provides for a bonus of $282,000 if he is employed by the Company on December
31, 1998 and an additional $93,000 if he is employed by the Company on March
9, 1999. Bonuses in future years are to be as determined by the Board of
Directors. On March 30, 1998, the Company granted Mr. Fox 60,000 shares of
restricted stock and options to purchase 300,000 shares of Common Stock at an
exercise price of $16.875 per share subject to vesting requirements under the
Restated Plan. Mr. Fox elected to receive his 1998 compensation in the form of
restricted stock. Pursuant to such election, he was granted 45,034 shares of
restricted stock in 1998.      

                                      57 
<PAGE>

     
  Effective May 20, 1998, Fred W. Bruning resigned from his positions with the
Company, and the Company has entered into a Separation Agreement and Release
(the "Bruning Separation Agreement") with Mr. Bruning. Pursuant to the Bruning
Separation Agreement, the Company agreed (i) to pay to Mr. Bruning
approximately $236,000 over a nine month period during which Mr. Bruning has
agreed to provide the Company with consulting services, (ii) to accelerate
vesting of granted stock options that would have vested within three months of
Mr. Bruning's resignation, (iii) to extend the expiration of vested options from
90 days following termination to one year, and (iv) to forbear on collecting
amounts owed the Company under a loan agreement, secured by his ownership
interests in the Company, with Mr. Bruning for a maximum of six months after it
becomes due and payable pursuant to its terms. In addition, the Company agreed
to continue to provide Mr. Bruning certain medical benefits for one year
following his termination.      
    
  Effective April 1, 1999, Mark Granados resigned from his position as Vice
President, Director of Acquisitions. Prior to his resignation, Mr. Granados had
entered into an employment agreement providing for his employment until December
31, 2000. The employment agreement provided for an annual salary of $250,000,
bonuses as determined by the Board and options to purchase 100,000 shares of
Common Stock subject to certain vesting requirements. Upon his resignation on
April 1, 1999, the Company entered into a consulting agreement with Mr. Granados
providing for his services as a consultant to the Company until January 6, 2001.
          
  The Company has entered into an employment agreement with William P. Hewitt,
dated as of April 27, 1998, providing for his employment as Senior Vice
President, Leasing until April 27, 2001. During the term of such contract,
compensation will be paid to Mr. Hewitt at the annual rate of $250,000 or
should the Board of Directors increase such salary, at the then present
salary. Mr. Hewitt's employment contract also provides for bonuses as
determined by the Board of Directors. Pursuant to Mr. Hewitt's employment
agreement, the Company granted Mr. Hewitt 6,154 shares of restricted stock and
options to purchase 100,000 shares of Common Stock subject to vesting
requirements under the Restated Plan.     
     
  The Company has entered into an employment agreement with Stuart J.S.
Gulland, dated as of March 1, 1998, providing for his employment as Senior
Vice President and Chief Financial Officer until September 30, 1999. During
the term of such contract, compensation will be paid to Mr. Gulland at the
annual rate of $230,000 or should the Board of Directors increase such salary,
at the then present salary. Mr. Gulland's employment contract also provides
for bonuses as determined by the Board of Directors. Pursuant to Mr. Gulland's
employment agreement, the Company granted Mr. Gulland options to purchase
100,000 shares of Common Stock subject to vesting requirements under the
Restated Plan.      
     
  The Company has entered into an employment agreement with Steven M. Jaffe,
dated as of March 1, 1998, providing for his employment as Senior Vice
President, General Counsel and Corporate Secretary until September 30, 1999.
During the term of such contract, compensation will be paid to Mr. Jaffe at
the annual rate of $220,000 or should the Board of Directors increase such
salary, at the then present salary. Mr. Jaffe's employment contract also
provides for bonuses as determined by the Board of Directors. Pursuant to Mr.
Jaffe's employment agreement, the Company granted Mr. Jaffe options to
purchase 100,000 shares of Common Stock subject to vesting requirements under
the Restated Plan.      
     
