<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
                                  
(MARK ONE)                     FORM 10-K/A     
 
[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, 1997
                                      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
 
                               ----------------
                       ALEXANDER HAAGEN 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:
 
           TITLE OF EACH CLASS     NAME OF EACH EXCHANGE ON WHICH REGISTERED
           -------------------     -----------------------------------------
            COMMON STOCK, PAR
             VALUE $.01 PER
                 SHARE                       AMERICAN STOCK EXCHANGE

      7 1/2% CONVERTIBLE SUBORDINATED
       DEBENTURES DUE 2001, SERIES A         AMERICAN STOCK EXCHANGE
 
          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: [X]
   
  The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $295,940,000 (computed on the basis of $15.625
per share), which was the last sale price on the American Stock Exchange on
April 28, 1998.     
   
  As of April 28, 1998, 18,955,158 shares of Common Stock, Par Value $.01 Per
Share, were outstanding.     
 
                  LIST OF DOCUMENTS INCORPORATED BY REFERENCE
 
  Part III of this Form 10-K incorporates by reference information from the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days of the close of Registrant's fiscal year.
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>   
<CAPTION>
 ITEM                                                                      PAGE
 ----                                                                      ----
 
                                     PART I
 
 <C>  <S>                                                                  <C>
  1.  BUSINESS...........................................................    1
  2.  PROPERTIES.........................................................    3
  3.  LEGAL PROCEEDINGS..................................................   15
  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................   15
 
                                    PART II
 
  5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
      MATTERS............................................................   16
  6.  SELECTED FINANCIAL DATA............................................   17
  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS..............................................   18
  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................   25
  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE...............................................   47
 
                                    PART III
 
 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................   47
 11.  EXECUTIVE COMPENSATION.............................................   48
 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....   51
 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................   53
 
                                    PART IV
 
 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...   54
</TABLE>    
 
<TABLE>
<S>                                                                          <C>
SIGNATURES.................................................................. S-1
</TABLE>
<PAGE>
 
                                    PART I
 
ITEM 1. BUSINESS
 
  Alexander Haagen Properties, Inc., a Maryland corporation (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, 1997, the Company owned a portfolio comprised of
interests in 46 retail shopping centers (the "Properties"). See "Item 2--
Properties." All of the Properties and assets in the Company's portfolio are
held and operated by Alexander Haagen Properties Operating Partnership, L.P.,
a California limited partnership (the "Operating Partnership" or "OP") and
Alexander Haagen Properties Finance Partnership, L.P. (the "Finance
Partnership"). The Company is the sole general partner of the Operating
Partnership and owns a 79.1% interest therein. The Company owns 100% of the
Finance Partnership and is its sole general partner while the Operating
Partnership is its sole Limited Partner. 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"). The purchase price per share was
determined as a result of arm's length negotiations between the Company and
its advisors and LFREI and its advisors. On August 14, 1997, the Stockholders
of the Company approved the Transaction.
 
  As of December 31, 1997, the Company had sold 4,006,434 shares, to LFREI
under the terms of the Transaction for aggregate proceeds of $60.1 million. On
February 13, 1998 the Company sold an additional 2,700,000 shares to LFREI. As
of February 13, 1998, LFREI is obligated to purchase a further 8,960,232
Shares of Common Stock for aggregate proceeds of $134.4 million (the
"Remaining Equity Commitment"). As of such date, LFREI owned approximately
35.4% of the outstanding Common Stock.
 
  The Company must sell the Remaining Equity Commitment not later than
February 14, 1999. If the Company has not drawn the Remaining Equity
Commitment by such date, LFREI will have the right on such date to purchase
such shares from the Company, at a price of $15.00 per share. If LFREI
acquires all of the shares represented by the Remaining Equity Commitment (and
assuming no other change in the number of outstanding shares), LFREI will own
approximately 56.3% of the outstanding Common Stock (37.9% on a 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 following stockholder approval (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 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
convertible debt or upon exercise of options granted under management benefit
plans shall not be included. After giving effect to the sale
 
                                       1
<PAGE>
 
of 15,666,666 shares to LFREI, and assuming no other change in the number of
outstanding shares, LFREI will own 49.0% 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.
 
  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. 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.
 
  Through December 31, 1997, leasing and other property management functions
were conducted at all of the Properties by Haagen Property Management, Inc., a
California corporation ("HPMI"), pursuant to management agreements between the
Operating Partnership, the Finance Partnership, and HPMI. As of December 31,
1997, HPMI employed a staff of 102 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. The Company
owned all of the outstanding non-voting preferred stock of HPMI, representing
a 95% economic interest in HPMI. All of the outstanding voting common stock of
HPMI, representing a 5% economic interest in HPMI, was held by certain
executive officers of the Company. On December 31, 1997, the Company acquired
the remaining 5% economic interest in HPMI by acquiring all of the voting
common stock of HPMI. As of such date, all of the employees of HPMI became
employees of the Operating Partnership. All of the assets and liabilities of
HPMI have been consolidated into the Company as of December 31, 1997.
 
  The Company operates so as to qualify as a real estate investment trust
("REIT") under Sections 856-860 of the Internal Revenue Code. Under those
sections of the Internal Revenue 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.
 
  The Company competes with commercial developers, real estate companies,
pension funds and other real estate investors, many of which have greater
financial resources than the Company, in seeking land for development,
properties for acquisition and tenants for leasing of properties. There are
numerous shopping centers that compete with the Properties in attracting
retailers to lease space. In addition, retailers at the Properties face
increasing competition from outlet malls, discount shopping clubs, direct mail
and telemarketing.
 
                                       2
<PAGE>
 
ITEM 2. PROPERTIES
 
  As of December 31, 1997, the Properties consisted of 22
neighborhood/community shopping centers, 8 promotional/power centers, 2
regional malls and 14 single tenant facilities, containing in the aggregate
approximately 9.0 million square feet of total gross leasable area ("GLA").
Approximately 7.2 million square feet of GLA is owned by the Company, and the
balance is owned by certain anchor retailers. The Company believes that
management's attention to quality, design and aesthetics, tenant mix and other
specific community needs position a number of the Properties among the premier
retail shopping centers in their respective communities. The majority of the
Properties are located throughout Southern California, including 14 in
Los Angeles County, 5 in San Diego County, 3 in Orange County, 2 in San
Bernardino County, 2 in Riverside County, 1 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 7 Properties in Northern and Central California, 3
Properties in Arizona, 3 Properties in Oregon and 5 Properties in Washington.
 
  The Company's single tenant facilities range in size from approximately
36,800 square feet of total GLA to approximately 135,000 square feet of total
GLA. The Company's neighborhood/community shopping centers and
promotional/power 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 810,000 square feet of GLA to
approximately 1,232,000 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.
 
  During 1997, the Company substantially completed construction at its two
Redevelopment Properties. At Covina Town Square, the former Sears was
demolished and replaced with a 95,150 square foot building which has been
leased to AMC Theatres that opened for business in February 1998. Medford
Center in Medford, Oregon was transformed from an enclosed mall to an open air
power center comprising 340,867 square feet of GLA, of which 84,000 is still
under construction.
 
                                       3
<PAGE>
 
  Also, during 1997, the Company implemented an acquisition strategy
designated to expand its portfolio of unenclosed anchored shopping centers in
the Western United States. As a result of its acquisition strategy, the
Company acquired 8 properties in 1997, aggregating approximately 848,000
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 153,433
   December 9, 1997......... Marshall's Plaza           Modesto, CA       79,000
   December 19, 1997........ Rheem Valley               Moraga, CA       158,093
   December 26, 1997........ Silverdale Shopping Center Silverdale, WA    67,290
   December 31, 1997........ Westgate North             Tacoma, WA       110,251
</TABLE>
 
  Subsequent to December 31, 1997 the Company acquired eight properties,
aggregating approximately 1,052,000 square feet of GLA, with an aggregate
purchase price of $114 million. The acquisitions consist of the following:
 
<TABLE>
<CAPTION>
                                                                        COMPANY
                                                                         OWNED
   DATE ACQUIRED       PROPERTY NAME                     LOCATION         GLA
   -------------       -------------                     --------       -------
   <S>                 <C>                         <C>                  <C>
   January 20, 1998... Covington Square            Kent, WA             155,370
   March 11, 1998..... Pavilions Centre            Federal Way, WA      200,191
   March 27, 1998..... Bakersfield Shopping Center Bakersfield, CA       14,115
   March 27, 1998..... Center of El Centro         El Centro, CA        179,189
   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        83,409
</TABLE>
 
  The acquisitions were principally funded through proceeds from the sale of
common stock to LFREI and borrowings on the Company's Secured Line of Credit.
 
  During 1996, the Company sold 2 of its single tenant facilities for
aggregate net proceeds of $6.3 million. In June 1996, the Company sold the
Vons market located in Ventura, California for $2.8 million. In October 1996,
the Company sold its property in Rancho Cucamonga for $3.5 million. The
property was leased to Dayton-Hudson and had been vacant for several years.
The proceeds from the sales were used to reduce borrowings on the Company's
credit facility and to retire mortgage indebtedness secured by one of the
properties.
 
  Thirty-seven of the Properties are owned by the Company in fee and 9 are
held by the Company under long-term ground leases. Included in the long-term
ground leases are the Partially-Owned Properties, in which the Company owns,
directly or indirectly, partnership interests (75% in Kenneth Hahn Plaza and
34% in Vermont-Slauson Shopping Center).
 
                                       4
<PAGE>
 
DESCRIPTION OF PROPERTIES
 
  The following table summarizes certain information with respect to the
Properties as of December 31, 1997.
 
<TABLE>
<CAPTION>
                             YEAR OF                               TOTAL
                           CONSTRUCTION                          SHOPPING                         GLA
                             (OR MOST      OWNERSHIP      LAND    CENTER    COMPANY  GLA TO BE AVAILABLE     ANCHOR OR
                              RECENT        INTEREST      AREA      GLA    OWNED GLA   BUILT   FOR LEASE     PRINCIPAL
       PROPERTY NAME       RENOVATION)  (EXPIRATION)(1)  (ACRES) (SQ. FT.) (SQ. FT.) (SQ. FT.) (SQ. FT.)      TENANTS
       -------------       ------------ ---------------  ------- --------- --------- --------- ---------     ---------
 <C>                       <C>          <C>              <C>     <C>       <C>       <C>       <C>       <S>
 STABILIZED PROPERTIES
 REGIONAL MALLS
 Baldwin Hills Crenshaw         1988          Fee          42.0    809,980   349,980      --     349,980 Sears(2),
 Plaza....................                                                                               Robinson's-
 (Los Angeles, CA)                                                                                       May(2),
                                                                                                         Macy's(2),
                                                                                                         Lucky,
                                                                                                         TJ Maxx,
                                                                                                         Sony/Magic
                                                                                                         Johnson Theatres
 Media City Center........      1992      Ground Lease     37.1  1,231,670   802,060      --     802,060 Macy's, IKEA(2),
 (Burbank, CA)                               (2078)       -----  --------- ---------  -------  --------- Sears(2),
                                                                                                         Mervyn's(2),
                                                                                                         AMC Theatres,
                                                                                                         Sport Chalet,
                                                                                                         CompUSA,
                                                                                                         Barnes & Noble,
                                                                                                         Virgin Megastore
 Subtotal Regional Malls..                                 79.1  2,041,650 1,152,040      --   1,152,040
                                                          -----  --------- ---------  -------  ---------
 PROMOTIONAL/POWER CENTERS
 El Camino North..........      1982          Fee          54.0    451,301   324,801      --     324,801 Mervyn's(2),
 (Oceanside, CA)                                                                                         Toys 'R' Us(2),
                                                                                                         Montgomery
                                                                                                         Ward(3), Mann
                                                                                                         Theatres, Ross
                                                                                                         Stores
 Empire Center............      1993          Fee          60.5    626,496   261,996    4,645    266,641 Target(2),
 (Fontana, CA)                                                                                           Mervyn's(2),
                                                                                                         Miller's
                                                                                                         Outpost,
                                                                                                         Ross Store, Gap
                                                                                                         Old Navy
 Fullerton Town Center....      1987          Fee          21.7    391,347   278,647             278,647 Price Club(2),
 (Fullerton, CA)                                                                                         AMC Theatres,
                                                                                                         Toys 'R' Us,
                                                                                                         Office Depot,
                                                                                                         Aaron Bros. Art
                                                                                                         Mart
 Gresham Town Fair........      1988          Fee          25.6    264,649   264,649      --     264,649 Ross Stores,
 (Gresham, OR)                                                                                           Emporium, GI
                                                                                                         Joes,
                                                                                                         Craft Warehouse
 Montebello Town Square...      1992          Fee          24.5    250,438   250,438      --     250,438 Sears, Toys 'R'
 (Montebello, CA)                                                                                        Us, AMC
                                                                                                         Theatres, Petco
 The City Center..........    (1992)          Fee           6.8    194,193   194,193      --     194,193 Toys 'R' Us,
 (San Francisco, CA)                                      -----  --------- ---------  -------  --------- Mervyn's, Office
                                                                                                         Depot,
                                                                                                         Good Guys
 Subtotal                                                 193.1  2,178,424 1,574,724    4,645  1,579,369
 Promotional/Power                                        -----  --------- ---------  -------  ---------
 Centers..................
 NEIGHBORHOOD/COMMUNITY
 SHOPPING CENTERS
 Advantage/Sportmart          (1988)          Fee          10.3    117,860   117,860      --     117,860 Advantage
 Shopping Center..........                                                                               (Lucky),
 (San Diego, CA)                                                                                         SportMart
 Country Fair Shopping          1992          Fee          17.3    211,807   168,367      --     168,367 Albertson's(2),
 Center...................                                                                               PETsMART,
 (Chino, CA)                                                                                             Thrifty,
                                                                                                         Staples, T.J.
                                                                                                         Maxx
 Date Palm Center.........      1987          Fee          11.0    117,362   117,362    4,000    121,362 SAM's Club (Wal-
 (Cathedral City, CA)                                                                                    Mart)
 Fire Mountain Center.....      1987    Fee/Ground Lease    9.4     93,778    93,778      --      93,778 Strouds, Lamps
 (Oceanside, CA)                             (2038)                                                      Plus, Trader
                                                                                                         Joe's,
                                                                                                         Bookstar, Aaron
                                                                                                         Bros. Art Mart
 Frontier Village Shopping      1993          Fee          15.7    153,320   153,320      --     153,320 Safeway, Bartell
 Center...................                                                                               Drugs
 (Lake Stevens, WA)
</TABLE>
 
                                       5
<PAGE>
 
<TABLE>
<CAPTION>
                                   YEAR OF                              TOTAL
                                 CONSTRUCTION                         SHOPPING                         GLA
                                   (OR MOST      OWNERSHIP     LAND    CENTER    COMPANY  GLA TO BE AVAILABLE     ANCHOR OR
                                    RECENT       INTEREST      AREA      GLA    OWNED GLA   BUILT   FOR LEASE     PRINCIPAL
          PROPERTY NAME          RENOVATION)  (EXPIRATION)(1) (ACRES) (SQ. FT.) (SQ. FT.) (SQ. FT.) (SQ. FT.)      TENANTS
          -------------          ------------ --------------- ------- --------- --------- --------- ---------     ---------
 <C>                             <C>          <C>             <C>     <C>       <C>       <C>       <C>       <S>
 Gardena Gateway Center.........      1990          Fee          9.7     65,987    65,987      --      65,987 Thrifty, 99
  (Gardena, CA)                                                                                                Ranch Market
 Huntington Center..............    (1989)     Ground Lease      3.9    110,244   110,244      --     110,244 Toys 'R' Us,
  (Huntington Beach, CA)                          (2032)                                                       Lucky
 Kenneth Hahn Plaza.............      1987     Ground Lease     14.5    162,665   162,665    6,500    169,165 Food 4 Less,
  (Los Angeles, CA)                               (2052)                                                       Pic'N'Save,
                                                                                                               Thrifty,
                                                                                                               L.A. County
                                                                                                               Library, Super
                                                                                                               Trak Auto
 La Verne Towne Center..........      1986          Fee         19.1    231,143   231,143      --     231,143 Target,
  (La Verne, CA)                                                                                               Albertson's,
                                                                                                               Michael's
 Lakewood Plaza.................    (1989)     Ground Lease     11.1    113,511   113,511      --     113,511 Lucky Stores,
  (Bellflower, CA)                                (2032)                                                       Staples
 Marshall's Plaza ..............      1989          Fee          5.0     86,200    79,000      --      79,000 Marshall's, Good
  (Modesto, CA)                                                                                                Guys
 Pacific Linen Plaza............      1988          Fee          4.6     69,432    69,432      --      69,432 Pacific Linen,
  (Lynnwood, WA)                                                                                               Payless
                                                                                                               Shoesource
                                                                                                               Men's Wearhouse
 Parkway Place..................    (1989)     Ground Lease      9.7    118,920   118,920      --     118,920 Advantage
  (Escondido, CA)                                 (2037)                                                       (Lucky), Office
                                                                                                               Depot
 Pomona Gateway Center..........    (1993)          Fee          9.8    108,887   108,887      --     108,887 Vons, Pic'N'Save
  (Pomona, CA)
 Rheem Valley...................      1990          Fee         18.4    178,157   153,786      --     153,786 T.J. Maxx, Longs
  (Moraga, CA)                                                                                                 Drugs
 Rosedale Village Shopping            1991          Fee         10.6    217,006   127,527      --     127,527 Savemart,
  Center........................                                                                               Payless Drugs,
  (Bakersfield, CA)                                                                                            Kmart(2)
 Ross Center....................      1987          Fee         10.0    132,465   132,465      --     132,465 Ross Stores,
  (Portland, OR)                                                                                               Michael's, Pier
                                                                                                               1 Imports
 San Fernando Mission Plaza.....      1991          Fee          4.9     67,192    67,192      --      67,192 KV-Mart (Vons)
  (San Fernando, CA)
 Silverdale Shopping Center           1990          Fee          6.0     67,330    67,330      --      67,330 Ross Stores
  (Ross Plaza)..................
  (Silverdale, WA)
 Vancouver Park Place...........      1987          Fee          6.4     77,989    77,989      --      77,989 T.J. Maxx, Pier
  (Vancouver, WA)                                                                                              1 Imports,
                                                                                                               Olive Garden
 Vermont-Slauson Shopping             1981     Ground Lease     10.3    169,744   169,744      --     169,744 Ralph's Market,
  Center........................                  (2070)                                                       Kmart, Sav-On
  (Los Angeles, CA)                                                                                            Drugs
 Westgate North Shopping Center.      1980          Fee         13.3    112,592   110,251      --     110,251 Quality Food
  (Tacoma, WA)                                                 -----  --------- ---------  -------  ---------  Centers
 Subtotal Neighborhood/Community
  Shopping Centers .............                               231.0  2,783,591 2,616,760   10,500  2,627,260
                                                               -----  --------- ---------  -------  ---------
 SINGLE TENANT FACILITIES
 Home Base......................    (1988)          Fee          8.7    107,165   107,165      --     107,165 Home Base
  (Glendora, CA)
 Kmart..........................      1990          Fee          8.7    104,204   104,204      --     104,204 Kmart
  (Phoenix, AZ)
 Kmart..........................      1990          Fee          8.8     86,479    86,479      --      86,479 Kmart
  (Banning, CA)
</TABLE>
 