  The Bylaws of the Company provide for indemnification of the officers,
directors, employees and agents of the Company pursuant to the Maryland
General Corporation Law. The Maryland General Corporation Law permits the
indemnification of any officer, director, employee or agent of the Company
against expenses and liabilities in any action arising out of such person's
activities on behalf of the Company, if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Company or in a manner he had no reasonable cause to believe was
unlawful.      
     
Compensation Committee Interlocks and Insider Participation      
     
  Messrs. Heineman (Chairman), Andrews, Riedman and Barnum currently serve on
the Compensation Committee. None of the Compensation Committee members is or
has been an officer or employee of the Company and each is an Independent
Director. For a description of the background of each of these individuals,
see "Election of Directors." For a discussion of interrelationships involving
members of the Compensation Committee or other directors of the Company, see 
Item 13 "Certain Relationships and Related Transactions."      

                                      58 
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
             
  The following table sets forth information as of December 31, 1998 regarding
beneficial ownership of the Common Stock of the Company by (1) each person
known by the Company to be the beneficial owner of 5% or more of the Company's
Common Stock, (2) each director and nominee for director of the Company, (3)
the Chief Executive Officer and the other named executive officers of the
Company and (4) the Company's executive officers and directors as a group.
      
<TABLE>     
<CAPTION>
                                           Shares Beneficially
                                                  Owned
                                         -------------------------------------
                                          Amount and
                                          Nature of
                                          Beneficial                Percent of
Name of Beneficial Owner                 Ownership(a)                Class(b)
------------------------                 ------------               ----------
<S>                                      <C>                        <C>
Prometheus Western Retail, LLC..........  15,666,666(c)                56.8%
 30 Rockefeller Plaza
 New York, NY 10020
Merrill Lynch & Co., Inc. ..............   1,666,668(d)                 6.6%
 World Financial Center, North Tower
 250 Vesey Street, New York, NY 10281
Heitman PRA Securities Advisors.........   1,297,500(e)                 5.0%
 180 N. La Salle St., Ste, 3600
 Chicago, IL 60601
Haagen Limited Partnership..............   3,962,482(f)                13.8%
Edward D. Fox...........................     106,034(g)                 *
Mark D. Granados........................         --                     *
Stuart J.S. Gulland.....................      66,875(h)                 *
William P. Hewitt.......................       6,154(i)                 *
Steven M. Jaffe.........................      13,646(j)                 *
R. Bruce Andrews........................      19,400(k)                 *
Warner Heineman.........................      18,400(k)                 *
Fred L. Riedman.........................      14,400(k)                 *
Robert T. Barnum........................      13,000                    *
Anthony E. Meyer........................         --                     *
Arthur P. Solomon.......................         --                     *
Fred W. Bruning.........................     332,750(l)                1.3%
All Directors and Executive Officers as
 a group (11 persons)...................     288,644(g)(h)(i)(j)(m)    1.1%
</TABLE>      

--------
    
 * Less than 1%      
    
(a) For purposes of this Proxy Statement, beneficial ownership of securities
    is defined in accordance with the rules of the Securities and Exchange
    Commission and means generally the power to vote or exercise investment
    discretion with respect to securities, regardless of any economic
    interests therein. Except as otherwise indicated, the Company believes
    that the beneficial owners of shares of Common Stock listed in this table
    have sole investment and voting power with respect to such shares, subject
    to community property laws where applicable.      
     
(b) Based on 25,346,727 shares of Common Stock outstanding as of December 31,
    1998.      
    
(c) Assuming consummation of the purchase of all shares of Common Stock to be
    purchased pursuant to a stock purchase agreement between the stockholder
    and the Company and assuming no other changes, the percent of class would
    equal 56.8%. The Schedule 13G filed by the stockholder indicates sole
    voting power and sole dispositive power with respect to all shares.
          
(d) The Schedule 13G filed by the stockholder indicates shared investment and
    dispositive power with respect to all shares. Includes shares that the
    holder has the right to acquire through the exchange of 7 1/4%
    exchangeable subordinated debentures due in 2003.      
     
(e) Although the stockholder has not filed a Schedule 13G, the Company
    believes that the stockholder owns the number of shares indicated.      
     
(f) In connection with the retirement of Alexander Haagen, Sr., Charlotte
    Haagen and Alexander Haagen III (the "Haagen Family") from the Company,
    the Company has agreed to purchase from Haagen Limited Partnership, on May
    25, 1999, 817,534 shares of Common Stock and 2,839,284 OP Units at a price
    per share equal to the greater of $17 or the then current market price.
    Certain of the shares of Common Stock to be repurchased represent options
    that must be exercised by the Haagen Family.      
 
                                      59
<PAGE>

     
(g) Includes 60,000 shares of restricted stock received per the terms of Mr.
    Fox's employment contract and 45,034 shares of restricted stock received
    in lieu of cash compensation.      
     
(h) Includes options to purchase 61,875 shares which are exercisable within 60
    days as of December 31, 1998.      
     
(i) Represents shares of restricted stock received per the terms of Mr.
    Hewitt's employment contract.      
     
(j) Includes options to purchase 8,646 shares of Common Stock which are
    exercisable within 60 days as of December 31, 1998.      
     
(k) Includes options to purchase 11,400 shares of Common Stock which are
    exercisable within 60 days as of December 31, 1998.      
     
(l) Includes options to purchase 68,750 shares of Common Stock and 262,333 OP
    Units which are exchangeable for shares of Common Stock.      
     
(m) Includes options to purchase 104,721 shares of Common Stock which are
    exercisable within 60 days as of December 31, 1998.      
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         
     
  In December 1997, the Company extended a loan of $3,138,586 to Fred W.
Bruning. Interest on the loan is at a rate of 7.45%. The loan was secured by
all of Mr. Bruning's actual and beneficial ownership interest in the Company.
The loan was scheduled to mature in December 2004, but became due in full six
months following the termination of Mr. Bruning's employment with the Company.
As a part of the Severance Agreement between the Company and Mr. Bruning (the
"Bruning Severance Agreement"), the Company has agreed to forbear on
collecting the loan for a maximum additional six months provided that Mr.
Bruning complies with the Bruning Severance Agreement.      
     
  During 1998, the Company sold its Sears Hollywood facility, a single tenant
facility for proceeds of $5.4 million which resulted in a net gain of $1.1
million. In addition, the Company purchased the Manhattan Beach, California
building in which its corporate headquarters are located for $3.2 million.
Both of the above transactions were with affiliates of Alexander Haagen, Sr.,
the Company's former chairman, and were negotiated at arms-length.      
     
  In connection with the Separation Agreement, as described in "Employment and
Change-in-Control Agreements" above, the Company has agreed to purchase, or
cause to have purchased, from the Haagen Family, on May 25, 1999, an aggregate
of 3,656,818 shares of common stock and Operating Partnership Units (the
"Shares") at a price per share equal to the greater of $17 or the then current
market price (as determined in accordance with the Separation Agreement). A
portion of shares to be repurchased require that certain stock options be
exercised by the Haagen Family resulting in a net obligation to the Company of
$58.8 million. Under the terms of the Separation Agreement, the Haagen Family
may not sell such shares other than in certain open market transactions on the
New York Stock Exchange. Included in the Shares to be repurchased are 590,034
shares of Common Stock as of December 31, 1998.      

                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  A. The following documents are filed as part of this report:
 
<TABLE>
<CAPTION>
                                                                          Page
                                                                         Number
                                                                         ------
   <S>                                                                   <C>
   1. Independent Auditors' Report......................................   30
    Consolidated Balance Sheets as of December 31, 1998 and 1997........   31
    Consolidated Statements of Operations for Each of the Three Years
     Ended December 31, 1998............................................   32
    Consolidated Statements of Stockholders' Equity for Each of the
     Three Years Ended December 31, 1998................................   33
    Consolidated Statements of Cash Flows for Each of the Three Years
     Ended December 31, 1998............................................   34
    Notes to Consolidated Financial Statements..........................   35
   2. Financial Statement Schedules:
    II. Valuation and Qualifying Accounts...............................   49
    III. Real Estate and Accumulated Depreciation.......................   50
</TABLE>

                                      60
<PAGE>
 
  Schedules other than those listed above are omitted because they are not
applicable, not required, or the information required to be set forth therein
is included in the financial statements or the notes thereto.
 