                                       6
<PAGE>
 
<TABLE>
<CAPTION>
                             YEAR OF                              TOTAL
                           CONSTRUCTION                         SHOPPING                         GLA
                             (OR MOST      OWNERSHIP     LAND    CENTER    COMPANY  GLA TO BE AVAILABLE     ANCHOR OR
                              RECENT       INTEREST      AREA      GLA    OWNED GLA   BUILT   FOR LEASE     PRINCIPAL
       PROPERTY NAME       RENOVATION)  (EXPIRATION)(1) (ACRES) (SQ. FT.) (SQ. FT.) (SQ. FT.) (SQ. FT.)     TENANTS
       -------------       ------------ --------------- ------- --------- --------- --------- ---------     ---------
 <C>                       <C>          <C>             <C>     <C>       <C>       <C>       <C>       <S>
 Kmart....................      1990          Fee          9.1     86,479    86,479      --      86,479 Kmart
 (El Centro, CA)
 Kmart....................      1990          Fee          6.8     86,479    86,479      --      86,479 Kmart
 (Los Banos, CA)
 Kmart....................      1990          Fee          6.2     86,479    86,479      --      86,479 Kmart
 (Madera, CA)
 Kmart....................      1990          Fee          8.3     86,479    86,479      --      86,479 Kmart
 (Rocklin, CA)
 Oracle Road..............    (1989)          Fee          8.1    102,400   102,400      --     102,400 Montgomery Ward
 (Tucson, AZ)
 SAM's Club...............    (1988)     Ground Lease      9.8    114,722   114,722      --     114,722 SAM's Club (Wal-
 (Downey, CA)                               (2009)                                                      Mart)
 SAM's Club...............    (1988)          Fee         11.5    119,126   119,126      --     119,126 SAM's Club (Wal-
 (Fountain Valley, CA)                                                                                  Mart)
 Sears....................    (1992)          Fee          4.3    134,644   134,644      --     134,644 Sears
 (Hollywood, CA)
 Smitty's.................    (1992)          Fee          8.5    106,265   106,265      --     106,265 Smitty's
 (Tucson, AZ)
 Vons.....................    (1989)          Fee          3.5     36,800    36,800      --      36,800 Vons
 (Escondido, CA)
 Vons.....................    (1993)     Ground Lease      9.8    102,400   102,400      --     102,400 Vons
 (Simi Valley, CA)                          (2023)       -----  --------- ---------  -------  ---------
 Subtotal Single Tenant                                  112.1  1,360,121 1,360,121      --   1,360,121
 Facilities...............                               -----  --------- ---------  -------  ---------
 SUBTOTAL STABILIZED                                     615.3  8,363,786 6,703,645   15,145  6,718,790
 PROPERTIES...............                               -----  --------- ---------  -------  ---------
 REDEVELOPMENT PROPERTIES
 PROMOTIONAL/POWER CENTERS
 Covina Town Square.......    (1997)          Fee         35.5    256,367   256,367  103,150    359,517 Home Depot,
 (Covina, CA)                                                   ---------                               Staples,
                                                                                                        PETsMART,
                                                                                                        Michael's, AMC
                                                                                                        Theatres(4)
 Medford Center...........    (1997)          Fee         30.1    341,733   256,987   83,880    340,867 Cinemark
 (Medford, OR)                                           -----  --------- ---------  -------  --------- Theaters, Sears,
                                                                                                        Emporium,
                                                                                                        Payless(2),
                                                                                                        Safeway(2),
                                                                                                        Circuit City
 SUBTOTAL REDEVELOPMENT                                   65.6    598,100   513,354  187,030    700,384
 PROPERTIES...............                               -----  --------- ---------  -------  ---------
 TOTAL ALL PROPERTIES.....                               680.9  8,961.886 7,216,999  202,175  7,419,174
                                                         =====  ========= =========  =======  =========
</TABLE>
-----
(1) The date indicated is the expiration date of any ground lease after giving
    effect to all renewal periods.
(2) Anchor space not owned by the Company.
(3) Tenant has vacated space subsequent to December 31, 1997.
(4) Tenant opened for business subsequent to December 31, 1997. Space is
    reflected as GLA to be Built as of December 31, 1997.
 
                                       7
<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,
1997:
 
<TABLE>
<CAPTION>
                         ANCHOR    PAD    SHOP              GLA TO                                  AVERAGE
                         GLA(1)  GLA(2)  GLA(3)  AVAILABLE BE BUILT                     ANNUALIZED   BASE     ANNUAL
                          (SQ.    (SQ.    (SQ.      GLA      (SQ.   TOTAL GLA  PERCENT     BASE      RENT   PERCENTAGE
     PROPERTY NAME        FT.)    FT.)    FT.)   (SQ. FT.)   FT.)   (SQ. FT.) LEASED(4)   RENT(5)   PSF(6)   RENT(7)
     -------------       ------- ------- ------- --------- -------- --------- --------- ----------- ------- ----------
<S>                      <C>     <C>     <C>     <C>       <C>      <C>       <C>       <C>         <C>     <C>
STABILIZED PROPERTIES
REGIONAL MALLS
Baldwin Hills Crenshaw
Plaza..................  131,930  33,810 146,936   37,304     --      349,980    89.3   $ 5,948,426 $19.02   $ 95,873
Media City Center......  451,616  48,984 239,108   62,352     --      802,060    92.2    11,885,750  16.07    150,033
                         ------- ------- -------  -------   -----   ---------           -----------          --------
 Subtotal Regional
 Malls.................  583,546  82,794 386,044   99,656     --    1,152,040    91.3    17,834,176  16.95    245,906
                         ------- ------- -------  -------   -----   ---------           -----------          --------
PROMOTIONAL/POWER
CENTERS
El Camino North........  114,840 127,611  71,273   11,077     --      324,801    96.6     3,694,024  11.77     21,310
Empire Center..........   62,637  15,690  83,313  100,356   4,645     266,641    61.7     1,714,173  10.60        --
Fullerton Town Center..  177,653  19,722  60,510   20,762     --      278,647    92.5     3,828,872  14.85        --
Gresham Town Fair......  159,282  26,587  72,904    5,876     --      264,649    97.8     2,080,785   8.04     41,908
Montebello Town Square.  210,533   7,879  27,064    4,962     --      250,438    98.0     2,754,203  11.22        --
The City Center........  177,584     --   14,055    2,554     --      194,193    98.7     2,601,321  13.57        --
                         ------- ------- -------  -------   -----   ---------           -----------          --------
 Subtotal
 Promotional/Power
 Centers...............  902,529 197,489 329,119  145,587   4,645   1,579,369    90.8    16,673,378  11.67     63,218
                         ------- ------- -------  -------   -----   ---------           -----------          --------
NEIGHBORHOOD/COMMUNITY
SHOPPING CENTERS
Advantage/Sportmart
Shopping Center........  105,210  12,650     --       --      --      117,860   100.0     1,304,668  11.07      3,387
Country Fair Shopping
Center.................   85,725  27,341  26,311   28,990     --      168,367    82.8     1,814,547  13.02     18,455
Date Palm Center.......   99,919     --   15,044    2,399   4,000     121,362    98.0     1,738,558  15.12        --
Fire Mountain Center...   44,481  23,432  24,665    1,200     --       93,778    98.7     1,690,373  18.26     92,495
Frontier Village
Shopping Center........   68,473  22,023  61,624    1,200     --      153,320    99.2     1,492,242   9.81        --
Gardena Gateway Center.   41,300   5,062  19,625      --      --       65,987   100.0       998,838  15.14      6,249
Huntington Center......  105,879   4,365     --       --      --      110,244   100.0     1,174,979  10.66        --
Kenneth Hahn Plaza.....   97,186  11,798  36,225   17,456   6,500     169,165    89.3     1,378,987   9.50        --
La Verne Towne Center..  158,860   1,940  46,835   23,508     --      231,143    89.8     1,245,287   6.00        773
Lakewood Plaza.........   93,342   4,365  14,354    1,450     --      113,511    98.7     1,248,458  11.14        --
Marshall's Plaza.......   43,000     --   34,875    1,125     --       79,000    98.6     1,087,388  13.96        --
Pacific Linen Plaza....   25,000     --   40,147    4,285     --       69,432    93.8       855,811  13.14        --
Parkway Place..........   91,127  12,917   9,270    5,606     --      118,920    95.3     1,193,309  10.53     10,198
Pomona Gateway Center..   96,418   6,487   2,492    3,490     --      108,887    96.8       916,561   8.70        --
Rheem Valley...........   51,009   5,150  92,556    5,071     --      153,786    96.7     1,619,708  10.89        --
Rosedale Village.......   72,324   6,658  45,879    2,666     --      127,527    97.9     1,345,584  10.78        --
Ross Center............   53,331   7,000  69,377    2,757     --      132,465    97.9     1,473,247  11.36        --
San Fernando Mission
Plaza..................   50,508   2,293  14,391       --     --       67,192   100.0       895,422  13.33        --
Silverdale Shopping
Center.................   29,020     --   32,722    5,588     --       67,330    91.7       701,235  11.36        --
Vancouver Park Place...   33,938  14,900  27,421    1,730     --       77,989    97.8       851,972  11.17     17,400
</TABLE>
 
                                       8
<PAGE>
 
<TABLE>
<CAPTION>
                                      PAD                          GLA TO                                    AVERAGE
                          ANCHOR    GLA(2)     SHOP     AVAILABLE BE BUILT                       ANNUALIZED   BASE     ANNUAL
                          GLA(1)     (SQ.     GLA(3)       GLA      (SQ.    TOTAL GLA   PERCENT     BASE      RENT   PERCENTAGE
    PROPERTY NAME        (SQ. FT.)   FT.)    (SQ. FT.)  (SQ. FT.)   FT.)    (SQ. FT.)  LEASED(4)   RENT(5)   PSF(6)   RENT(7)
    -------------        ---------  -------  ---------  --------- --------  ---------  --------- ----------- ------- ----------
<S>                      <C>        <C>      <C>        <C>       <C>       <C>        <C>       <C>         <C>     <C>
Vermont-Slauson
Shopping Center.....       142,411    3,720     23,613       --       --      169,744    100.0       981,232   5.78        --
Westgate North
Shopping Center.....        37,902   13,336     55,513     3,500      --      110,251     96.8     1,138,288  10.66        148
                         ---------  -------  ---------   -------  -------   ---------            -----------          --------
 Subtotal
 Neighborhood/Community
 Shopping Centers...     1,626,363  185,437    692,939   112,021   10,500   2,627,260     95.7    27,146,694  10.84    149,105
                         ---------  -------  ---------   -------  -------   ---------            -----------          --------
SINGLE TENANT
FACILITIES
Home Base...........       107,165      --         --        --       --      107,165    100.0       870,180   8.12        --
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 (Phoenix, AZ).       104,204      --         --        --       --      104,204    100.0       551,576   5.29        --
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        --
SAM's Club (Downey,
CA).................       110,822    3,900        --        --       --      114,722    100.0       730,884   6.37    105,860
SAM's Club (Fountain
Valley, CA).........       110,784    8,342        --        --       --      119,126    100.0     1,058,990   8.89     85,974
Sears...............       134,644      --         --        --       --      134,644    100.0       401,785   2.98        --
Smitty's............       103,025    3,240        --        --       --      106,265    100.0       348,134   3.28        --
Vons (Escondido,
CA).................        36,800      --         --        --       --       36,800    100.0       312,800   8.50        --
Vons (Simi Valley,
CA).................       102,400                           --       --      102,400    100.0       825,418   8.06        --
                         ---------  -------  ---------   -------  -------   ---------            -----------          --------
 Subtotal Single
 Tenant Facilities..     1,344,639   15,482        --        --       --    1,360,121    100.0     7,795,482   5.73    191,834
                         ---------  -------  ---------   -------  -------   ---------                                 --------
 SUBTOTAL STABILIZED
 PROPERTIES.........     4,457,077  481,202  1,408,102   357,264   15,145   6,718,790     94.7    69,449,730  10.94    650,063
                         ---------  -------  ---------   -------  -------   ---------            -----------          --------
REDEVELOPMENT
PROPERTIES
PROMOTIONAL/POWER
CENTERS
Covina Town Square..       171,233    6,500     49,654    28,980  103,150     359,517     88.7     4,552,039  14.11     92,125
Medford Center......       191,578    9,432     51,577     4,400   83,880     340,867     98.3     1,906,294   7.55    220,826
                         ---------  -------  ---------   -------  -------   ---------            -----------          --------
 SUBTOTAL
 REDEVELOPMENT
 PROPERTIES                362,811   15,932    101,231    33,380  187,030     700,384     93.5     6,458,333  11.23    312,951
                         ---------  -------  ---------   -------  -------   ---------            -----------          --------
TOTAL ALL
PROPERTIES..........     4,819,888  497,134  1,509,333   390,644  202,175   7,419,174     94.6   $75,908,063 $10.96   $963,014
                         =========  =======  =========   =======  =======   =========            ===========          ========
PERCENT OF TOTAL
GLA.................         64.96%    6.70%     20.34%     5.27%    2.73%     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, 1997, 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, 1997.
(7) Annual percentage rent for the most recently reported 12-month period.
 
                                       9
<PAGE>
 
  The following table sets forth, as of December 31, 1997, square footage of
GLA at each Property leased to national, regional and local retail tenants:
<TABLE>
<CAPTION>
                                              TYPE OF RETAIL TENANT
                                   --------------------------------------------
     PROPERTY NAME                 NATIONAL(1) REGIONAL(2) LOCAL(3)     TOTAL
     -------------                 ----------- ----------- ---------  ---------
<S>                                <C>         <C>         <C>        <C>
STABILIZED PROPERTIES
REGIONAL MALLS
Baldwin Hills Crenshaw Plaza.....     169,952     27,277     115,447    312,676
Media City Center................     527,367     79,316     133,025    739,708
PROMOTIONAL/POWER CENTERS
El Camino North..................     160,624     45,354     107,746    313,724
Empire Center....................      75,151     36,831      49,658    161,640
Fullerton Town Center............     195,682     19,385      42,818    257,885
Gresham Town Fair................      65,538     54,463     138,772    258,773
Montebello Town Square...........     216,056     15,061      14,359    245,476
The City Center..................     186,214        --        5,425    191,639
NEIGHBORHOOD/COMMUNITY SHOPPING
 CENTERS
Advantage/Sportmart Shopping
 Center..........................     110,210      4,275       3,375    117,860
Country Fair Shopping Center.....      96,736     12,805      29,836    139,377
Date Palm Center.................     101,144        --       13,819    114,963
Fire Mountain Center.............      65,710      7,500      19,368     92,578
Frontier Village Shopping Center.      65,429      7,333      79,358    152,120
Gardena Gateway Center...........      24,362     22,000      19,625     65,987
Huntington Center................     105,879        --        4,365    110,244
Kenneth Hahn Plaza...............     114,828      6,898      23,483    145,209
La Verne Towne Center............     183,659      8,937      15,039    207,635
Lakewood Plaza...................      99,331      7,525       5,205    112,061
Marshall's Plaza.................      59,294      8,863       9,718     77,875
Pacific Linen Plaza..............      22,279     32,536      10,332     65,147
Parkway Place....................     107,928      1,034       4,352    113,314
Pomona Gateway Center............      17,680     85,225       2,492    105,397
Rheem Valley.....................      82,650      2,539      63,526    148,715
Rosedale Village Shopping Center.      41,426     44,870      38,565    124,861
Ross Center......................      75,759      8,912      45,037    129,708
San Fernando Mission Plaza.......       5,913     56,949       4,330     67,192
Silverdale Shopping Center (Ross
 Plaza)..........................      42,055      5,147      14,540     61,742
Vancouver Park Place.............      59,661      5,270      11,328     76,259
Vermont-Slauson Shopping Center..     155,210      2,350      12,184    169,744
Westgate North Shopping Center...      10,504     44,152      52,095    106,751
SINGLE TENANT FACILITIES
Home Base........................     107,165        --          --     107,165
Kmart (Banning, CA)..............      86,479        --          --      86,479
Kmart (El Centro, CA)............      86,479        --          --      86,479
Kmart (Los Banos, CA)............      86,479        --          --      86,479
Kmart (Madera, CA)...............      86,479        --          --      86,479
Kmart (Phoenix, AZ)..............     104,204        --          --     104,204
Kmart (Rocklin, CA)..............      86,479        --          --      86,479
Oracle Road......................     102,400        --          --     102,400
SAM's Club (Downey, CA)..........     110,822        --        3,900    114,722
SAM's Club (Fountain Valley, CA).     119,126        --          --     119,126
Sears (Hollywood, CA)............     134,644        --          --     134,644
Smitty's (Tucson, AZ)............       3,240    103,025         --     106,265
Vons (Escondido, CA).............         --      36,800         --      36,800
Vons (Simi Valley, CA)...........         --     102,400         --     102,400
                                    ---------    -------   ---------  ---------
SUBTOTAL STABILIZED PROPERTIES...   4,358,227    895,032   1,093,122  6,346,381
                                    ---------    -------   ---------  ---------
REDEVELOPMENT PROPERTIES
PROMOTIONAL/POWER CENTERS
Covina Town Square...............     191,431        --       35,956    227,387
Medford Center...................     156,658     61,899      34,030    252,587
                                    ---------    -------   ---------  ---------
SUBTOTAL REDEVELOPMENT
 PROPERTIES......................     348,089     61,899      69,986    479,974
                                    ---------    -------   ---------  ---------
TOTAL ALL PROPERTIES.............   4,706,316    956,931   1,163,108  6,826,355
                                    =========    =======   =========  =========
PERCENT OF TOTAL LEASED GLA......       68.94%     14.02%      17.04%    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.
 