<TABLE>    
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
   <S>                                                                    <C>
   3. Exhibits...........................................................   61
</TABLE>      
 
  The following exhibits are included as part of this Annual Report on Form
10-K/A as required by Item 601 of Regulation S-K. The exhibits identified by
asterisks are the management contracts and compensatory plans or arrangements
required to be filed as exhibits to this Annual Report on Form 10-K/A.
 
<TABLE>
 <C>           <S>
  Exhibit 3.1  Amended and Restated Charter of Alexander Haagen Properties,
                Inc., incorporated herein by reference to Exhibit 3.1 to the
                Company's Form 10-K for the year ended December 31, 1993 (the
                "1993 Form 10-K").
  Exhibit 3.2  Amended and Restated Bylaws of Alexander Haagen Properties,
                Inc., incorporated herein by reference to Exhibit 3.2 to the
                Company's Registration Statement on Form S-11 (No. 33-70156).
  Exhibit 3.2a First Amendment to Amended and Restated Bylaws of Alexander
                Haagen Properties, Inc., dated as of August 12, 1996,
                incorporated herein by reference to Exhibit 3.2a to the
                Company's Form 10-K for the year ended December 31, 1996 (the
                "1996 Form 10-K").
  Exhibit 3.3  Articles of Amendment of Center Trust Retail Properties, Inc.,
                incorporated herein by reference to Exhibit 3.3 of the
                Company's Quarterly Report for the period ended June 30, 1998
                on Form 10-Q.
  Exhibit 4.1  Indenture, dated as of December 27, 1993, between Alexander
                Haagen Properties, Inc. and The First National Bank of Boston
                as Trustee with respect to the 7 1/2% Convertible Subordinated
                Debentures due 2001, Series A, incorporated herein by
                reference to Exhibit 4.1 to the 1993 Form 10-K.
  Exhibit 4.2  Specimen 7 1/2% Convertible Subordinated Debenture due 2001,
                Series A, incorporated herein by reference to Exhibit 4.2 to
                the 1993 Form 10-K.
  Exhibit 4.3  Fiscal Agency Agreement, dated as of December 27, 1993, between
                Alexander Haagen Properties, Inc. and The First National Bank
                of Boston as Fiscal Agent with respect to the 7 1/2%
                Convertible Subordinated Debentures due 2001, Series B,
                incorporated herein by reference to Exhibit 4.3 to the 1993
                Form 10-K.
  Exhibit 4.4  Form of 7 1/2% Convertible Subordinated Debentures due 2001,
                Series B, incorporated herein by reference to Exhibit 4.4 to
                the 1993 Form 10-K.
  Exhibit 4.5  Specimen Common Stock Certificate, incorporated herein by
                reference to Exhibit 4.5 to the 1993 Form 10-K.
  Exhibit 4.6  Form of 7 1/4% Exchangeable Subordinated Debentures due 2003 of
                Alexander Haagen Properties, L.P., incorporated herein by
                reference to Exhibit 4.6 to the 1993 Form 10-K.
  Exhibit 10.1 Agreement of Limited Partnership of Alexander Haagen Properties
                Operating Partnership, L.P., dated as of December 27, 1993,
                incorporated herein by reference to Exhibit 10.1 to the 1993
                Form 10-K.
  Exhibit 10.2 Amendment No. 1 to the Agreement of Limited Partnership of
                Alexander Haagen Properties Operating Partnership, L.P., dated
                as of January 1, 1994, incorporated herein by reference to
                Exhibit 10.2 to the Company's Form 10-K for the year ended
                December 31, 1994 (the "1994 10-K").
  Exhibit 10.3 Registration Rights Agreement, dated as of December 27, 1993,
                among Alexander Haagen Properties, Inc. and the persons named
                therein, incorporated herein by reference to Exhibit 10.2 to
                the Company's Registration Statement on Form S-11 (No. 33-
                70156).
  Exhibit 10.4 Amended and Restated 1993 Stock Option and Incentive Plan for
                Officers, Directors and Key Employees of Alexander Haagen
                Properties, Inc., Alexander Haagen Properties Operating
                Partnership, L.P., and Haagen Property Management, Inc.,
                incorporated herein by reference to the Company's 1996 Proxy
                Statement.
</TABLE>
 
                                      61
<PAGE>
 
<TABLE>
 <C>            <S>
  Exhibit 10.5  401(k) Plan and Trust Agreement of Alexander Haagen Properties,
                 Inc. and its affiliated and related companies, incorporated
                 herein by reference to Exhibit 10.4 to the 1993 Form 10-K.

  Exhibit 10.6  Employment Agreement, dated as of December 27, 1993, among
                 Alexander Haagen Properties, Inc., Haagen Property Management,
                 Inc. and Fred W. Bruning, incorporated herein by reference to
                 Exhibit 10.9 to the 1993 Form 10-K.

  Exhibit 10.7  Form of Indemnification Agreement between Alexander Haagen
                 Properties, Inc. and its directors and officers, incorporated
                 herein by reference to Exhibit 10.4 to the Company's
                 Registration Statement on Form S-11 (No. 33-70156).

  Exhibit 10.8  Purchase Agreement, dated as of December 27, 1993, among
                 Alexander Haagen Properties Operating Partnership, L.P.,
                 Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
                 Special Value Fund, Inc., Merrill Lynch Multinational
                 Investment Portfolios Equity/Convertible Series (Global
                 Allocation Portfolio), with respect to the 7 1/4% Exchangeable
                 Subordinated Debentures due 2003, incorporated herein by
                 reference to Exhibit 10.12 to the 1993 Form 10-K.

  Exhibit 10.9  Property Management Agreement, dated as of December 27, 1993,
                 between Haagen Property Management, Inc. and Alexander Haagen
                 Properties Operating Partnership, L.P., incorporated herein by
                 reference to Exhibit 10.13 to the 1993 Form 10-K.

  Exhibit 10.10 Agreement for Transfer of Realty and Assets, dated as of
                 December 27, 1993, by and among Alexander Haagen Properties
                 Operating Partnership, L.P. and Montebello Commercial
                 Properties, Haagen GDH Partnership, Center Partners, H&H
                 Oceanside Co., El Camino North, Baldwin Hills Associates,
                 Haagen-Burbank Partnership, Date Palm Partnership, Alexander
                 Haagen III, Betty Haagen, Seymour Kreshek, Haagen-Fontana
                 Partnership, Lake Forest Shopping Center, Haagen-San Francisco
                 Partnership, Haagen GDH-2 Partnership, Haagen-Vista Way
                 Associates, and Haagen Alhambra Associates, incorporated
                 herein by reference to Exhibit 10.14 to the 1993 Form 10-K.