                                      10
<PAGE>
 
  The following table sets forth, as of December 31, 1997 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.............................. $42,664,816    54.79%    $ 8.68     98.60%
 Pad.................................   6,918,087     9.41%     13.92     88.44%
 Shop................................  26,325,160    35.80%     17.41     85.43%
                                      -----------   ------     ------     -----
  TOTAL.............................. $75,908,063   100.00%    $10.96     94.60%
                                      ===========   ======     ======     =====
</TABLE>
 
TENANT CONCENTRATION
 
  The following table sets forth, as of December 31, 1997 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
                          NUMBER   ANNUALIZED  ANNUALIZED  TENANT    PERCENTAGE
    RETAIL TENANT(1)     OF STORES  BASE RENT  BASE RENT     GLA    OF TOTAL GLA
    ----------------     --------- ----------- ---------- --------- ------------
<S>                      <C>       <C>         <C>        <C>       <C>
AMC Theatres(2).........      6    $ 5,899,895    7.77%     259,842     3.60%
SAM's Club/Wal-Mart
 Stores.................      3      3,138,834    4.14      321,525     4.46
Lucky Stores, Inc.......      5      3,081,453    4.06      308,170     4.27
Kmart Corp..............      7      2,927,871    3.86      619,103     8.58
Vons Companies, The.....      4      2,305,718    3.04      270,568     3.75
Toys 'R' Us.............      4      2,018,462    2.66      199,710     2.77
Sears Roebuck & Co......      3      1,368,774    1.80      312,537     4.33
Magic Johnson Theaters..      1      1,241,943    1.64       57,955     0.80
The Limited Stores......      8      1,169,530    1.54       63,457     0.88
Ross Dress for Less.....      5      1,110,610    1.46      145,012     2.01
Office Depot............      4      1,107,518    1.46      100,247     1.39
Dayton Hudson
 (Mervyn's/Target)......      2      1,031,500    1.36      198,138     2.75
Montgomery Ward(3)......      3        972,872    1.28      152,640     2.12
Payless ShoeSource,
 Inc....................     11        936,694    1.23       42,822     0.59
TJX.....................      4        903,520    1.19      105,697     1.46
Home Base...............      1        870,180    1.15      107,165     1.48
Federated Department
 Stores.................      1        832,542    1.10      220,800     3.06
Home Depot..............      1        805,000    1.06      102,485     1.42
Sport Chalet Sporting
 Goods..................      1        775,508    1.02       44,957     0.62
Staples, Inc............      3        756,042    1.00       69,935     0.97
                            ---    -----------   -----    ---------    -----
  TOTAL.................     77    $33,254,466   43.81%   3,702,765    51.31%
                            ===    ===========   =====    =========    =====
</TABLE>
--------
(1) Excludes non-owned Anchors.
(2) Includes a 95,150 square foot complex located at Covina Town Square which
    opened in February 1998.
(3) Montgomery Ward at El Camino North vacated its space subsequent to
    December 31, 1997.
 
                                      11
<PAGE>
 
TENANT LEASE EXPIRATIONS AND RENEWALS
 
  The following table sets forth, as of December 31, 1997, 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>
 1998...................    229      456,075    $ 7,014,972       $15.38            6.59%
 1999...................    115      312,429      4,384,289        14.03            4.51
 2000...................    117      402,520      5,146,389        12.79            5.82
 2001...................    136      454,611      6,623,822        14.57            6.57
 2002...................    100      590,326      5,760,471         9.76            8.53
 2003...................     28      152,406      2,225,606        14.60            2.20
 2004...................     35      421,006      3,716,899         8.83            6.08
 2005...................     28      234,397      3,845,805        16.41            3.39
 2006...................     26      217,215      3,210,897        14.78            3.14
 2007...................     31      280,017      3,727,363        13.31            4.04
 Thereafter.............    101    3,400,503     30,251,550         8.90           49.13
                            ---    ---------    -----------                       ------
   TOTAL................    946    6,921,505    $75,908,063       $10.96          100.00%
                            ===    =========    ===========                       ======
</TABLE>
 
DEBT SECURED BY PROPERTIES
 
  The following table summarizes the outstanding indebtedness secured by the
Company's Properties as of December 31, 1997.
 
<TABLE>
<CAPTION>
                                               OUTSTANDING   INTEREST    YEAR OF
                                                 BALANCE       RATE      MATURITY
                                              -------------- --------    --------
                                              (IN THOUSANDS)
<S>                                           <C>            <C>         <C>
Notes Payable--Insurance Companies:
  Covina Town Square.........................    $ 17,960      9.60%       2004
  Date Palm Center...........................       9,515     10.45        2002
  Vons (Escondido)...........................       2,726      9.30        1999
  Fire Mountain Center.......................       7,481     10.25        1999
  Home Base (Glendora).......................       6,110      9.50        1999
  Gardena Gateway Center.....................       6,710     10.05        2002
  Gresham Town Fair..........................       9,762      7.50        1999
  Westgate North.............................       5,955      8.30        2014
Note Payable--Pension Fund(1)................      30,691     11.45        2006
Note Payable--Pension Fund(1)................       9,884     10.90        2006
Note Payable--Financial Institution(2).......      22,540      8.94        2005
Note Payable--Financial Institution(2).......      33,474      9.00        2010
Tax Exempt Floating Rate Debt:
  Baldwin Hills Crenshaw Plaza...............      30,000      5.30        2014
  Kenneth Hahn Plaza.........................       6,000      5.20        2015
Secured line of credit(3)....................     108,727      6.63        2000
                                                 --------
TOTAL(4) ....................................    $307,535      9.73%(5)
                                                 ========
</TABLE>
--------
(1) Represents two notes payable to a pension fund which are cross-
    collateralized by the following properties; Kmart (Rocklin), Kmart (El
    Centro), Kmart (Banning), Kmart (Los Banos), Kmart (Madera), Kmart
    (Phoenix), Advantage/Sportmart Shopping Center, Huntington Center, Oracle
    Road, Vons (Simi Valley), Lakewood Plaza, Sam's Club (Downey), and Parkway
    Place.
 
                                      12
<PAGE>
 
(2) This note is in two tranches which are cross-collateralized by the
    following properties; San Fernando Mission Plaza, Rosedale Village,
    Country Fair Shopping Center, Fullerton Town Center, La Verne Town Center,
    and Sam's Club (Fountain Valley).
 
(3) As of December 31, 1997, the Company had a line of credit outstanding with
    a financial institution (the "Credit Facility"), due December 2000. The
    Credit Facility is secured by Empire Center, Medford Center, Montebello
    Town Square, The City Center, Media City Center, Pacific Linen Plaza, Ross
    Center, Vancouver Park Place, Smitty's Tucson, Frontier Village and
    Marshall's Plaza. Subsequent to December 31, 1997, the Company has reduced
    the balance outstanding on its Credit Facility by a net amount of
    $7.1 million.
 
(4) Total debt does not include $6,125,000 of Community Facilities District
    Special Tax Bonds (CFD) issued by the City of Fontana, California. Debt
    service is provided through a special tax assessment on the parcels of
    land within the Empire Center.
 
(5) Weighted average rate of interest on mortgage debt.
 
  Aggregate future principal payments by year on the balance of mortgage
indebtedness as of December 31, 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                                    AGGREGATE
                                                                    PRINCIPAL
      YEAR                                                           PAYMENTS
      ----                                                        --------------
                                                                  (IN THOUSANDS)
     <S>                                                          <C>
     1998........................................................    $  2,866
     1999........................................................      28,186
     2000........................................................       2,898
     2001........................................................       3,234
     2002........................................................      18,643
     2003........................................................       3,692
     2004........................................................      20,652
     2005........................................................      24,876
     2006........................................................      23,922
     2007........................................................         968
     Thereafter..................................................      68,871
                                                                     --------
       Total                                                         $198,808
                                                                     ========
</TABLE>
 
  Total amount excludes $108,727,000 outstanding on the secured line of credit
which is due on December 31, 2000.
 
DEVELOPMENT PROPERTIES
 
  Certain properties had not completed their initial leasing plans at the date
of the Company's initial public offering; Media City Center, Baldwin Hills
Crenshaw Plaza, Empire Center, Montebello Town Square and The City Center (the
"Development Properties"). Pursuant to an agreement among the Operating
Partnership and certain limited partners that transferred the Development
Properties to the Operating Partnership such OP limited partners had the right
to receive additional partnership units in the Operating Partnership ("OP
Units") based upon the increase in net annualized cash flow from the
Development Properties between October 31, 1993 and the expiration of the
applicable lease-up period for each development property. The increase in net
annualized cash flow was based on leases signed by March 31 with the tenant
open and paying rent by June 30 of the respective lease-up periods.
 
  The lease-up period for Montebello Town Square and The City Center expired
on March 31, 1995 and resulted in the issuance of an additional 113,506 OP
Units to the OP Limited Partners. In connection with this issuance of
additional OP Units, all of the leases were executed by March 31, 1995, with
tenants paying rent by June 30, 1995, including certain leases where tenants
were not open by June 30, 1995. The independent directors determined that it
was appropriate to issue additional OP Units for all of these leases.
 
                                      13
<PAGE>
 
  The lease-up period for Media City Center, Baldwin Hills Crenshaw Plaza and
Empire Center expired on March 31, 1996. In connection with the completion of
construction at Empire Center, certain improvements constructed during the
lease-up period were not leased as of March 31, 1996. The independent
directors determined that, the cost of construction of such improvements
should be borne by the Company for purposes of calculating the issuance of
additional OP Units for Empire Center and no OP Units would be issuable to the
limited partners in connection with such unleased improvements. During the
year ended December 31, 1995, the opening of approximately 38,000 square feet
of retail and restaurant space at Media City Center, principally comprising a
30,000 square foot Virgin Megastore, and the 57,000 square foot Sony/Magic
Johnson Theatres at Baldwin Hills Crenshaw Plaza, represented expansion of the
Development Properties not contemplated at the IPO. Therefore, no additional
OP Units were issued in connection with such expansions.
 
  On August 12, 1996, the Independent members of the Board of Directors
approved the issuance of 3,242,379 OP Units to the limited partners. The
market capitalization of the OP was thereby increased by $41.7 million based
upon the stock price as of August 12, 1996. The minority interest in the OP
was thereby increased from 8% to approximately 26% effective July 1, 1996. As
a result of the issuance of the 3,242,379 OP Units, minority interest was
increased and additional paid-in capital decreased by approximately $31.5
million. The issuance of such additional OP Units in the third quarter of 1996
did not have a dilutive effect on net income per share.
 
PARTIALLY-OWNED PROPERTIES
 
  The Operating Partnership owns partnership interests in the owners of the
two "Partially-Owned Properties." The Operating Partnership owns a 75%
managing general partnership interest in the partnership that owns Kenneth
Hahn Plaza and an 85% managing general partnership interest in Haagen-Central
Partnership, the general 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.
 
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 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. The note is nonrecourse to the Burbank Agency. 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, 1997, 1996 and 1995, the Company recognized income of
approximately $2,656,000, $2,797,000 and $2,756,000, respectively, pursuant to
the terms of such agency note agreements.
 
                                      14
<PAGE>
 
  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, 1997, 1996 and 1995 from Fullerton Town Center of $48,000,
$57,000, and $59,000 respectively, and Country Fair Shopping Center of
147,000, $146,000 and $122,000 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.
 
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 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 the transferors 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. No environmental costs were incurred by the Company
during the years ended December 31, 1997, 1996 and 1995.
 
  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 1997, no matters were submitted for a vote of
stockholders of the Company.
 
                                      15
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
 
  The Company's Common Stock is listed on the American Stock Exchange ("ASE")
under the symbol "ACH." At February 28, 1998, the Company had approximately
200 stockholders of record and approximately 6,000 beneficial owners. The
following table sets forth quarterly high and low closing sales prices of the
Common Stock reported on the ASE 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, 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
   December 31, 1996..................................  15.000  13.750    0.36
   September 30, 1996.................................  14.500  12.250    0.36
   June 30, 1996......................................  13.375  10.875    0.36
   March 31, 1996.....................................  12.125  11.500    0.36
</TABLE>
 
  Distributions included a return of capital component of approximately 72%,
76% and 60%, for the years ended December 31, 1997, 1996 and 1995,
respectively. 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. 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.
 
                                      16
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The following table sets forth selected financial data for the Company and
the Predecessor Affiliates on a historical basis. 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
                              -------------------------------------------------
                                1997       1996      1995      1994      1993
                              ---------  --------  --------  --------  --------
                                (IN THOUSANDS, EXCEPT PER SHARE DATA AND
                                          NUMBER OF PROPERTIES)
<S>                           <C>        <C>       <C>       <C>       <C>
STATEMENTS OF OPERATIONS
 DATA:
Total operating revenues....  $  88,961  $ 87,719  $ 81,323  $ 73,199  $ 54,795
                              ---------  --------  --------  --------  --------
Expenses:
  Interest..................     36,083    35,516    32,304    27,952    33,373
  Property operating costs..     25,495    25,633    26,059    21,299    20,215
  Depreciation and
   amortization.............     18,333    17,118    20,018    18,695    14,143
  Non-recurring items.......      9,355     6,638       --        --      1,578
  General and
   administrative...........      5,166     5,064     5,334     3,260     2,047
                              ---------  --------  --------  --------  --------
Total expenses..............     94,432    89,969    83,715    71,206    71,356
                              ---------  --------  --------  --------  --------
(Loss) income before other
 items......................     (5,471)   (2,250)   (2,392)    1,993   (16,561)
Equity in income of
 management company.........         19       --          4       137       122
Minority interests..........      1,229       245       (20)     (460)     (382)
Extraordinary items.........       (422)      --        --        --     (9,905)
                              ---------  --------  --------  --------  --------
Net (loss) income...........  $  (4,645) $ (2,005) $ (2,408) $  1,670  $(26,726)
                              =========  ========  ========  ========  ========
Net (loss) income per share,
 basic......................  $   (0.35) $  (0.17) $  (0.20) $   0.14
Dividends per share.........  $    1.44  $   1.44  $   1.44  $   1.44
Weighted average shares of
 common stock outstanding...     13,312    12,024    11,964    11,678
OTHER DATA:
Funds from Operations(1):
  Basic.....................  $  21,924  $ 20,893  $ 17,075  $ 20,249
  Diluted...................     35,793    34,765    30,943    34,230
Cash Flows From:
  Operating Activities......  $  22,685  $ 22,414  $ 19,910  $ 21,387  $ (2,311)
  Investing Activities......   (113,318)  (20,522)  (32,075)  (44,553)  (75,707)
  Financing Activities......     88,305       362    11,326    19,978    92,476
Number of operating
 Properties (at end of
 period)....................         46        38        40        40        36
Gross Leasable Area owned
 (sq. ft.)
 (at end of period) ........      7,217     6,570     6,740     6,450     5,448
<CAPTION>
                                              DECEMBER 31,
                              -------------------------------------------------
                                1997       1996      1995      1994      1993
                              ---------  --------  --------  --------  --------
                                             (IN THOUSANDS)
<S>                           <C>        <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Real estate before
 accumulated depreciation...  $ 783,279  $659,565  $653,058  $618,427  $553,414
Total assets................    710,713   594,876   605,777   590,030   541,738
Total debt and other
 liabilities................    519,441   434,603   421,561   385,258   330,105
Minority interests..........     41,433    43,647    16,765    18,433    18,549
Redeemable Common Stock.....      8,385       --        --        --        --
Stockholders' equity........    141,454   116,626   167,451   186,339   193,084
</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.
 
                                      17
<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.
 
RESULTS OF OPERATIONS
 
 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 higher occupancy levels at Media
City Center and Baldwin Hills Crenshaw Plaza and 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 $25.6 million to $25.5 million.
 
  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 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 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.
 
                                      18
<PAGE>
 
  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.
 
  Income before other items decreased by $0.5 million from $4.4 million for
the year ended December 31, 1996 to $3.9 million for the year ended December
31, 1997 for the reasons stated above.
 
 Comparison of the year ended December 31, 1996, to the year ended December
31, 1995.
 
  Operating revenues increased by $6.4 million to $87.7 million for the year
ended December 31, 1996 from $81.3 million for the year ended December 31,
1995. The increase was primarily a result of the lease-up of the Development
Properties, comprising Media City Center, Empire Center and Baldwin Hills
Crenshaw Plaza. However, improvements in the economic performance of the
properties were mitigated by the Company recording reserves to offset the
straight-lining of contractual rent increases. No Straight-line rental revenue
was recognized in the year ended December 31, 1996, compared to approximately
$1.3 million in the year ended December 31, 1995.
 