  Exhibit 10.11 Amendment No. 1 to Agreement for Transfer of Realty and Assets,
                 dated as of December 27, 1993, by and among Alexander Haagen
                 Properties Operating Partnership, L.P. and Montebello
                 Commercial Properties, Haagen GDH Partnership, Center
                 Partners, H&H Oceanside Co., El Camino North, Baldwin Hills
                 Associates, Haagen-Burbank Partnership, Date Palm Partnership,
                 Alexander Haagen III, Betty Haagen, Seymour Kreshek, Haagen-
                 Fontana Partnership, Lake Forest Shopping Center, Haagen-San
                 Francisco Partnership, Haagen GDH-2 Partnership, Haagen-Vista
                 Way Associates, and Haagen Alhambra Associates, incorporated
                 herein by reference to Exhibit 10.15 to the 1993 Form 10-K.
  Exhibit 10.12 Agreement for Transfer of Realty and Assets, dated as of
                 December 27, 1993, by and among Alexander Haagen Properties,
                 Inc., Alexander Haagen, Sr. and Charlotte Haagen, Co- Trustees
                 of the Haagen Living Trust dated August 17, 1988, Saul S.
                 Kreshek, Saul S. Kreshek and Seymour Kreshek, Co-Trustees of
                 the Helen Roseman Trust, Saul S. Kreshek and Seymour Kreshek,
                 Co-Trustees of the Alex Kreshek Revocable Trust, Jeffrey
                 Harris Kreshek 1992 Irrevocable Trust, Bradley Howard Kreshek
                 1992 Irrevocable Trust, Howard Andrew Kreshek 1992 Irrevocable
                 Trust, Haagen-Gardena Gateway Partnership, Haagen- Hollywood
                 Partnership, San Fernando Mission Partnership, and Haagen GDH
                 Partnership, incorporated herein by reference to Exhibit 10.16
                 to the 1993 Form 10-K.
  Exhibit 10.13 Amendment No. 1 to Agreement for Transfer of Realty and Assets,
                 dated as of December 27, 1993, by and among Alexander Haagen
                 Properties, Inc., Alexander Haagen, Sr. and Charlotte Haagen,
                 Co-Trustees of the Haagen Living Trust dated August 17, 1988,
                 Saul S. Kreshek, Saul S. Kreshek and Seymour Kreshek, Co-
                 Trustees of the Helen Roseman Trust, Saul S. Kreshek and
                 Seymour Kreshek, Co-Trustees of the Alex Kreshek Revocable
                 Trust, Jeffrey Harris Kreshek 1992 Irrevocable Trust, Bradley
                 Howard Kreshek 1992 Irrevocable Trust, Howard Andrew Kreshek
                 1992 Irrevocable Trust, Haagen-Gardena Gateway Partnership,
                 Haagen-Hollywood Partnership, San Fernando Mission
                 Partnership, and Haagen GDH Partnership, incorporated herein
                 by reference to Exhibit 10.17 to the 1993 Form 10-K.
</TABLE>
 
                                       62
<PAGE>
 
<TABLE>
 <C>            <S>
  Exhibit 10.14 Partnership Interests Exchange Agreement, dated as of December
                 27, 1993, by and among Alexander Haagen Properties, Inc.,
                 Alexander Haagen, Sr. and Charlotte Haagen, Co- Trustees of
                 the Haagen Living Trust, Seymour Kreshek and Arline Kreshek,
                 Co-Trustees of the Seymour and Arline Kreshek Living Trust,
                 and Alexander Haagen III, incorporated herein by reference to
                 Exhibit 10.18 to the 1993 Form 10-K.
  Exhibit 10.15 Partnership Interests Exchange Agreement between Willowbrook
                 General Partnership and Alexander Haagen Operating
                 Partnership, L.P., dated as of December 27, 1993,
                 incorporated herein by reference to Exhibit 10.19 to the 1993
                 Form 10-K.
  Exhibit 10.16 Contribution Agreement, dated as of December 27, 1993, between
                 Alexander Haagen Properties Operating Partnership, L.P. and
                 Alexander Haagen Properties, Inc., incorporated herein by
                 reference to Exhibit 10.20 to the 1993 Form 10-K.
  Exhibit 10.17 Amendment No. 1 to Contribution Agreement between Alexander
                 Haagen Properties Operating Partnership, L.P. and Alexander
                 Haagen Properties, Inc., dated as of December 27, 1993,
                 incorporated herein by reference to Exhibit 10.21 to the 1993
                 Form 10-K.
  Exhibit 10.18 Option Properties Agreement, dated as of December 27, 1993,
                 among Haagen-Fontana Partnership, Haagen-Alhambra Retail
                 Partnership and Alexander Haagen Properties Operating
                 Partnership, L.P., incorporated herein by reference to
                 Exhibit 10.22 to the 1993 Form 10-K.
  Exhibit 10.19 Termination of Option Agreement, dated November 30, 1994,
                 incorporated herein by reference to Exhibit 10.24 to the 1994
                 Form 10-K.
  Exhibit 10.20 Development Properties Agreement, dated as of December 27,
                 1993, among Haagen-Burbank Partnership, Haagen-Fontana
                 Partnership, Baldwin Hills Associates, Montebello Commercial
                 Properties, Haagen-San Francisco Partnership and Alexander
                 Haagen Properties Operating Partnership, L.P., incorporated
                 herein by reference to Exhibit 10.23 to the 1993 Form 10-K.
  Exhibit 10.21 Form of Waiver and Recontribution Agreement among Executive
                 Officers and Alexander Haagen Properties Operating
                 Partnership, L.P., incorporated herein by reference to
                 Exhibit 10.16 to the Company's Registration Statement on Form
                 S-11 (No. 33-70156).
  Exhibit 10.22 Form of Indemnity Agreement among Executive Officers and
                 Alexander Haagen Properties Operating Partnership, L.P.,
                 incorporated herein by reference to Exhibit 10.17 to the
                 Company's Registration Statement on Form S-11 (No. 33-70156).
  Exhibit 10.23 Registration Rights Agreement, dated as of December 27, 1993,
                 among Alexander Haagen Properties, Inc., Merrill Lynch Global
                 Allocation Fund, Inc., Merrill Lynch Special Value Fund,
                 Inc., and Merrill Lynch Multinational Investment Portfolios
                 Equity/Convertible Series (Global Allocation Portfolio),
                 incorporated herein by reference to Exhibit 10.26 to the 1993
                 Form 10-K.
  Exhibit 10.24 Indemnity Agreement, dated as of December 27, 1993, by
                 Alexander Haagen Properties Operating Partnership, L.P. to
                 National Westminster Bank PLC, Capital Markets Branch, as
                 agent, for the benefit of Merrill Lynch Global Allocation
                 Fund, Inc., Merrill Lynch Special Value Fund, Inc., and
                 Merrill Lynch Multinational Investment Portfolios
                 Equity/Convertible Series (Global Allocation Portfolio),
                 incorporated herein by reference to Exhibit 10.27 to the 1993
                 Form 10-K.
  Exhibit 10.25 Loan Agreement, dated as of March 15, 1995, by and between the
                 Alexander Haagen Properties Finance Partnership, L.P. and
                 Nomura Asset Capital Corporation, incorporated herein by
                 reference to Exhibit 10.31 to the 1994 Form 10-K.
  Exhibit 10.26 First Amendment to the Amended and Restated 1993 Stock Option
                 and Incentive Plan for Officers, Directors and Key Employees
                 of Alexander Haagen Properties, Inc. and Haagen Property
                 Management, Inc., incorporated herein by reference to Exhibit
                 10.33 to the 1996 Form 10-K.
</TABLE>
 