  Interest expense increased by $3.2 million from $32.3 million for the year
ended December 31, 1995 to $35.5 million for the year ended December 31, 1996.
The increase is principally a function of borrowings on the Company's line of
credit to finance construction and redevelopment activity at various
properties.
 
  Property operating costs decreased by $.5 million to $25.6 million for the
year ended December 31, 1996 from $26.1 million for the year ended December
31, 1995. The decrease is a result of several factors including additional bad
debt expense recorded in 1995 at certain of the properties.
 
  Depreciation and amortization expense decreased by $2.9 million from $20.0
million for the year ended December 31, 1995 to $17.1 million for the year
ended December 31, 1996. Depreciation decreased by $4.8 million as a result of
a change in the depreciable lives of the properties. The Company concluded
that in order to more appropriately align the depreciable lives with the
economic lives of the properties the lives should generally be increased to 40
years from previously utilized lives ranging from 20 to 31.5 years. This
decrease was offset by a $1.9 million increase as a result of an overall
increase in investment in rental properties.
 
  General and administrative expenses declined by $0.2 million from $5.3
million for the year ended December 31, 1995 to $5.1 million for the year
ended December 31, 1996 principally as a result of the write-off in the first
quarter of 1995 of costs related to a potential secondary offering.
 
  During 1996, the Company sold two single tenant facilities for $6.3 million
in cash, resulting in a net gain on sale of $2.4 million.
 
  During the first quarter of 1996, the Company reassessed the recoverability
of straight-line contractual rent increases as a result of the continuing
mergers and consolidations within the retail industry and the financial
difficulties of certain retailers. Accordingly, the Company recorded a non-
recurring non-cash charge of $6.9 million to increase the reserve against the
receivable for straight-line rents. Additionally, the Company has fully
reserved against unbilled deferred rents in 1996. The company believes this to
be an appropriate and conservative approach to account for the straight-lining
of contractual rent increases in the current retail environment. The impact of
this change was a reduction in revenues recognized in 1996 of approximately
$1.3 million.
 
  On October 31, 1996, the Sears store in the Covina Town Square power center
(Covina, California) vacated its premises. Annual rental revenues received
from Sears were $851,000. The Company has signed a lease with AMC Theatres for
a 30 screen multiplex theater on the former Sears site; however, through the
completion of the theater (in February, 1998) the impact from the loss of the
Sears revenues was approximately $0.015 per share on a quarterly basis. In
connection with signing the lease with AMC Theatres, the Company recorded a
non-recurring non-cash charge of $2.1 million to write-off the net book value
of the demolished Sears building. Covina Town Square is a 422,000 square foot
power center; other tenants include Home Depot, Petsmart and Staples.
 
                                      19
<PAGE>
 
  The non-recurring items detailed in the above three paragraphs aggregate to
a net charge of $6.6 million.
 
  Loss from operations before minority interests decreased by $0.1 million
from a loss of $2.4 million for the year ended December 31, 1995 to a loss of
$2.3 million for the year ended December 31, 1996 for the reasons stated
above.
 
 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,
                                                         -----------------------
                                                          1997    1996    1995
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   Stabilized Properties:
     Regional Malls..................................... $17,698 $16,997 $11,830
     Power Centers......................................  15,974  16,345  15,319
     Community Centers..................................  17,971  16,867  17,316
     Single Tenants.....................................   7,903   7,856   6,914
   Redevelopment Properties:
     Medford Center.....................................   1,140     989     975
     Covina Town Square.................................   2,438   2,764   2,587
   Other Income.........................................     342     268     323
                                                         ------- ------- -------
   Net Operating Income................................. $63,466 $62,086 $55,264
                                                         ======= ======= =======
</TABLE>
 
  The following summarizes the percentage of leased GLA (excluding non-owned
GLA and GLA leased but not yet constructed) as of:
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31, DECEMBER 31,
                                                           1997         1996
                                                       ------------ ------------
   <S>                                                 <C>          <C>
   Stabilized Properties:
     Regional Malls...................................     91.3%        92.5%
     Power Centers....................................     90.8         95.4
     Community Centers................................     95.7         95.9
     Single Tenants...................................    100.0        100.0
   Redevelopment Properties:
     Covina Town Square...............................     88.7         88.3
     Medford Center...................................     98.3         97.0
   Aggregate Portfolio................................     94.6         95.8
</TABLE>
 
  During 1997 the Company signed leases for approximately 374,000 square feet,
including 116,000 square feet at its Redevelopment Properties. Such signed
leases resulted in an increase in the overall rent per square foot of the
Company's portfolio to $10.97 per square foot at December 31, 1997 from $10.61
per square foot at December 31, 1996.
 
  In the first quarter of 1997 the non-owned IKEA store and several other
tenants at Empire Center (Fontana, California) vacated their premises. The
leased space at Empire Center decreased to 61.7% at December 31, 1997. Leased
space at the Company's aggregate portfolio decreased to 94.6% from 95.8% at
December 31, 1997.
 
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
was originally defined by the National Association of Real Estate Investment
Trusts
 
                                      20
<PAGE>
 
("NAREIT") as net income plus depreciation and amortization, less gains on
sales of properties. In a March 1995 white paper, NAREIT adopted a revised
definition of FFO. The principal change is that the revised definition does
not permit depreciation or amortization of non-real estate assets to be added
back in computing FFO. The Company historically added back amortization of
deferred financing costs in computing FFO. Additionally, the revised
definition also permits FFO to be adjusted for significant non-recurring
items.
 
  The Company adopted the revised definition of FFO commencing January 1,
1996. The Company has restated its FFO for comparable periods as if the new
definition had been adopted at that date. Management concurs with NAREIT in
believing that reductions for the depreciation and amortization of real estate
and its related costs are not meaningful in evaluating income-producing real
estate.
 
  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 as well as other common stock equivalents. The
following table summarizes the Company's computation of FFO and provides
certain additional disclosures (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                                   --------------------------
                                                     1997     1996     1995
                                                   --------  -------  -------
<S>                                                <C>       <C>      <C>
Net Loss.......................................... $ (4,645) $(2,005) $(2,408)
Adjustments to reconcile net loss to funds from
 operations:
Depreciation and Amortization:
  Buildings and improvements......................   12,161   11,615   17,046
  Tenant improvements and allowances..............    4,635    4,284    2,310
  Leasing costs...................................    1,451    1,163      662
Non-recurring charges, net........................    9,355    6,638      --
Minority Interests................................   (1,810)    (802)    (535)
Extraordinary Loss on Early Extinguishment of
 Debt.............................................      422      --       --
Other.............................................      355      --       --
                                                   --------  -------  -------
Funds from Operations, basic......................   21,924   20,893   17,075
Debenture interest expense........................   12,569   12,573   12,570
Amortization of debenture financing costs.........    1,300    1,299    1,298
                                                   --------  -------  -------
Funds from Operations, diluted                     $ 35,793  $34,765  $30,943
                                                   ========  =======  =======
SUPPLEMENTAL DISCLOSURES
Expansion of Portfolio:
  Acquisitions.................................... $ 91,382  $   --   $   --
  Construction and Development....................   31,749   13,315   34,116
  Leasing.........................................    2,096    2,106    2,822
                                                   --------  -------  -------
                                                   $125,227  $15,421  $36,938
                                                   ========  =======  =======
Releasing and Maintenance of Portfolio:
  Construction and Development.................... $    583  $   635  $   515
  Leasing.........................................      107      417      284
                                                   --------  -------  -------
                                                   $    690  $ 1,052  $   799
                                                   ========  =======  =======
Straight-line rental income....................... $    --   $   --   $ 1,266
                                                   ========  =======  =======
</TABLE>
 
  The Company considers any space that was vacant or unbuilt at the date of
its initial public offering to be expansion of its portfolio.
 
  Funds from operations, on a basic basis, increased to $21.9 million for the
year ended December 31, 1997, as compared to $20.9 million for the same period
in 1996. On a diluted basis, assuming conversion of the debentures and other
common stock equivalents, funds from operations increased to $35.8 million
from $34.8 million. The increase in funds from operations is principally a
function of acquisitions and increases in
 
                                      21
<PAGE>
 
cash flow at Media City Center and Baldwin Hills Crenshaw Plaza. However,
improvements in the economic performance of the properties were mitigated by
the closure of the IKEA store at Empire Center and the loss of revenue from
the former Sears store at Covina Town Square. During 1997 and 1996, the
Company recorded non-recurring charges of $9.4 million and $6.6 million,
respectively. The 1997 charge related to the retirement of the Haagen Family
while the 1996 charge resulted from an increase to the reserve against the
receivable for straight-line rents, a $2.1 million charge to write-off the net
book value of a building to be demolished, and a net gain on sale of
properties of $2.4 million. Such non-recurring 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.
 
  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, 1997 was
$22.7 million compared to $22.4 million for the prior year. The principal
reasons for the increase in net cash from operations are discussed in Results
of Operations above.
 
  Net cash used by investing activities increased by $92.8 million to $113.3
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.
 
  Net cash provided by operations was $22.4 million for the year ended
December 31, 1996, compared to $19.9 million for the year ended December 31,
1995. The principal reasons for the increase in net cash from operations are
discussed in Results of Operations above.
 
  Net cash used by investment activities decreased to $20.5 million for the
year ended December 31, 1996 from $32.1 million for the year ended December
31, 1995. This reflects a decrease in the level of construction and
development activity of $10.3 million, $5.0 million paid in settlement of
certain other liabilities and net proceeds from the sale of two rental
properties of $6.3 million. Net cash provided by financing activities was $0.4
million for the year ended December 31, 1996, a decrease of $10.9 million from
the prior year. This decrease includes $2.6 million in principal re-payments
in connection with the sale of rental property, a decrease in cash generated
from restricted cash of $1.8 million, and a net $6.5 million decrease in net
additional borrowings.
 
LIQUIDITY SOURCES AND REQUIREMENTS
 
  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 now primarily provide continued funding
for the Company's planned acquisition and redevelopment activities. The Credit
Facility expires in December 2000. 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
Center, Vancouver Park Place, Smitty's Tucson, Frontier Village and Marshalls
Plaza. At February 28, 1998, outstanding borrowings on the Credit Facility
were approximately $101.7 million, with an additional $4.2 million having been
utilized to provide letters of credit.
 
                                      22
<PAGE>
 
  To the extent that borrowings under the Credit Facility are less than the
outstanding commitment from LFREI the interest rate 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.
 
  Upon conversion to an unsecured facility, borrowings will bear interest at
varying rates based upon the company's leverage ratio and investment grade
rating interest. The range of rates is from 75 to 137.5 basis points over
LIBOR.
 
  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"). The purchase price per share was
determined as a result of arm's length negotiations between the Company and
its advisors and LFREI and its advisors.
 
  As of December 31, 1997, the Company had sold 4,006,434 shares, to LFREI
under the terms of the Transaction for aggregate proceeds of $60.1 million. On
February 13, 1998 the Company sold an additional 2,700,000 shares to LFREI for
proceeds of $40.5 million, reducing the Remaining Equity Commitment to
$134.4 million.
 
  Loans maturing of $28.2 million in 1999 and $18.7 million in 2002, as well
as significant amounts due from 2004 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 2001 and 2003, respectively. See "Item 2--Properties." The
Company believes, based on the collateral available within the Properties and
improvements in cash flow at the Redevelopment Properties, that it will be
able to effect such refinancings for the foreseeable future.
 
  The Company anticipates continuing to execute its acquisition and
redevelopment strategy during the next 12 months. The Company believes that
such acquisitions will be funded from the LFREI Equity Commitment, the
Company's Credit Facility, future debt refinancings and financings, and the
issuance of equity.
 
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 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. This statement is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company has not yet analyzed the impact of adopting this statement.
 
                                      23
<PAGE>
 
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.
 
  As the Company principally relies on third party vendors for its
applications, the Company has communicated with others 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 which state that their systems will be in compliance by 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 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.
 
FACTORS AFFECTING FUTURE RESULTS
 
  Management's Discussion and Analysis 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 Companies properties; (b) the inability of
tenants to pay contractual rent and other expenses; (c) bankruptcies of
tenants; (d) decisions by tenants, and anchor retailers which 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; and (i) 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.
 
                                      24
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and
Stockholders of Alexander Haagen Properties, Inc.:
 
  We have audited the accompanying consolidated balance sheets of Alexander
Haagen Properties, Inc. and subsidiaries (the "Company") as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement 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
February 20, 1998
 
                                      25
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                           DECEMBER 31, 1997 AND 1996
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                            1997       1996
                                                          ---------  ---------
<S>                                                       <C>        <C>
                         ASSETS
Rental properties (Notes 2, 3, 5 and 6).................. $ 783,279  $ 659,565
  Accumulated depreciation and amortization..............  (121,202)  (104,330)
                                                          ---------  ---------
Rental properties, net...................................   662,077    555,235
Cash and cash equivalents................................     3,613      5,941
Tenant receivables, net (Note 2).........................     6,017      5,987
Other receivables (Note 2)...............................     4,449      3,650
Receivable from management company (Note 12).............       --       1,055
Investment in management company (Note 12)...............       --         621
Restricted cash (Note 5).................................     9,435      3,252
Note Receivable from Officer (Note 4)....................     3,126        --
Deferred charges, net (Note 2)...........................    19,759     18,365
Other assets.............................................     2,237        770
                                                          ---------  ---------
    TOTAL................................................ $ 710,713  $ 594,876
                                                          =========  =========
          LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Secured Debt (Notes 5 and 11).......................... $ 313,660  $ 242,641
  7 1/2% Convertible subordinated debentures (Notes 6 and
   11)...................................................   138,599    138,599
  7 1/4% Exchangeable subordinated debentures (Notes 6
   and 11)...............................................    30,000     30,000
  Accrued construction costs.............................    10,996      1,207
  Accounts payable and other accrued expenses (Note 12)..     8,482      5,340
  Accrued dividends and distributions (Note 8)...........     7,371      7,039
  Accrued interest.......................................     5,604      5,490
  Tenant security and other deposits.....................     4,729      4,287
                                                          ---------  ---------
    Total liabilities....................................   519,441    434,603
                                                          ---------  ---------
MINORITY INTERESTS (Notes 1, 2 and 13):
  Operating Partnership..................................    39,685     41,640
  Other minorities.......................................     1,748      2,007
                                                          ---------  ---------
    Total minority interests.............................    41,433     43,647
                                                          ---------  ---------
COMMITMENTS AND CONTINGENCIES (Note 13)
REDEEMABLE COMMON STOCK (Note 7):
  510,034 shares outstanding as of December 31, 1997,
   redeemable on May 25, 1999............................     8,385        --
                                                          ---------  ---------
STOCKHOLDERS' EQUITY (Notes 6, 8, and 9):
  Common stock ($.01 par value, 50,000,000 shares
   authorized; 15,664,814 and 12,024,378 shares issued
   and outstanding at December 31, 1997 and 1996,
   respectively).........................................       157        120
  Additional paid-in capital.............................   223,972    174,792
  Accumulated distributions and deficit..................   (82,675)   (58,286)
                                                          ---------  ---------
    Total stockholders' equity...........................   141,454    116,626
                                                          ---------  ---------
    TOTAL................................................ $ 710,713  $ 594,876
                                                          =========  =========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       26
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                      THREE YEARS ENDED DECEMBER 31, 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                      1997     1996     1995
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
REVENUES (Note 2):
  Rental revenues................................... $64,682  $62,538  $58,501
  Expense Reimbursements............................  19,204   19,902   18,339
  Percentage rents..................................     982      771      480
  Other income......................................   4,093    4,508    4,003
                                                     -------  -------  -------
      Total revenues................................  88,961   87,719   81,323
                                                     -------  -------  -------
EXPENSES:
  Interest (Notes 2, 5 and 12)......................  36,083   35,516   32,304
  Property operating costs:
    Common area.....................................  13,925   13,587   13,885
    Property taxes..................................   7,663    7,488    7,866
    Leasehold rentals (Note 13).....................   1,634    1,624    1,617
    Marketing.......................................     529    1,121    1,073
    Other operating.................................   1,744    1,813    1,618
  Depreciation and amortization.....................  18,333   17,118   20,018
  Non-recurring charges (Notes 1 and 12)............   9,355    9,044      --
  General and administrative (Note 12)..............   5,166    5,064    5,334
                                                     -------  -------  -------
      Total expenses................................  94,432   92,375   83,715
                                                     -------  -------  -------
LOSS FROM OPERATIONS BEFORE OTHER ITEMS.............  (5,471)  (4,656)  (2,392)
NET GAIN ON SALE OF RENTAL PROPERTIES...............     --     2,406      --
EQUITY IN INCOME OF MANAGEMENT COMPANY (Note 10)....      19      --         4
MINORITY INTERESTS (Note 2):
  Operating Partnership.............................   1,508      526      209
  Other minorities..................................    (279)    (281)    (229)
                                                     -------  -------  -------
NET LOSS BEFORE EXTRAORDINARY ITEM..................  (4,223)  (2,005)  (2,408)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
 (Note 5)...........................................    (422)     --       --
                                                     -------  -------  -------
NET LOSS............................................ $(4,645) $(2,005) $(2,408)
                                                     =======  =======  =======
BASIC LOSS PER SHARE (Note 2):
  NET LOSS BEFORE EXTRAORDINARY ITEM................ $ (0.32) $ (0.17) $ (0.20)
  EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
   DEBT.............................................   (0.03)     --       --
                                                     -------  -------  -------
  NET LOSS ......................................... $ (0.35) $ (0.17) $ (0.20)
                                                     =======  =======  =======
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       27
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                      THREE YEARS ENDED DECEMBER 31, 1997
                       (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, 1995.........  11,877,824   $119   $205,528    $(19,308)     $186,339
Conversions of
 Convertible Debentures
 into Common Stock (Note
 6).....................      55,555               968                       968
Conversions of OP Units
 into Common Stock and
 effect of issuing OP
 Units (Note 2).........      90,663      1       (199)                     (198)
Net loss................                                    (2,408)       (2,408)
Dividends declared (Note
 8).....................                                   (17,250)      (17,250)
                          ----------   ----   --------    --------      --------
DECEMBER 31, 1995.......  12,024,042    120    206,297     (38,966)      167,451
Adjustment in connection
 with issuance of OP
 Units (Note 12)........                       (31,509)                  (31,509)
Exercise of stock
 options................         336                 4                         4
Net Loss................                                    (2,005)       (2,005)
Dividends declared (Note
 8).....................                                   (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 9).......      36,369      1        441                       442
Reclassification to
 Redeemable Common
 Stock (Note 7).........    (510,034)    (5)    (8,380)                   (8,385)
Restricted Stock Grants
 (Notes 9 and 12).......     101,000      1         65                        66
Adjustment in connection
 with Haagen Separation
 (Note 12)..............                         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
 8).....................                                   (19,744)      (19,744)
                          ----------   ----   --------    --------      --------
DECEMBER 31, 1997.......  15,664,814   $157   $223,972    $(82,675)     $141,454
                          ==========   ====   ========    ========      ========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       28
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                      THREE YEARS ENDED DECEMBER 31, 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                    1997       1996      1995
                                                  ---------  --------  --------
<S>                                               <C>        <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss......................................  $  (4,645) $ (2,005) $ (2,408)
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
  Depreciation and amortization of rental
   properties...................................     18,333    17,118    20,018
  Amortization of deferred financing costs......      2,074     2,058     1,861
  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       --
  Net gain on sale of rental properties.........        --     (2,406)      --
  Equity in income of management company........        (19)      --         (4)
  Minority interests in operations..............     (1,229)     (245)       20
  Net changes in operating assets and
   liabilities..................................     (1,663)   (1,150)      423
                                                  ---------  --------  --------
    Net cash provided by operating activities...     22,685    22,414    19,910
                                                  ---------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of properties.....................    (85,420)      --        --
  Construction and development costs............    (24,772)  (21,795)  (32,075)
  Note Receivable from Officer..................     (3,126)      --        --
  Payment of other liabilities..................        --     (5,000)      --
  Proceeds from sale of rental properties.......        --      6,273       --
                                                  ---------  --------  --------
    Net cash used in investing activities.......   (113,318)  (20,522)  (32,075)
                                                  ---------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds received from mortgage financing.....        --        --     56,900
  Principal payments on mortgage financing......     (2,464)   (4,883)   (1,922)
  Borrowings on secured line of credit..........    195,522    28,000    22,500
  Repayments of secured line of credit..........   (127,995)   (4,000)  (47,445)
  Proceeds from issuance of common stock........     58,664       --        --
  Costs of obtaining financing..................     (3,118)     (284)   (2,343)
  (Increase) decrease in restricted cash........     (6,183)      933     2,710
  Dividends to shareholders.....................    (18,243)  (17,315)  (17,197)
  Distributions to minority interests...........     (7,878)   (1,965)   (1,877)
  Other.........................................        --       (124)      --
                                                  ---------  --------  --------
    Net cash provided by financing activities...     88,305       362    11,326
                                                  ---------  --------  --------
NET (DECREASE) INCREASE IN CASH AND CASH
 EQUIVALENTS....................................     (2,328)    2,254      (839)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR.      5,941     3,687     4,526
                                                  ---------  --------  --------
CASH AND CASH EQUIVALENTS, AT END OF YEAR.......  $   3,613  $  5,941  $  3,687
                                                  =========  ========  ========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       29
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                      THREE YEARS ENDED DECEMBER 31, 1997
 
1. BUSINESS
 
  Alexander Haagen Properties, Inc., a Maryland corporation (the "Company"),
is a self-administered and self-managed real estate investment trust ("REIT").
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, 1997, the Company owned a portfolio comprised of
interests in 46 retail shopping centers (the "Properties"). All of the
Properties and assets in the Company's portfolio are held and operated by
Alexander Haagen Properties Operating Partnership, L.P., a California limited
partnership (the "Operating Partnership" or "OP") and Alexander Haagen
Properties Finance Partnership, L.P. (the "Finance Partnership"). The Company
is the sole general partner of the Operating Partnership and owns a 79.1%
interest therein. The Company owns 100% of the Finance Partnership and is its
sole general partner while the Operating Partnership is its sole Limited
Partner. 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. The Properties consist of regional malls, power/promotional
centers, neighborhood/community shopping centers and single tenant facilities.
 
  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"). The purchase price per share was
determined as a result of arm's length negotiations between the Company and
its advisors and LFREI and its advisors. On August 14, 1997, the Stockholders
of the Company approved the Transaction.
 
  As of December 31, 1997, the Company had sold 4,006,434 shares, to LFREI
under the terms of the Transaction for aggregate proceeds of $60.1 million. On
February 13, 1998 the Company sold an additional 2,700,000 shares to LFREI. As
of February 13, 1998, LFREI is obligated to purchase a further 8,960,232
Shares of Common Stock for aggregate proceeds of $134.4 million (the
"Remaining Equity Commitment"). As of such date, LFREI owned approximately
35.4% of the outstanding Common Stock.
 
  The Company must sell the Remaining Equity Commitment not later than
February 14, 1999. If the Company has not drawn the Remaining Equity
Commitment by such date, LFREI will have the right on such date to purchase
such shares from the Company, at a price of $15.00 per share. If LFREI
acquires all of the shares represented by the Remaining Equity Commitment (and
assuming no other change in the number of outstanding shares), LFREI will own
approximately 56.3% of the outstanding Common Stock (37.9% on a 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 following stockholder approval (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
 
                                      30
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
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
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 49.0% 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 and the OP 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, 1997, 1996 and 1995 is the 20.9%, 26.3%, and 8.0% interests,
respectively, in the results of the OP which are owned by various third
parties. At December 31, 1997, 1996 and 1995, 4,279,789, 4,286,456, and
1,069,576 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 1997, 1996 and 1995, adjustments of $5,737,000, $31,509,000 and
$199,000 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.
 
                                      31
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  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 expected
future cash flow is less than the carrying amount of the asset, the Company
recognizes an impairment loss equal to the difference between the estimated
current 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, 1997, 1996 and 1995
amounted to $843,000, $400,000 and $1,112,000, respectively. Cash paid for
interest, net of capitalized interest costs, was $33,895,000, $33,576,000 and
$29,116,000, for the years ended December 31, 1997, 1996 and 1995,
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
 
  During the first quarter of 1996, the Company reviewed the depreciable lives
of its properties. The Company concluded that in order to more appropriately
align the depreciable lives with the economic lives of the properties the
lives should generally be increased to 40 years from previously utilized lives
ranging from 20 to 31.5 years. The net impact of such change in lives was to
reduce the depreciation charge for the year ended December 31, 1996 by
approximately $4,800,000.
 
  Cash and Cash Equivalents--Cash and cash equivalents include readily
marketable securities 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 the cost of Haagen Property
Management, Inc.'s ("HPMI"), an affiliate, leasing and legal departments (see
Note 13) 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,
                                                             -----------------
                                                               1997     1996
                                                             --------  -------
                                                              (IN THOUSANDS)
       <S>                                                   <C>       <C>
       Deferred financing costs............................. $ 17,373  $15,827
       Deferred leasing costs...............................   13,406   11,203
                                                             --------  -------
         Total deferred charges.............................   30,779   27,030
       Accumulated amortization.............................  (11,020)  (8,665)
                                                             --------  -------
       Deferred charges, net................................ $ 19,759  $18,365
                                                             ========  =======
</TABLE>
 
  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
reassessed the recoverability of straight-line contractual rent increases as a
result of the continuing mergers and consolidations within the retail industry
and the financial
 
                                      32
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
difficulties of certain retailers. Accordingly, 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.
Additionally, the Company has fully reserved against unbilled deferred rents
accruing during 1997 and 1996. The Company believes this to be an appropriate
and conservative approach to account for future contractual rent increases in
the current retail environment. This approach results in a reduction in
revenues recognized in 1997 and 1996 of approximately $1.2 million and $1.3
million, respectively. The Company continually evaluates its reserve for
straight-line rents 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,
                                                               ----------------
                                                                1997     1996
                                                               -------  -------
                                                               (IN THOUSANDS)
     <S>                                                       <C>      <C>
     Billed tenant receivables................................ $ 5,980  $ 5,422
     Allowance for uncollectible rent.........................  (2,145)  (1,617)
                                                               -------  -------
     Net billed tenant receivables............................   3,835    3,805
                                                               -------  -------
     Unbilled deferred rent...................................   9,364    8,189
     Allowance for unbilled deferred rent.....................  (7,182)  (6,007)
                                                               -------  -------
     Net unbilled deferred rent...............................   2,182    2,182
                                                               -------  -------
     Tenants receivable, net.................................. $ 6,017  $ 5,987
                                                               =======  =======
</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 Income--In connection with the development of the Media City Center,
(Burbank, CA), 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, 1997, 1996 and 1995 is $2,656,000, $2,797,000 and
$2,756,000, respectively. At December 31, 1997 and 1996, $3,431,000 and
$2,182,000, 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, 1997, 1996 and 1995 from Fullerton Town Center of $48,000,
$57,000 and $59,000 respectively, and Country Fair Shopping Center of
$147,000, $146,000 and $122,000 respectively.
 
  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.
 
                                      33
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  As of December 31, 1997 and 1996, the tax basis of certain net assets of the
Company was approximately $88,200,000 and $65,000,000, respectively, less than
the book basis of such assets.
 
  Earnings Per Share--During 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic loss per share for the
years ended December 31, 1997, 1996 and 1995 were computed based on the
weighted average number of shares outstanding of 13,312,311, 12,024,097 and
11,964,253, respectively. Potential common shares were antidilutive in each of
the years ended December 31, 1997, 1996 and 1995.
 
  Accounting Pronouncements--In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information. This statement is
effective for financial statements issued for fiscal years beginning after
December 15, 1997. The Company has not yet analyzed the impact of adopting
this statement.
 
  Reclassifications--Certain amounts have been reclassified in the 1996 and
1995 financial statements to conform to the 1997 financial statements
presentation.
 
3. RENTAL PROPERTIES
 
  Rental properties consist of the following:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                                1997     1996
                                                              -------- --------
                                                               (IN THOUSANDS)
     <S>                                                      <C>      <C>
     Land.................................................... $155,740 $115,776
     Leasehold interests.....................................   23,097   23,038
     Site improvements.......................................   48,385   47,299
     Buildings and improvements..............................  530,385  470,364
     Construction in process.................................   25,672    3,088
                                                              -------- --------
     Rental Properties, at cost.............................. $783,279 $659,565
                                                              ======== ========
</TABLE>
 
4. NOTE RECEIVABLE FROM OFFICER
 
  In December, 1997 the Company extended a loan to an executive officer 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 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 officer's ownership interests, be made to the Company. The loan
matures in December, 2004. If not paid in full, the balance of the loan is due
in full within six months subsequent to the termination of the Officer's
employment with the Company.
 
                                      34
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. SECURED DEBT
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                                1997     1996
                                                              -------- --------
                                                               (IN THOUSANDS)
<S>                                                           <C>      <C>
Secured Line of Credit....................................... $108,727 $ 41,200
Notes payable to life insurance companies--interest only and
 interest plus
 principal; variable rates ranging from 7.5% to 10.45%;
 maturing April 1999
 through September 2004; non-recourse........................   66,219   61,045
Notes payable to financial institution--principal and
 interest paid monthly, at
 a weighted average rate of 8.98%; maturing in 2005 and 2010;
 non-recourse................................................   56,014   56,380
Notes payable to pension funds--principal and interest paid
 monthly at 10.90%
 and 11.45%; maturing October 2006; non-recourse.............   40,575   41,853
Floating rate tax-exempt certificates of participation--
 interest only at effective
 rate of 5.30%; 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
 from April 1997
 through April 2021; non-recourse............................    6,125    6,163
                                                              -------- --------
                                                              $313,660 $242,641
                                                              ======== ========
</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 (6.65% at December 31, 1997). 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.
 
  Upon conversion to an unsecured facility, borrowings will bear interest at
varying rates based upon the Company's leverage ratio and investment grade
rating interest. 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, Smitty's Tucson, Frontier Village and Marshalls Plaza. As properties
are acquired, they may be added to the security of the Credit Facility,
thereby increasing the amount available to the Company. Subsequent to December
31, 1997, the Company drew an additional $33,433,000 in borrowings against the
Credit Facility. On February 13, 1998 the Company repaid $40,500,000 of the
outstanding balance on the Credit Facility with proceeds from the sale of
common stock to LFREI. Additionally, the Company has utilized $5.0 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.
 
  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 11, Fair Value Disclosure of Financial
Instruments.
 
                                      35
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The $6,125,000 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, 1997, excluding the
balance due on maturity of the Credit Facility, are as follows:
 
<TABLE>
<CAPTION>
       YEARS ENDING
       DECEMBER 31,
       ------------                                               (IN THOUSANDS)
       <S>                                                        <C>
       1998......................................................    $  2,902
       1999......................................................      28,225
       2000......................................................       2,940
       2001......................................................       3,280
       2002......................................................      18,693
       Thereafter................................................     148,893
                                                                     --------
           Total.................................................    $204,933
                                                                     ========
</TABLE>
 
  Total amount excludes $108,727,000 outstanding on the secured line of credit
which is due on December 31, 2000.
 
  Restricted cash at December 31, 1997 and 1996 includes reserve funds
established in connection with the tax exempt financing. In addition, at
December 31, 1997 restricted cash includes funds restricted for the completion
of construction at the new AMC Theatres at Covina Town Square. 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.
 
6. SUBORDINATED DEBENTURES
 
  In conjunction with the IPO, the Company issued 7% Convertible Subordinated
Debentures, Series A and 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 on or after
December 27, 1998, at the option of the Company, at 100% of the principal
amount thereof, together with accrued interest. The
 
                                      36
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            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.
 
  During the year ended December 31, 1995, approximately $1,000,000, of the
Convertible Debentures were converted by the holders into 55,555 shares of
Common Stock of the Company. No conversions were made in 1997 or 1996.
 
7. REDEEMABLE COMMON STOCK
 
  In connection with the Separation Agreement, as described in Note 12 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). Under the terms of the Separation
Agreement, the Haagen Family may not sell such shares other than certain open
market transactions on the American Stock Exchange. Included in the Shares to
be repurchased are 510,034 shares of common stock. As of December 31, 1997,
such shares have been reflected as Redeemable Common Stock at the fair value
on the date of the Separation Agreement.
 
8. STOCKHOLDERS' EQUITY
 
  In addition to Common Stock, the Company's Charter authorizes the issuance
of 5,000,000 shares of Preferred Stock, par value $.01 per share. No such
shares were issued or outstanding as of December 31, 1997.
 
  During each of the years ended December 31, 1997, 1996 and 1995, the Company
declared four quarterly distributions of $0.36 per share/unit.
 
9. STOCK OPTION AND INCENTIVE PLAN
 
  On May 30, 1997 and August 14, 1997, the Company amended and restated its
1993 Stock Option and Incentive Plan (the "Option Plan") which enables
executive officers, key employees and directors of the Company, the OP and
HPMI 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.
 
                                      37
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Following is a summary of the stock option activity for the three years
ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                                     SHARES     WEIGHTED AVERAGE
                                                  UNDER OPTIONS  EXERCISE PRICE
                                                  ------------- ----------------
   <S>                                            <C>           <C>
   January 1, 1995...............................     384,990       $17.392
     Granted.....................................     318,500       $12.734
     Cancelled...................................     (12,844)      $14.948
                                                    ---------
   December 31, 1995.............................     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.....................................     526,500       $15.470
     Exercised...................................     (16,369)      $12.153
     Cancelled...................................     (88,016)      $16.120
                                                    ---------
   December 31, 1997.............................   1,026,383       $15.120
                                                    =========
</TABLE>
 
  In addition to the above, during 1997 101,000 shares of restricted stock
were issued.
 
  As of December 31, 1997, 1996 and 1995 options exercisable totaled 361,827,
297,449, and 176,289 respectively.
 
  The following table summarizes information about stock options outstanding
at December 31, 1997:
 
<TABLE>
<CAPTION>
                              NUMBER                     WEIGHTED AVERAGE     NUMBER
      RANGE OF              OUTSTANDING WEIGHTED AVERAGE    REMAINING      EXERCISABLE
   EXERCISE PRICES          AT 12/31/97  EXERCISE PRICE  CONTRACTUAL LIFE AS OF 12/31/97
   ---------------          ----------- ---------------- ---------------- --------------
   <S>                      <C>         <C>              <C>              <C>
   $11.625-$13.500.........    241,283      $11.924            7.82          107,277
   $14.750-$15.875.........    501,100      $15.027            9.39              300
      $18.000..............    284,000      $18.000            6.25          254,250
                             ---------                                       -------
                             1,026,383      $15.120            8.15          361,827
                             =========                                       =======
</TABLE>
 
  The weighted average fair value of the stock options granted during 1997 and
1996 were $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 12 below), the Company
accelerated the vesting period of certain stock options and restricted stock.
As a result, the Company recorded a charge of approximately $2.7 million in
connection with such acceleration. During 1997, the Company recorded
compensation expense of $299,000 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 1997 and 1996
 
                                      38
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
consistent with the method of FASB Statement 123, the Company's net loss and
loss per share for the years ended December 31, 1997 and 1996 would have been
increased to the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                      1997     1996     1995
                                                     -------  -------  -------
                                                      (IN THOUSANDS, EXCEPT
                                                       PER SHARE AMOUNTS)
   <S>                                               <C>      <C>      <C>
   Net loss:
     As reported.................................... $(4,645) $(2,005) $(2,408)
     Pro forma...................................... $(4,824) $(2,063) $(2,436)
   Net loss per share, basic:
     As reported.................................... $(0.35)  $(0.17)  $(0.20)
     Pro forma...................................... $(0.36)  $(0.17)  $(0.20)
</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 1997 and 1996,
respectively: expected life of five years; risk free interest rate of 5.49%
and 6.13%; expected dividend yield of 8.3% and 9.0%; and expected volatility
of 22.2% and 21.01%.
 