 
                                       63
<PAGE>
 
<TABLE>
 <C>            <S>
  Exhibit 10.27 Second Amendment to Agreement of Limited Partnership of
                 Alexander Haagen Properties Operating Partnership, L.P., dated
                 as of March, 1995, incorporated herein by reference to Exhibit
                 10.34 to the 1996 Form 10-K.
  Exhibit 10.28 Third Amendment to Agreement of Limited Partnership of
                 Alexander Haagen Properties Operating Partnership, L.P., dated
                 as of February 27, 1997, incorporated herein by reference to
                 Exhibit 10.35 to the 1996 Form 10-K.
  Exhibit 10.29 Stock Purchase Agreement by and among Prometheus Western
                 Retail, LLC and LF Strategic Realty Investors, L.P. and
                 Alexander Haagen Properties, Inc., dated as of June 1, 1997,
                 incorporated herein by reference to the Company's 1997 Proxy
                 Statement.
  Exhibit 10.30 Stockholders Agreement by and among Lazard Freres Real Estate
                 Investors, LLC, LF Strategic Realty Investors, L.P.,
                 Prometheus Western Realty Investors, LLC and Alexander Haagen
                 Properties, Inc., dated as of June 1, 1997, incorporated
                 herein by reference to the Company's 1997 Proxy Statement.
  Exhibit 10.31 Registration Rights Agreement by and among Alexander Haagen
                 Properties, Inc. and Prometheus Western Retail, LLC, dated as
                 of June 1, 1997, incorporated herein by reference to the
                 Company's 1997 Proxy Statement.
  Exhibit 10.32 Third Amendment to the Amended and Restated 1993 Stock Option
                 and Incentive Plan for Officers, Directors and Key Employees
                 of Alexander Haagen Properties, Inc., Alexander Haagen
                 Properties Operating Partnership, L.P. and Haagen Property
                 Management, Inc., incorporated herein by reference to the
                 Company's 1997 Proxy Statement.
  Exhibit 10.33 Fourth Amendment to the Amended and Restated 1993 Stock Option
                 and Incentive Plan for Officers, Directors and Key Employees
                 of Alexander Haagen Properties, Inc., Alexander Haagen
                 Properties Operating Partnership, L.P. and Haagen Property
                 Management, Inc., incorporated herein by reference to the
                 Company's 1997 Proxy Statement.
  Exhibit 10.34 Separation Agreement and Release by and between Alexander
                 Haagen, Sr., Alexander Haagen, III, Charlotte Haagen, Autumn
                 Haagen, Alexander Haagen III & Betty Haagen Trust fbo
                 Alexander Haagen IV UA 10/24/88, Alexander Haagen III & Betty
                 Haagen Trust fbo Autumn Haagen UA 10/24/88, Alexander Haagen
                 III & Betty Haagen Trust fbo Andrew Haagen UA 10/28/88, Haagen
                 Living Trust dated August 17, 1988, as amended and restated as
                 of April 18, 1996, Haagen Limited Partnership and Lazard
                 Freres Real Estate Investors, LLC, Lf Strategic Realty
                 Investors, L.P., Prometheus Western Retail LLC, and Alexander
                 Haagen Properties, Inc., Alexander Haagen Properties Operating
                 Partnership, L.P. and Haagen Property Management, Inc., dated
                 as of November 24, 1997, incorporated herein by reference to
                 Exhibit No. 1 to Amendment #4 to the 13D filed by Prometheus
                 Western Retail, LLC and LF Strategic Investors, L.P. dated as
                 of December 5, 1997, incorporated herein by reference to
                 Exhibit 10.34 to the Company's Form 10-K for the year ended
                 December 31, 1997 (the "1997 Form 10-K").
  Exhibit 10.35 Loan and Security Agreement by and between Alexander Haagen
                 Properties Operating Partnership, L.P. and Fred W. Bruning,
                 dated as of December 29, 1997, incorporated herein by
                 reference to Exhibit 10.35 to the 1997 Form 10-K.
  Exhibit 10.36 Credit Agreement among Alexander Haagen Properties Operating
                 Partnership, L.P, The Chase Manhattan Bank, Chase Securities,
                 Inc., Credit Lyonnais, New York Branch and CIBC, Inc., dated
                 as of December 31, 1997, incorporated herein by reference to
                 Exhibit 10.36 to the 1997 Form 10-K.
  Exhibit 10.37 Fifth Amendment to the Amended and Restated 1993 Stock Option
                 and Incentive Plan for Officers, Directors and Key Employees
                 of Alexander Haagen Properties, Inc., Alexander Haagen
                 Properties Operating Partnership, L.P. and Haagen Property
                 Management, Inc., incorporated herein by reference to the
                 Company's 1998 Proxy Statement.
</TABLE>
 
                                       64
<PAGE>
 
<TABLE>
 <C>           <S>
  Exhibit 21.1 Subsidiaries of the Company, incorporated herein by reference to
                Exhibit 10.34 to the Company's 1995 Form 10-K.
  Exhibit 23.1 Consent of Deloitte & Touche LLP
  Exhibit 27   Financial Data Table.
</TABLE>
 
  B. Reports on Form 8-K
 
    None
 
                                       65
<PAGE>
 
                                  SIGNATURES
     
  Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Manhattan Beach,
State of California, on the 29th day of April, 1999.      
 
                                          CENTERTRUST RETAIL PROPERTIES, INC.
 
                                                   /s/ Edward D. Fox
                                          By: _________________________________
                                                       Edward D. Fox
                                                Chief Executive Officer and
                                                         President
 
         
                                      S-1