10. 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, 1997 is summarized as
follows:
 
<TABLE>
<CAPTION>
       YEARS ENDING
       DECEMBER 31,
       ------------                                               (IN THOUSANDS)
       <S>                                                        <C>
       1998......................................................    $ 71,797
       1999......................................................      67,808
       2000......................................................      63,698
       2001......................................................      58,592
       2002......................................................      52,479
       Thereafter................................................     422,113
                                                                     --------
           Total.................................................    $736,487
                                                                     ========
</TABLE>
 
  The majority of the Properties are located in Southern California. 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.
 
11. 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.
 
                                      39
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Billed tenant and other receivables, accounts payable and other liabilities
are carried at amounts which reasonably approximate their fair value. The fair
value of unbilled deferred rent is not determinable. It is not practical to
determine the fair value of the Community Facilities District Special Tax
Bonds as such amounts are subject to various government regulations and
restrictions.
 
  The fixed rate mortgage notes payable totaling $162,808,000 and $159,278,000
as of December 31, 1997 and 1996, respectively, have fair values of
$181,397,000 and $168,865,000, 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 $35,842,000 and $23,281,000 at December 31,
1997 and 1996, respectively, which would be required to retire these notes
prior to maturity. The carrying value of floating rate tax-exempt certificates
of participation of $36,000,000 at December 31, 1997 and 1996 approximates
their fair value. The fair market values of the Convertible Debentures at
December 31, 1997 and 1996 were $140,505,000 and $128,900,000, respectively,
based on the trading price of the Series A Convertible Debentures as of
December 31, 1997 and 1996. The fair value of the Exchangeable Debentures at
December 31, 1997 and 1996 approximates their carrying value.
 
  The fair value estimates presented herein are based on information available
to management as of December 31, 1997 and 1996. 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 that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
 
12. RELATED PARTY TRANSACTIONS
 
  Haagen Separation Agreement--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 7).
 
  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, 1997
is approximately $4.9 million related to the 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.
 
  Haagen Property Management, Inc.--Through December 31, 1997, 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% economic interest in but did not control
HPMI. The investment has been accounted for on the equity basis as an
unconsolidated subsidiary. No dividends were paid by HPMI during the three
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%
economic interest. As such, the balance sheet of HPMI has been consolidated as
of December 31, 1997.
 
                                      40
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Summary financial information for HPMI is presented as follows:
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1996
                                                               -----------------
                                                                (IN THOUSANDS)
       <S>                                                     <C>
       Cash...................................................      $ 1,014
       Other assets...........................................        1,235
       Total liabilities......................................       (1,595)
                                                                    -------
       Net equity.............................................      $   654
                                                                    =======
       Company's share of net equity..........................      $   621
                                                                    =======
</TABLE>
 
  Included in liabilities of HPMI at December 31, 1996 is $1,055,000, payable
to the OP, representing reimbursable expenses and cash, held by HPMI on behalf
of the Company.
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER
                                                                   31,
                                                           --------------------
                                                            1997   1996   1995
                                                           ------ ------ ------
                                                              (IN THOUSANDS)
       <S>                                                 <C>    <C>    <C>
       Revenues........................................... $7,643 $7,768 $7,592
       Operating expenses.................................  7,623  7,768  7,588
                                                           ------ ------ ------
       Net income for the period.......................... $   20 $  --  $    4
                                                           ====== ====== ======
       Company's share of net income...................... $   19 $  --  $    4
                                                           ====== ====== ======
</TABLE>
 
  Revenues include services provided by HPMI to the OP which are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER
                                                                   31,
                                                           --------------------
                                                            1997   1996   1995
                                                           ------ ------ ------
                                                              (IN THOUSANDS)
       <S>                                                 <C>    <C>    <C>
       Executive and property management fees............. $4,013 $4,067 $3,680
       Leasing and legal fees.............................  2,077  2,508  2,161
       Acquisition and construction fees..................  1,240    622  1,000
                                                           ------ ------ ------
                                                           $7,330 $7,197 $6,841
                                                           ====== ====== ======
</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.
 
  Development Properties--Certain properties had not completed their initial
leasing plans at the date of the Company's initial public offering; Media City
Center, Baldwin Hills Crenshaw Plaza, Empire Center, Montebello Town Square
and The City Center (the "Development Properties"). Pursuant to an agreement
among the Operating Partnership and certain limited partners that transferred
the Development Properties to the Operating Partnership such OP limited
partners had the right to receive additional partnership units in the
Operating Partnership ("OP Units") based upon the increase in net annualized
cash flow from the Development Properties between October 31, 1993 and the
expiration of the applicable lease-up period for each development property.
The increase in net annualized cash flow was based on leases signed by March
31 with the tenant open and paying rent by June 30 of the respective lease-up
periods.
 
                                      41
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The lease-up period for Montebello Town Square and The City Center expired
on March 31, 1995 and resulted in the issuance of an additional 113,506 OP
Units to the OP Limited Partners. In connection with this issuance of
additional OP Units, all of the leases were executed by March 31, 1995, with
tenants paying rent by June 30, 1995, including certain leases where tenants
were not open by June 30, 1995. The independent directors determined that it
was appropriate to issue additional OP Units for all of these leases.
 
  The lease-up period for Media City Center, Baldwin Hills Crenshaw Plaza and
Empire Center expired on March 31, 1996. In connection with the completion of
construction at Empire Center, certain improvements constructed during the
lease-up period were not leased as of March 31, 1996. The independent
directors determined that, the cost of construction of such improvements
should be borne by the Company for purposes of calculating the issuance of
additional OP Units for Empire Center and no OP Units would be issuable to the
limited partners in connection with such unleased improvements. During the
year ended December 31, 1995, the opening of approximately 38,000 square feet
of retail and restaurant space at Media City Center, principally comprising a
30,000 square foot Virgin Megastore, and the 57,000 square foot Sony/Magic
Johnson Theatres at Baldwin Hills Crenshaw Plaza, represented expansion of the
Development Properties not contemplated at the IPO. Therefore, no additional
OP Units were issued in connection with such expansions.
 
  On August 12, 1996, the independent members of the Board of Directors
approved the issuance of 3,242,379 OP Units to the limited partners. The
market capitalization of the OP was thereby increased by $41.7 million based
upon the stock price as of August 12, 1996. The minority interest in the OP
was thereby increased from 8.0% to approximately 26.3% effective July 1, 1996.
As a result of the issuance in the third quarter of the 3,242,379 OP Units,
minority interest was increased and additional paid-in capital decreased by
approximately $31,509,000. The issuance of such additional OP Units in the
third quarter of 1996 did not have a dilutive effect on net income per share.
The number of OP Units issued and outstanding as of December 31, 1997 and 1996
was 4,279,789 and 4,286,456, respectively.
 
13. 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, 1997 are
summarized as follows:
 
<TABLE>
<CAPTION>
       YEARS ENDING DECEMBER 31,
       -------------------------                                   (IN THOUSANDS)
       <S>                                                         <C>
        1998......................................................    $ 1,509
        1999......................................................      1,511
        2000......................................................      1,510
        2001......................................................      1,431
        2002......................................................      1,199
        Thereafter................................................     13,045
                                                                      -------
          Total...................................................    $20,205
                                                                      =======
</TABLE>
 
  Assuming exercise of all renewal options, aggregate future rental payments
as of December 31, 1997 are $51,903,000. Certain of the Company's ground
leases contain participation features. Participation rents paid in accordance
with such terms were $51,000, $105,000, and $95,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
 
                                      42
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  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.
 
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
  The following table sets forth the selected quarterly financial data for the
Company for the years ended December 31, 1997 and 1996 (in thousands, except
per share data):
 
<TABLE>
<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
                                        =======     =======    ======= =======
<CAPTION>
                                                 1996 QUARTER ENDED
                                      -----------------------------------------
                                      DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
                                      ----------- ------------ ------- --------
   <S>                                <C>         <C>          <C>     <C>
   Total Operating Revenues..........   $23,642     $21,988    $21,211 $20,878
                                        =======     =======    ======= =======
   Net (loss) income.................   $  (709)    $ 1,220    $ 3,116 $(5,632)
                                        =======     =======    ======= =======
   Basic (loss) income per share.....   $ (0.06)    $  0.10    $  0.26 $ (0.47)
                                        =======     =======    ======= =======
   Diluted (loss) income per share...   $ (0.06)    $  0.08    $  0.21 $ (0.47)
                                        =======     =======    ======= =======
</TABLE>
 
15. SUBSEQUENT EVENTS (UNAUDITED)
 
  Subsequent to December 31, 1997, the Company has acquired eight unenclosed
shopping centers comprising approximately 1,052,000 square feet of Company
owned GLA for an aggregate purchase price of approximately $114 million. The
acquisitions consist of the following:
 
<TABLE>
<CAPTION>
                                                                         TOTAL
   DATE ACQUIRED                PROPERTY                 LOCATION         GLA
   -------------                --------                 --------       -------
   <S>                 <C>                         <C>                  <C>
   January 20, 1998... Covington Square            Kent, WA             155,370
   March 11, 1998..... Pavilions Centre            Federal Way, WA      200,191
   March 27, 1998..... Bakersfield Shopping Center Bakersfield, CA       14,115
   March 27, 1998..... Center of El Centro         El Centro, CA        179,189
   March 27, 1998..... Loma Square                 San Diego, CA        210,704
   March 27, 1998..... Vineyards Marketplace       Rancho Cucamonga, CA  56,035
   March 27, 1998..... North County Plaza          Carlsbad, CA         153,325
   March 31, 1998..... Southpointe Plaza           Sacramento, CA        83,409
</TABLE>
 
                                      43
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
                  EACH OF THREE YEARS ENDED DECEMBER 31, 1997
                                 (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, 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
                                     ======      =======      =======   ======
Year Ended December 31, 1995
  Allowance for uncollectible
   rent...........................   $  327      $ 1,412      $  (132)  $1,607
  Allowance for unbilled deferred
   rent...........................    1,954          741         (698)   1,997
                                     ------      -------      -------   ------
                                     $2,281      $ 2,153      $  (830)  $3,604
                                     ======      =======      =======   ======
</TABLE>
 
 
                                       44
<PAGE>
 
                       ALEXANDER HAAGEN PROPERTIES, INC.
 
            SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
 
                               DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                             INITIAL COST           COSTS
                                         ---------------------   CAPITALIZED
                                                   BUILDINGS     SUBSEQUENT
                                                      AND      TO ACQUISITION/
   DESCRIPTION          ENCUMBRANCES (1)   LAND   IMPROVEMENTS  CONSTRUCTION
   -----------          ----------------   ----   ------------ ---------------
<S>                     <C>              <C>      <C>          <C>
PROMOTIONAL/POWER
CENTERS
 Southern
 California......          $ (43,914)    $ 30,670   $ 76,955      $ 31,577
 Northern/Central
 California......                --         3,777      9,248        13,096
 Oregon..........             (9,762)       9,167     16,454        16,168
                           ---------     --------   --------      --------
                             (53,676)      43,614    102,657        60,841
                           ---------     --------   --------      --------
NEIGHBORHOOD/COMMUNITY
SHOPPING CENTERS
 Southern
 California......            (66,694)      27,517     83,397        13,276
 Oregon..........                --         5,576      9,134           --
 Washington......             (5,955)      21,573     29,190           --
 Northern/Central
 California......             (7,394)      15,704     22,922           105
                           ---------     --------   --------      --------
                             (80,043)      70,370    144,643        13,381
                           ---------     --------   --------      --------
SINGLE TENANT
FACILITIES
 Southern
 California......            (27,348)       7,721     24,791         1,642
 Northern/Central
 California......             (7,713)       2,501     10,002           --
 Arizona.........             (6,153)       4,261     13,934           581
                           ---------     --------   --------      --------
                             (41,214)      14,483     48,727         2,223
                           ---------     --------   --------      --------
REGIONAL MALLS
 Southern
 California......            (30,000)      23,842    203,623        54,875
                           ---------     --------   --------      --------
                           $(204,933)    $152,309   $499,650      $131,320
                           =========     ========   ========      ========
<CAPTION>
                                         DECEMBER 31, 1997
                        ----------------------------------------------------
                                  BUILDINGS
                                     AND               ACCUMULATED
   DESCRIPTION            LAND   IMPROVEMENTS  TOTAL   DEPRECIATION   NET
   -----------          -------- ------------ -------- ------------ --------
<S>                     <C>      <C>          <C>      <C>          <C>
PROMOTIONAL/POWER
CENTERS
 Southern
 California......       $ 30,678   $108,524   $139,202  $ (21,770)  $117,432
 Northern/Central
 California......          3,777     22,344     26,121     (6,403)    19,718
 Oregon..........          9,167     32,622     41,789     (1,717)    40,072
                        -------- ------------ -------- ------------ --------
                          43,622    163,490    207,112    (29,890)   177,222
                        -------- ------------ -------- ------------ --------
NEIGHBORHOOD/COMMUNITY
SHOPPING CENTERS
 Southern
 California......         29,690     94,500    124,190    (27,234)    96,956
 Oregon..........          5,576      9,134     14,710        (95)    14,615
 Washington......         21,573     29,190     50,763       (130)    50,633
 Northern/Central
 California......         15,704     23,027     38,731       (811)    37,920
                        -------- ------------ -------- ------------ --------
                          72,543    155,851    228,394    (28,270)   200,124
                        -------- ------------ -------- ------------ --------
SINGLE TENANT
FACILITIES
 Southern
 California......          8,121     26,033     34,154     (7,309)    26,845
 Northern/Central
 California......          2,501     10,002     12,503     (2,082)    10,421
 Arizona.........          4,261     14,515     18,776     (3,902)    14,874
                        -------- ------------ -------- ------------ --------
                          14,883     50,550     65,433    (13,293)    52,140
                        -------- ------------ -------- ------------ --------
REGIONAL MALLS
 Southern
 California......         24,692    257,648    282,340    (49,749)   232,591
                        -------- ------------ -------- ------------ --------
                        $155,740   $627,539   $783,279  $(121,202)  $662,077
                        ======== ============ ======== ============ ========
</TABLE>
-----
(1) Excludes the secured line of credit of $108,727,000 at December 31, 1997
    which is secured by various properties.
 
                                       45
<PAGE>
 
  The Company anticipates investing approximately $8,000,000 in capital
expenditures and tenant improvements over the next eighteen months. The
aggregate gross cost of property included above for federal income tax
purposes approximated $595,000,000 as of December 31, 1997.
 
  The following table reconciles the Historical Cost of Properties from
January 1, 1995 to December 31, 1997:
 
<TABLE>
<CAPTION>
                                                     1997      1996      1995
                                                   --------  --------  --------
   <S>                                             <C>       <C>       <C>
   Balance at beginning of the year............... $659,565  $653,058  $618,427
     Additions during the year--
       Acquisition of properties..................   91,382       --        --
       Construction and Development Costs.........   32,406    13,950    34,631
     Deductions during the year--
       Cost of real estate sold...................      --     (5,080)      --
       Cost of building demolished................      (74)   (2,363)      --
                                                   --------  --------  --------
   Balance at close of the year................... $783,279  $659,565  $653,058
                                                   ========  ========  ========
</TABLE>
 
  The following table reconciles the Accumulated Depreciation from January 1,
1995 to December 31, 1997:
 
<TABLE>
<CAPTION>
                                                      1997      1996     1995
                                                    --------  --------  -------
   <S>                                              <C>       <C>       <C>
   Balance at beginning of the year................ $104,330  $ 90,478  $71,047
     Additions during the year--
       Depreciation for the year...................   16,889    15,937   19,431
     Deductions during the year--
       Property sold...............................      --     (1,213)     --
       Property demolished.........................      (17)     (872)     --
                                                    --------  --------  -------
   Balance at close of the year.................... $121,202  $104,330  $90,478
                                                    ========  ========  =======
</TABLE>
 
                                      46
<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
   
  The following tables set forth the names, ages and positions of each of the
Company's directors and executive officers.     
                         
                      DIRECTORS CONTINUING IN OFFICE     
 
<TABLE>   
<CAPTION>
                                                                DIRECTOR  TERM
       NAME                                                 AGE  SINCE   EXPIRES
       ----                                                 --- -------- -------
       <S>                                                  <C> <C>      <C>
       Fred W. Bruning.....................................  47   1993    1999
       Warner Heineman.....................................  75   1994    1999
       Fred L. Riedman.....................................  67   1994    2000
</TABLE>    
                        
                     NOMINEES FOR ELECTION AS DIRECTOR     
 
<TABLE>   
<CAPTION>
                                                                                      IF ELECTED,
                                                                             DIRECTOR     TERM
NAME                     AGE        PRESENT POSITION WITH THE COMPANY         SINCE   EXPIRATION
----                     ---        ---------------------------------        -------- -----------
<S>                      <C> <C>                                             <C>      <C>
R. Bruce Andrews........  57 Director                                          1994      1999
Robert T. Barnum........  52 Director                                          1997      2000
Edward D. Fox...........  50 Director, President and Chief Executive Officer   1997      2000
Anthony E. Meyer........  36 Director                                          1997      2001
Arthur P. Solomon.......  58 Director and interim Chairman of the Board        1997      2001
</TABLE>    
                               
                            EXECUTIVE OFFICERS     
 
<TABLE>   
<CAPTION>
NAME                     AGE                           POSITION
----                     ---                           --------
<S>                      <C> <C>
Edward D. Fox...........  50 President, Chief Executive Officer and Director
Fred W. Bruning.........  47 Senior Vice President--Chief Investment Officer and Director
Stuart J.S. Gulland.....  36 Senior Vice President and Chief Financial Officer
William P. Hewitt.......  48 Senior Vice President of Leasing
Steven Jaffe............  36 Senior Vice President, General Counsel and Secretary
Joseph F. Paggi, Jr. ...  59 Senior Vice President of Properties
</TABLE>    
 
                                       47
<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, 1995,
1996 and 1997 to the Company's Chief Executive Officer and six other current
and former executive officers of the Company (the "Named Executive Officers").
    
<TABLE>   
<CAPTION>
                                  ANNUAL COMPENSATION          LONG TERM COMPENSATION
                          ------------------------------------ -----------------------
                               ANNUALIZED                      SECURITIES
                                SALARY AT    ACTUAL            UNDERLYING  ALL OTHER
  NAME AND PRINCIPAL           END OF YEAR SALARY PAID  BONUS   OPTIONS   COMPENSATION
  POSITION                YEAR   ($)(A)      ($)(A)      ($)     (#)(B)      ($)(C)
  ------------------      ---- ----------- ----------- ------- ---------- ------------
<S>                       <C>  <C>         <C>         <C>     <C>        <C>
Edward D. Fox(d)........  1997   375,000      74,000       --       --          --
 President and Chief
  Executive               1996       --          --        --       --          --
 Officer                  1995       --          --        --       --          --
Alexander Haagen,
 Sr.(e).................  1997   200,000     119,546       --       --      289,792
 Former Chairman, Chief   1996    24,800      24,800       --       --          --
 Executive Officer and
  President               1995    24,600      24,600       --    27,500         --
Alexander Haagen III(e).  1997   100,000      65,997       --   200,000     246,736
 Former Vice Chairman     1996    24,800      24,800       --       --          --
                          1995    24,600      24,600       --    27,500         --
Fred W. Bruning.........  1997   315,000     311,904   176,501  100,000      21,528
 Senior Vice President
  and                     1996   300,000     339,700   108,900      --          --
 Chief Investment
  Officer                 1995   212,000     211,600   141,100   27,500         --
Stuart J.S. Gulland.....  1997   175,000     177,531    75,000   60,000      21,528
 Senior Vice President
  and                     1996   139,500     138,000    50,000      --          --
 Chief Financial Officer  1995   135,000     100,000       --    82,500         --
William P. Hewitt(f)....  1997   250,000         --        --       --          --
 Senior Vice President
  of Leasing              1996       --          --        --       --          --
                          1995       --          --        --       --          --
Steven M. Jaffe.........  1997   175,000     188,462    75,000   87,500      21,528
 Senior Vice President,
  General                 1996   175,000     171,657       --       --          --
 Counsel and Secretary    1995   140,000     141,301       --     1,293         --
Charlotte Haagen(e).....  1997    25,000      27,671       --       --       43,056
 Former Vice President    1996    24,800      24,800       --       --          --
                          1995    24,600      24,600       --    27,500         --
Mark Granados(g)........  1997   250,000         --        --       --          --
 Vice President,
  Director of             1996       --          --        --       --          --
 Acquisitions             1995       --          --        --       --          --
Joseph F. Paggi,
 Jr. (h)................  1997   200,000         --        --       --          --
                          1996       --          --        --       --          --
                          1995       --          --        --       --          --
</TABLE>    
--------
   
(a) Includes accrued vacation paid out.     
   
(b) Represents options to purchase Common Stock granted under the Restated
    Plan. The 1995 options vest over a four-year period and are exercisable in
    cumulative 25% installments commencing one year from the date of grant at
    $11.625 to $18.00 per share. 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. See "--Aggregated Option Exercises and
    Fiscal Year-End Option Value Table."     
   
(c) Represents (i) restricted stock grants made on February 27, 1997, issued
    at $.01 per share, which vest over a three-year period and (ii) in the
    case of Messrs. Haagen, Sr. and Haagen III, grants of 10,000 shares of
    stock to each of them on August 14, 1997 pursuant to their Employment
    Agreements. In addition, Messrs. Haagen, Sr. and Haagen III each received
    grants of 40,000 shares of stock on January 2, 1998, pursuant to the
    Separation Agreement and Release between them and the Company.     
 
                                      48
<PAGE>
 
   
(d) Mr. Fox served as interim President and Chief Executive Officer from
    November 24, 1997 through March 11, 1998 when he was named as President
    and Chief Executive Officer. His annual salary was effective as of March
    30, 1998. He also received 60,000 shares of restricted stock and options
    to purchase 210,000 shares of Common Stock, effective as of March 30,
    1998.     
   
(e) Messrs. Haagen, Sr. and Haagen III and Mrs. Haagen resigned from the
    Company effective November 24, 1997.     
   
(f) Hired April 27, 1998 as Senior Vice President of Leasing.     
   
(g) Hired January 2, 1998 as Vice President, Director of Acquisitions. Mr.
    Granados was also granted options to purchase 100,000 shares of Common
    Stock, effective as of January 2, 1998.     
   
(h) Hired April 27, 1998 as Senior Vice President of Properties.     
   
       
OPTION GRANTS     
<TABLE>   
<CAPTION>
                                                                       POTENTIAL REALIZABLE
                                                                         VALUE AT ASSUMED
                                                                           ANNUAL RATES      ALTERNATIVE
                                                                          OF STOCK PRICE       TO AND
                                                                         APPRECIATION FOR    GRANT DATE
                                       INDIVIDUAL GRANTS                    OPTION TERM         VALUE
                          -------------------------------------------- --------------------- -----------
                                       PERCENT OF
                           NUMBER OF     TOTAL
                          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...........          0          0        --         --           --         --        --
 President and Chief
 Executive Officer
Alexander Haagen,                 0          0        --         --           --         --        --
 Sr.(a).................
 Former Chairman, Chief
 Executive Officer and
 President
Alexander Haagen III(a).    200,000       37.2%     15.00    5/30/07    2,680,789  6,045,529   487,500
 Former Vice Chairman
Fred W. Bruning.........    100,000       18.6%     15.00    5/30/07    1,340,394  3,022,764   243,750
 Senior Vice President
 and Chief Investment
 Officer
Stuart J.S. Gulland.....     60,000       11.2%     15.00    5/30/07      804,237  1,813,659   146,250
 Senior Vice President
 and Chief Financial
 Officer
Steven M. Jaffe(b)......     87,500       16.3%     15.00    2/27/07    1,159,095  2,631,169   199,531
 Senior Vice President                              15.50    5/30/07
 and General Counsel
Charlotte Haagen(a).....          0          0        --         --           --         --        --
 Former Vice President
</TABLE>    
                     
                  OPTION/SAR GRANTS IN LAST FISCAL YEAR     
 
--------
   
(a) Messrs. Haagen, Sr. and Haagen III and Mrs. Haagen resigned from the
    Company effective as of November 24, 1997.     
   
(b) Mr. Jaffe received two option grants during the last fiscal year. The
    first was on February 27, 1997 for 27,500 shares of stock at an exercise
    price of $15.50 per share, the second was on May 30, 1997 for 60,000
    shares of stock at an exercise price of $15.00 per share.     
 
 
                                      49
<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, 1997 by each of the Named Executive
Officers and the 1997 fiscal year-end value of unexercised options.     
 
<TABLE>   
<CAPTION>
                                                  NUMBER OF
                                                 UNEXERCISED
                                               OPTIONS AT FY-  VALUE OF UNEXERCISED
                            SHARES                   END       IN-THE-MONEY OPTIONS
                          ACQUIRED ON  VALUE    EXERCISABLE/        AT FY-END
                           EXERCISE   REALIZED  UNEXERCISABLE      EXERCISABLE/
    NAME                      (#)       ($)          (#)        UNEXERCISABLE ($)
    ----                  ----------- -------- --------------- --------------------
<S>                       <C>         <C>      <C>             <C>
Edward D. Fox...........        0         0          0/0         $0/$0
Alexander Haagen,
 Sr.(a).................        0         0     82,500/0         $159,844/$0
Alexander Haagen III(a).        0         0    282,500/213,750   $647,344/$0
Fred W. Bruning.........        0         0     68,750/113,750   $79,922/$323,672
Stuart J.S. Gulland.....        0         0     41,250/101,250   $79,922/$226,172
Steven M. Jaffe.........        0         0      1,289/88,141    $7,452/$203,217
Charlotte Haagen(a).....        0         0     82,500/0         $159,844/$0
</TABLE>    
--------
   
(a) Messrs. Haagen, Sr. and Haagen III and Mrs. Haagen resigned from the
    Company effective as of November 24, 1997.     
 
                                      50
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   
  The following table sets forth information as of December 31, 1997 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 other current and former executive officers of
the Company and (4) the Company's current and former executive officers and
directors as a group.     
 
<TABLE>   
<CAPTION>
                                             SHARES BENEFICIALLY OWNED
                                       -----------------------------------------
                                          AMOUNT AND NATURE OF        PERCENT OF
        NAME OF BENEFICIAL OWNER       BENEFICIAL OWNERSHIP(A)(B)      CLASS(C)
        ------------------------       --------------------------     ----------
   <S>                                 <C>                            <C>
   Prometheus Western Retail, LLC....          4,006,434(d)              24.8%(e)
    30 Rockefeller Plaza
    New York, NY 10020
   Merrill Lynch & Co., Inc. ........          1,416,525(f)(g)            8.8%
    World Financial Center, North
     Tower
    250 Vesey Street, New York, NY
     10281
   Prudential Insurance Company of
    America..........................          1,146,621(h)               7.1%
    Prudential Plaza
    751 Broad Street
    Newark, New Jersey 07102-3777
   Alex Brown Investment Management..          1,071,789(i)               6.6%
    1345 East Baltimore Street
    Baltimore, MD 21202
   First Pacific Advisors, Inc. .....          1,089,168(j)               6.7%
    11400 W. Olympic Blvd., Ste. 1200
    Los Angeles, CA 90064
   Heitman PRA Securities Advisors...            980,400(k)               6.1%
    180 N. La Salle St., Ste, 3600
    Chicago, IL 60601
   Haagen Limited Partnership........          3,420,796(b)(l)           17.9%
   Alexander Haagen III..............            272,125(b)(m)            1.7%
   Fred W. Bruning...................            336,083(b)(n)            2.0%
   Stuart J.S. Gulland...............             46,250(o)                *
   Steven M. Jaffe...................              6,289(p)                *
   R. Bruce Andrews..................             15,600(p)                *
   Warner Heineman...................             17,600(p)                *
   Fred L. Riedman...................             10,600(p)                *
   Robert T. Barnum..................                --                    *
   Edward D. Fox.....................                --                    *
   Anthony E. Meyer..................                --                    *
   Arthur P. Solomon.................                --                    *
   All Directors and Executive
    Officers as a group (4 persons)..          4,134,491(b)(o)(p)(q)     20.9%
</TABLE>    
--------
   
 *  Less than 1%     
   
(a) For purposes of this Form 10-K, 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     
 
                                      51
<PAGE>
 
      
   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) Includes shares of Common Stock issuable upon exchange of partnership
    units ("OP Units") in Alexander Haagen Properties Operating Partnership,
    L.P. which are exchangeable within 60 days. As of December 31, 1997, the
    number of OP Units owned by the current and former executive officers of
    the Company was as follows: Alexander Haagen III--140,664, Seymour
    Kreshek--416,993, Fred W. Bruning--262,333, and the Haagen Limited
    Partnership--2,839,284.     
   
(c) Based on 16,174,848 shares of Common Stock outstanding as of December 31,
    1997.     
   
(d) The Schedule 13G filed by the stockholder indicates sole voting power and
    sole dispositive power with respect to all shares.     
   
(e) The stockholder acquired an additional 2,700,000 shares of Common Stock on
    February 13, 1998. Assuming consummation of the purchase of all shares of
    Common Stock to be purchased pursuant to a certain purchase agreement
    between the stockholder and the Company and assuming no other changes, the
    percent of class would equal 56.5%.     
   
(f) The Schedule 13G filed by the stockholder indicates shared investment and
    dispositive power with respect to all shares.     
   
(g) Includes shares that the holder has the right to acquire through the
    exchange of 7% exchangeable subordinated debentures due in 2003.     
   
(h) The Schedule 13G filed by the stockholder indicates 1,146,621 shares
    beneficially owned, shared voting power with respect to 934,400 shares and
    shared dispositive power with respect to 934,500 shares.     
   
(i) Although the stockholder has not filed a Schedule 13G, the Company
    believes that the stockholder owns the number of shares indicated and has
    sole voting and dispositive power with respect to a majority of such
    shares.     
   
(j) The Schedule 13G filed by the stockholder indicates shared voting power
    with respect to 290,556 shares and shared dispositive power with respect
    to 1,089,168 shares.     
   
(k) The Schedule 13G filed by the Stockholder indicates sole voting power with
    respect to 925,000 shares, sole dispositive power with respect to 963,800
    shares and shared dispositive power with respect to 16,600 shares.     
   
(l) Includes stock totaling 40,000 shares held by Alexander and Charlotte
    Haagen. In addition, includes options to purchase 165,000 shares of Common
    Stock which are exercisable within 60 days, held by Alexander and
    Charlottte Haagen.     
   
(m) Includes options to purchase 282,500 shares of Common Stock which are
    exercisable within 60 days outstanding as of December 31, 1997.     
   
(n) Includes options to purchase 68,750 shares of Common Stock which are
    exercisable within 60 days, but does not include options to purchase
    113,750 shares of Common Stock outstanding as of December 31, 1997 which
    are not exercisable within 60 days.     
   
(o) Includes options to purchase 41,250 shares which are exercisable within 60
    days, but does not include options to purchase 101,250 shares of Common
    Stock outstanding as of December 31, 1997 which are not exercisable within
    60 days.     
   
(p) Includes options to purchase 7,600 shares of Common Stock which are
    exercisable within 60 days. Does not include options to purchase 6,600
    shares of Common Stock which are not exercisable within 60 days     
   
(q) Includes options to purchase 1,289 shares of Common Stock which are
    exercisable within 60 days, but does not include options to purchase
    88,141 shares of Common Stock which are not exercisable within 60 days.
        
                                      52
<PAGE>
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   
  An agreement existed between Baldwin Hills Associates (a predecessor
affiliate) and the Community Redevelopment Agency of the City of Los Angeles
("LACRA") in connection with the development of Baldwin Hills Crenshaw Plaza
which provided for the LACRA to participate in net cash flows from operations
and net sales proceeds. Upon transfer of property to the Operating
Partnership, the LACRA's participation rights under the agreement were
terminated. No payments under such agreement were made through December 27,
1993. The LACRA and Baldwin Hills Associates have settled a dispute as to the
LACRA's portion of the proceeds received by Baldwin Hills Associates upon sale
of the property to the Operating Partnership. The settlement has no impact on
the Company and is confined to resolution between the LACRA and Baldwin Hills
Associates. Certain current and former executive officers and directors of the
Company, including Alexander Haagen, Sr., Charlotte Haagen, Seymour Kreshek
and Fred Bruning, are partners in Baldwin Hills Associates.     
   
  Under the terms of the current ground lease with respect to Media City
Center with the Burbank Agency, the Company is obligated to pay fixed base
rent of $1,000 per year. The Burbank Agency was also entitled to receive
certain net cash flows from operations and certain net proceeds upon any
future sale or transfer of the Property. However, in November 1994, the
Company and the Burbank Agency entered into agreements, which (i) terminated
the Burbank Agency's rights to participate in net cash flows and net sales or
financing proceeds from Media City Center, (ii) eliminated the Burbank
Agency's consent rights with respect to encumbrances on the property, and
(iii) changed the zoning restrictions on two adjacent parcels to permit retail
development on these parcels. In consideration, the Operating Partnership paid
$5.0 million to the Burbank Agency. The two adjacent parcels were previously
owned by Haagen-Burbank Partnership (a predecessor affiliate), which
contributed its rights to such parcels to the Company without remuneration.
Under the revised use restrictions, the City of Burbank will permit up to
50,000 square feet of development on the two parcels provided that there is at
least one retail tenant of 25,000 square feet of gross leasable area. Certain
current and former officers and directors of the Company, including Alexander
Haagen, Sr., Charlotte Haagen, Seymour Kreshek and Fred Bruning are partners
in Haagen-Burbank Partnership.     
   
  Through December 31, 1997, Haagen Property Management, Inc. ("HPMI") managed
for a fee all of the Company's properties pursuant to Management Agreements
dated as of December 27, 1993, except for six (6) properties which HPMI
managed pursuant to Management Agreements dated March 14, 1995. HPMI also
managed for a fee certain properties not owned by the Company. HPMI received
approximately $4,013,000 in executive and property management fees, $2,077,000
in leasing and legal fees and $1,240,000 in acquisition and construction fees
from the Operating Partnership and realized $20,000 net income for the year
ended December 31, 1997. The Company was the holder of all of the issued and
outstanding non-voting preferred stock of HPMI, with a 95% economic interest
therein, and the holders of all of the issued and outstanding voting common
stock of HPMI, with a 5% economic interest therein, were Alexander Haagen,
Sr., Alexander Haagen III, Charlotte Haagen and Seymour Kreshek, the former
Chairman and Chief Executive Officer, former Vice Chairman, former Vice
President, and former Senior Vice President-Chief Financial Officer of the
Company, respectively. In connection with the Separation Agreement, between
the Haagen family and the Company resulting from their retirement, the Company
purchased the remaining 5% economic interest in HPMI. As a result, the Company
has full control over the operations of HPMI.     
   
  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 is secured by
all of Mr. Bruning's actual and beneficial ownership interest in the Company.
The loan matures in December 2004, but is due in full six months following the
termination of Mr. Bruning's employment with the Company if earlier.     
   
  The Company's headquarters in Manhattan Beach, California are owned by a
partnership in which Alexander Haagen, Sr., Charlotte Haagen, Alexander Haagen
III and Seymour Kreshek are partners. At the time of the Company's initial
public offering, the current lease on the headquarters was assigned from The
Alexander Haagen Company, Inc. to HPMI, which subleases space to the Company
and the Operating Partnership. HPMI paid $350,358 pursuant to such lease for
the year ended December 31, 1997.     
 
                                      53
<PAGE>
 
                                    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......................................   25
    Consolidated Balance Sheets as of December 31, 1997 and 1996........   26
    Consolidated Statements of Operations for Each of the Three Years
     Ended December 31, 1997............................................   27
    Consolidated Statements of Stockholder's Equity for Each of the
     Three Years Ended December 31, 1997................................   28
    Consolidated Statements of Cash Flows for Each of the Three Years
     Ended December 31, 1997............................................   29
    Notes to Consolidated Financial Statements..........................   30
   2. Financial Statement Schedules:
    II. Valuation and Qualifying Accounts...............................   44
    III. Real Estate and Accumulated Depreciation.......................   45
</TABLE>
 
 
                                       54
<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...........................................................   55
</TABLE>    
 
  The following exhibits are included as part of this Annual Report on Form
10-K 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.
 
<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 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>
 
                                      55
<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>
 
                                       56
<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>
 
                                       57
<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.
 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.
 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.
 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
 
    Form 8-K Stock Purchase Agreement, June 12, 1997
 
  There were no Form 8-K reports filed by the Company during the years ended
December 31, 1996 and 1995.
 
                                       58
<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, 1998.     
 
                                          ALEXANDER HAAGEN PROPERTIES, INC.
 
                                                   /s/ Edward D. Fox
                                          By: _________________________________
                                                       Edward D. Fox
                                                Chief Executive Officer and
                                                         President
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>   
<CAPTION>
             SIGNATURE                           TITLE                  DATE
             ---------                           -----                  ----
 
<S>                                  <C>                           <C>
      /s/ Arthur Solomon             Chairman of the Board         April 29, 1998
____________________________________
           Arthur Solomon
 
       /s/ Edward D. Fox             Director, Chief Executive     April 29, 1998
____________________________________  Officer and President
           Edward D. Fox              (Principal Executive
                                      Officer)
      /s/ R. Bruce Andrews           Director                      April 29, 1998
____________________________________
          R. Bruce Andrews
       /s/ Robert Barnum             Director                      April 29, 1998
____________________________________
           Robert Barnum
      /s/ Fred W. Bruning            Director, Senior Vice         April 29, 1998
____________________________________  President--Chief Investment
          Fred W. Bruning             Officer
      /s/ Warner Heineman            Director                      April 29, 1998
____________________________________
          Warner Heineman
       /s/ Anthony Meyer             Director                      April 29, 1998
____________________________________
           Anthony Meyer
      /s/ Fred L. Riedman            Director                      April 29, 1998
____________________________________
          Fred L. Riedman
    /s/ Stuart J.S. Gulland          Senior Vice President--Chief  April 29, 1998
____________________________________  Financial Officer
        Stuart J.S. Gulland           (Principal Financial
                                      Officer)
      /s/ Edward A. Stokx            Controller (Principal         April 29, 1998
____________________________________  Accounting Officer)
          Edward A. Stokx
</TABLE>    
 
                                      S-1
<PAGE>
 
                                  EXHIBIT LIST
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER DESCRIPTION                                          INCORPORATION BY REFERENCE
 ------------------                                          --------------------------
 <C>      <S>                                              <C>
  3.1      Amended and Restated Charter of Alexander       Incorporated herein by
            Haagen Properties, Inc.                         reference to Exhibit 3.1 to
                                                            the Company's 1993 Form 10-
                                                            K.
  3.2      Amended and Restated Bylaws of Alexander        Incorporated herein by
            Haagen Properties, Inc.                         reference to Exhibit 3.2 to
                                                            the Company's Registration
                                                            Statement on Form S-11 (No.
                                                            33-70156).
  3.2a     First Amendment to Amended and Restated         Incorporated herein by
            Bylaws of Alexander Haagen Properties,          reference to Exhibit 3.2a to
            Inc., dated as of August 12, 1996.              the Company's 1996 Form 10-K
  4.1      Indenture, dated as of December 27, 1993,       Incorporated herein by
            between Alexander Haagen Properties, Inc.       reference to Exhibit 4.1 to
            and The First National Bank of Boston as        the Company's 1993 Form 10-
            Trustee with respect to the 7% Convertible      K.
            Subordinated Debentures due 2001, Series
            A.
  4.2      Specimen 7 1/2% Convertible Subordinated        Incorporated herein by
            Debenture due 2001, Series A.                   reference to Exhibit 4.2 to
                                                            the Company's 1993 Form 10-
                                                            K.
  4.3      Fiscal Agency Agreement, dated as of            Incorporated herein by
            December 27, 1993, between Alexander            reference to Exhibit 4.3 to
            Haagen Properties, Inc. and The First           the Company's 1993 Form 10-
            National Bank of Boston as Fiscal Agent         K.
            with respect to the 7 1/2% Convertible
            Subordinated Debentures due 2001, Series
            B.
  4.4      Form of 7 1/2% Convertible Subordinated         Incorporated herein by
            Debentures due 2001, Series B.                  reference to Exhibit 4.4 to
                                                            the Company's 1993 Form 10-
                                                            K.
  4.5      Specimen Common Stock Certificate.              Incorporated herein by
                                                            reference to Exhibit 4.5 to
                                                            the Company's 1993 Form 10-
                                                            K.
  4.6      Form of 7 1/4% Exchangeable Subordinated        Incorporated herein by
            Debentures due 2003 of Alexander Haagen         reference to Exhibit 4.6 to
            Properties, L.P.                                the Company's 1993 Form 10-
                                                            K.
 10.1     Agreement of Limited Partnership of Alexander    Incorporated herein by
           Haagen Properties Operating Partnership,         reference to Exhibit 10.1 to
           L.P., dated as of December 27, 1993.             the Company's 1993 Form 10-
                                                            K.
 10.2     Amendment No. 1 to the Agreement of Limited      Incorporated herein by
           Partnership of Alexander Haagen Properties       reference to Exhibit 10.2 to
           Operating Partnership, L.P., dated as of         the Company's Form 10-K for
           January 1, 1994.                                 the year ended December 31,
                                                            1994 (the "1994 10-K").
 10.3     Registration Rights Agreement, dated as of       Incorporated herein by
           December 27, 1993, among Alexander Haagen        reference to Exhibit 10.2 to
           Properties, Inc. and the persons named           the Company's Registration
           therein.                                         Statement on Form S-11 (No.
                                                            33-70156).
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER DESCRIPTION                                          INCORPORATION BY REFERENCE
 ------------------                                          --------------------------
 <C>      <S>                                              <C>
 10.4     Amended and Restated 1993 Stock Option and       Incorporated herein by
           Incentive Plan for Officers, Directors and       reference to the Company's
           Key Employees of Alexander Haagen                1996 Proxy Statement.
           Properties, Inc., Alexander Haagen
           Properties Operating Partnership, L.P., and
           Haagen Property Management, Inc.
 10.5     401(k) Plan and Trust Agreement of Alexander     Incorporated herein by
           Haagen Properties, Inc. and its affiliated       reference to Exhibit 10.4 to
           and related companies.                           the Company's 1993 Form 10-
                                                            K.
 10.6     Employment Agreement, dated as of December       Incorporated herein by
           27, 1993, among Alexander Haagen Properties,     reference to Exhibit 10.9 to
           Inc., Haagen Property Management, Inc. and       the Company's 1993 Form 10-
           Fred W. Bruning.                                 K.
 10.7     Form of Indemnification Agreement between        Incorporated herein by
           Alexander Haagen Properties, Inc. and its        reference to Exhibit 10.4 to
           directors and officers.                          the Company's Registration
                                                            Statement on Form S-11 (No.
                                                            33-70156).
 10.8     Purchase Agreement, dated as of December 27,     Incorporated herein by
           1993, among Alexander Haagen Properties          reference to Exhibit 10.12
           Operating Partnership, L.P., Merrill Lynch       to the Company's 1993 Form
           Global Allocation Fund, Inc., Merrill Lynch      10-K.
           Special Value Fund, Inc., Merrill Lynch
           Multinational Investment Portfolios
           Equity/Convertible Series (Global Allocation
           Portfolio), with respect to the 7%
           Exchangeable Subordinated Debentures due
           2003.
 10.9     Property Management Agreement, dated as of       Incorporated herein by
           December 27, 1993, between Haagen Property       reference to Exhibit 10.13
           Management, Inc. and Alexander Haagen            to the Company's 1993 Form
           Properties Operating Partnership, L.P.           10-K.
 10.10    Agreement for Transfer of Realty and Assets,     Incorporated herein by
           dated as of December 27, 1993, by and among      reference to Exhibit 10.14
           Alexander Haagen Properties Operating            to the Company's 1993 Form
           Partnership, L.P. and Montebello Commercial      10-K.
           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.
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER DESCRIPTION                                         INCORPORATION BY REFERENCE
 ------------------                                         --------------------------
 <C>      <S>                                             <C>
 10.11    Amendment No. 1 to Agreement for Transfer of    Incorporated herein by
           Realty and Assets, dated as of December 27,     reference to Exhibit 10.15
           1993, by and among Alexander Haagen             to the Company's 1993 Form
           Properties Operating Partnership, L.P. and      10-K.
           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.
 10.12    Agreement for Transfer of Realty and Assets,    Incorporated herein by
           dated as of December 27, 1993, by and among     reference to Exhibit 10.16
           Alexander Haagen Properties, Inc., Alexander    to the Company's 1993 Form
           Haagen, Sr. and Charlotte Haagen, Co-           10-K.
           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.
 10.13    Amendment No. 1 to Agreement for Transfer of    Incorporated herein by
           Realty and Assets, dated as of December 27,     reference to Exhibit 10.17
           1993, by and among Alexander Haagen             to the Company's 1993 Form
           Properties, Inc., Alexander Haagen, Sr. and     10-K.
           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.
 10.14    Partnership Interests Exchange Agreement,       Incorporated herein by
           dated as of December 27, 1993, by and among     reference to Exhibit 10.18
           Alexander Haagen Properties, Inc., Alexander    to the Company's 1993 Form
           Haagen, Sr. and Charlotte Haagen, Co-           10-K.
           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.
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER DESCRIPTION                                          INCORPORATION BY REFERENCE
 ------------------                                          --------------------------
 <C>      <S>                                              <C>
 10.15    Partnership Interests Exchange Agreement         Incorporated herein by
           between Willowbrook General Partnership and      reference to Exhibit 10.19
           Alexander Haagen Operating Partnership,          to the Company's 1993 Form
           L.P., dated as of December 27, 1993.             10-K.
 10.16    Contribution Agreement, dated as of December     Incorporated herein by
           27, 1993, between Alexander Haagen               reference to Exhibit 10.20
           Properties Operating Partnership, L.P. and       to the Company's 1993 Form
           Alexander Haagen Properties, Inc.                10-K.
 10.17    Amendment No. 1 to Contribution Agreement        Incorporated herein by
           between Alexander Haagen Properties              reference to Exhibit 10.21
           Operating Partnership, L.P. and Alexander        to the Company's 1993 Form
           Haagen Properties, Inc., dated as of             10-K.
           December 27, 1993.
 10.18    Option Properties Agreement, dated as of         Incorporated herein by
           December 27, 1993, among Haagen-Fontana          reference to Exhibit 10.22
           Partnership, Haagen-Alhambra Retail              to the Company's 1993 Form
           Partnership and Alexander Haagen Properties      10-K.
           Operating Partnership, L.P.
 10.19    Termination of Option Agreement, dated           Incorporated herein by
           November 30, 1994.                               reference to Exhibit 10.24
                                                            to the Company's 1994 Form
                                                            10-K.
 10.20    Development Properties Agreement, dated as of    Incorporated herein by
           December 27, 1993, among Haagen-Burbank          reference to Exhibit 10.23
           Partnership, Haagen-Fontana Partnership,         to the Company's 1993 Form
           Baldwin Hills Associates, Montebello             10-K.
           Commercial Properties, Haagen-San Francisco
           Partnership and Alexander Haagen Properties
           Operating Partnership, L.P.
 10.21    Form of Waiver and Recontribution Agreement      Incorporated herein by
           among Executive Officers and Alexander           reference to Exhibit 10.16
           Haagen Properties Operating Partnership,         to the Company's
           L.P.                                             Registration Statement on
                                                            Form S-11 (No. 33-70156).
 10.22    Form of Indemnity Agreement among Executive      Incorporated herein by
           Officers and Alexander Haagen Properties         reference to Exhibit 10.17
           Operating Partnership, L.P.                      to the Company's
                                                            Registration Statement on
                                                            Form S-11 (No. 33-70156).
 10.23    Registration Rights Agreement, dated as of       Incorporated herein by
           December 27, 1993, among Alexander Haagen        reference to Exhibit 10.26
           Properties, Inc. and Merrill Lynch Global        to the Company's 1993 Form
           Allocation Fund, Inc., Merrill Lynch Special     10-K.
           Value Fund, Inc., and Merrill Lynch
           Multinational Investment Portfolios
           Equity/Convertible Series (Global Allocation
           Portfolio).
 10.24    Indemnity Agreement, dated as of December 27,    Incorporated herein by
           1993, by Alexander Haagen Properties             reference to Exhibit 10.27
           Operating Partnership, L.P. to National          to the Company's 1993 Form
           Westminster Bank PLC, Capital Markets            10-K.
           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).
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER DESCRIPTION                                         INCORPORATION BY REFERENCE
 ------------------                                         --------------------------
 <C>      <S>                                             <C>
 10.25    Loan Agreement, dated as of March 15, 1995,     Incorporated herein by
           by and between the Alexander Haagen             reference to Exhibit 10.31
           Properties Finance Partnership, L.P. and        to the Company's Form 10-K.
           Nomura Asset Capital Corporation.
 10.26    First Amendment to the Amended and Restated     Incorporated herein by
           1993 Stock Option and Incentive Plan for        reference to Exhibit 10.33
           Officers, Directors and Key Employees of        to the Company's 1996 Form
           Alexander Haagen Properties, Inc. and Haagen    10-K
           Property Management, Inc.
 10.27    Second Amendment to Agreement of Limited        Incorporated herein by
           Partnership of Alexander Haagen Properties      reference to Exhibit 10.34
           Operating Partnership, L.P., dated as of        to the Company's 1996 Form
           March, 1995.                                    10-K
 10.28    Third Amendment to Agreement of Limited         Incorporated herein by
           Partnership of Alexander Haagen Properties      reference to Exhibit 10.35
           Operating Partnership, L.P., dated as of        to the Company's 1996 Form
           February 27, 1997.                              10-K
 10.29    Stock Purchase Agreement by and among           Incorporated herein by
           Prometheus Western Retail, LLC and LF           reference to the Company's
           Strategic Realty Investors, L.P. and            1997 Proxy Statement.
           Alexander Haagen Properties, Inc., dated as
           of June 1, 1997, incorporated herein by
           reference to the Company's 1997 Proxy
           Statement.
 10.30    Stockholders Agreement by and among Lazard      Incorporated herein by
           Freres Real Estate Investors, LLC, LF           reference to the Company's
           Strategic Realty Investors, L.P., Prometheus    1997 Proxy Statement.
           Western Realty Investors, LLC and Alexander
           Haagen Properties, Inc., dated as of June 1,
           1997.
 10.31    Registration Rights Agreement by and among      Incorporated herein by
           Alexander Haagen Properties, Inc. and           reference to the Company's
           Prometheus Western Retail, LLC, dated as of     1997 Proxy Statement.
           June 1, 1997.
 10.32    Third Amendment to the Amended and Restated     Incorporated herein by
           1993 Stock Option and Incentive Plan for        reference to the Company's
           Officers, Directors and Key Employees of        1997 Proxy Statement.
           Alexander Haagen Properties, Inc., Alexander
           Haagen Properties Operating Partnership,
           L.P. and Haagen Property Management, Inc.
 10.33    Fourth Amendment to the Amended and Restated    Incorporated herein by
           1993 Stock Option and Incentive Plan for        reference to the Company's
           Officers, Directors and Key Employees of        1997 Proxy Statement.
           Alexander Haagen Properties, Inc., Alexander
           Haagen Properties Operating Partnership,
           L.P. and Haagen Property Management, Inc.
</TABLE>
 
<PAGE>
 
<TABLE>   
<CAPTION>
EXHIBIT
NUMBER                    DESCRIPTION                     INCORPORATION BY REFERENCE
-------                   -----------                     --------------------------
<S>      <C>                                            <C>
10.34    Separation Agreement and Release by and        Incorporated herein by
          between Alexander Haagen, Sr., Alexander       reference to Exhibit No. 1 to
          Haagen, III, Charlotte Haagen, Autumn Haagen,  Amendment #4 to the 13D filed
          Alexander Haagen III & Betty Haagen Trust fbo  by Prometheus Western Retail,
          Alexander Haagen IV UA 10/24/88, Alexander     LLC and LF Strategic
          Haagen III & Betty Haagen Trust fbo Autumn     Investors, L.P. dated as of
          Haagen UA 10/24/88, Alexander Haagen III &     December 5, 1997.
          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.
10.35    Loan and Security Agreement by and between     Incorporated herein by
          Alexander Haagen Properties Operating          reference to Exhibit 10.35 to
          Partnership, L.P. and Fred W. Bruning, dated   the Company's 1997 Form 10-K.
          as of December 29, 1997.
10.36    Credit Agreement among Alexander Haagen        Incorporated by reference to
          Properties Operating Partnership, L.P, The     Exhibit 10.36 to the
          Chase Manhattan Bank, Chase Securities, Inc.,  Company's 1997 Form 10-K.
          Credit Lyonnais, New York Branch and CIBC,
          Inc., dated as of December 31, 1997.
21.1     Subsidiaries of the Company.                   Incorporated herein by
                                                         reference to Exhibit 10.34 to
                                                         the Company's 1995 Form 10-K.
23.1     Consent of Deloitte & Touche LLP.
 27      Financial Data Table                           Incorporated by reference to
                                                        Exhibit 27 to the Company's
                                                        1997 Form 10-K.
</TABLE>