<PAGE>

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

                                   FORM 10-K

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                        SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended                        Commission file number 0-18694
December 31, 1997

                             CATELLUS DEVELOPMENT
                                  CORPORATION

            (Exact name of Registrant as specified in its charter)

             Delaware                                  94-2953477
  (State or other jurisdiction of                   (I.R.S. Employer
  Incorporation or organization)                    Identification No.)

                              201 Mission Street
                        San Francisco, California 94105
             (Address of principal executive offices and zip code)

              Registrant's telephone number, including area code:
                                (415) 974-4500

Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange
      Title of each class                        on which registered
      -------------------                        -------------------
 Common Stock, $.01 par value per share       New York, Pacific, Chicago Stock
                                                        Exchanges

Securities registered pursuant to Section 12(g) of the Act:  None

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

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

   The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $1,581 million  on March 24, 1998.

   As of March 24, 1998, there were 106,601,235 issued and outstanding shares of
the Registrant's Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III.
================================================================================
<PAGE>

                                 PART I

ITEM 1.  BUSINESS

   Catellus Development Corporation (the "Company") is a diversified real estate
operating company with a large portfolio of income-producing properties and
developable land. The Company engages in a broad range of development activities
including industrial, residential and major mixed-use projects; has 18.1 million
square feet of income-producing properties; and believes it has one of the
largest portfolios of developable land in the western United States. Management
believes the Company's developable land, once entitled and approved, is capable
of supporting up to an estimated: 26.6 million square feet of industrial space;
11.6 million square feet of research and development (R&D), biotech and office
space; 21,000 residential units; 8.8 million square feet of central business
district (CBD) office space; and 2.2 million square feet of retail/entertainment
space. Approximately 78% of the income-producing properties and over 62% of its
total commercial development potential by square footage are located in
California.

   The Company was originally formed to conduct the non-railroad real estate
activities of the Santa Fe Pacific Corporation and was spun off to stockholders
in 1990. The Company's railroad heritage has given it a diverse base of
developable properties located near transportation corridors in major urban
areas. Over time, these properties have proven suitable for a variety of product
types (industrial, retail, office and residential), with many of the larger land
sites most suitable for large-scale mixed-use projects.

   Starting in the third quarter of 1994, the Company began assembling a new,
entrepreneurial and experienced management team focused on developing a new
strategic plan for the Company. The Company has built a well-rounded team of
over 40 professionals with a wide-ranging set of core competencies in
development, including entitlement experience, land-use planning, design-
construction, leasing, real estate finance and asset management. This group of
professionals has individual real estate experience ranging from 10 to 25 years.

   The new strategic plan implemented in 1995 was designed to improve the
capital structure and eliminate the historical operating deficits of the
Company; to optimize the value of the Company's portfolio and increase existing
revenue streams; and to capitalize on core competencies by expanding the
Company's existing activities outside of its historical asset base and, where
attractive, into related activities. In implementing this strategy, the Company
has:

  *  Increased EBDDT (earnings before depreciation, deferred taxes and non-
     recurring items) from $14.7 million in 1994 to $62.8 million in 1997, which
     represents growth of 62% compounded annually.

  *  Improved its financial flexibility by repaying debt and eliminating its
     preferred stock through redemptions and forced conversions. As a result,
     the ratio of debt and preferred stock to total market capitalization
     declined from 67% at December 31, 1994 to 21% at December 31, 1997, while
     the Company's fixed charge coverage ratio increased from 1.01:1 in 1994 to
     2.37:1 in 1997.

  *  Sold $179 million of non-strategic assets from January 1, 1995, through
     December 31, 1997, using the proceeds to pay down a portion of its existing
     debt and fund new development. In addition, at December 31, 1997, the
     Company had $ 58.8 million of such assets under contract or option for
     sale.

  *  Expanded the volume of industrial construction starts from 381,000 square
     feet in 1994 to 3.8 million in 1997.

  *  Increased its core competencies across a wide range of real estate
     activities and, through its March 1996 acquisition of The Akins Companies,
     which now operates as Catellus Residential Group (''CRG''), further
     augmented and diversified its core development capabilities.

                                       2
<PAGE>

  *  Developed asset management relationships with railroad operators.  The
     Company manages the non-railroad real estate of the Burlington Northern
     Santa Fe and provides inventory and other services to other railroads in
     the United States and Canada.

   The Company's principal office is located at 201 Mission Street, San
Francisco, California 94105; its telephone number at that location is (415) 974-
4500.

STRATEGY

   The Company intends to focus on increasing EBDDT by continuing to develop its
significant land portfolio, by acquiring new properties or businesses to support
additional development in existing business lines, and by continuing to provide
third-party fee development and management services. Also, the Company will
continue to focus on increasing cash flow from its portfolio of income-producing
assets and completing entitlements on its mixed-use projects.  In the future,
the Company will continue to assess the feasibility of entering into
complementary new related lines of business and refining or reconfiguring its
existing portfolio to take advantage of its experience in bringing
multidisciplinary real estate skills to complex situations, in the light of
opportunities presented and changing market conditions.


   DEVELOPMENT OPPORTUNITIES IN EXISTING LAND PORTFOLIO

   The Company's existing developable land portfolio, once entitled and
approved, can support an estimated 49.2 million square feet of new commercial
development (approximately 35.4 million square feet of which is already entitled
and approved) and an estimated 21,000 residential units. In 1998 and 1999, the
Company expects to increase its industrial and residential activity further and
to expand office, R&D and urban entertainment development in connection with its
major mixed-use projects. The chart below summarizes the estimated development
potential of the Company's current land holdings (including recent and pending
property acquisitions) as of December 31, 1997:

           POTENTIAL DEVELOPMENT SUPPLY FROM EXISTING LAND PORTFOLIO

<TABLE>
<CAPTION>

                                                              R&D BIOTECH      CBD        RETAIL
                                                  INDUSTRIAL    & OFFICE     OFFICE    ENTERTAINMENT     RESIDENTIAL
                                                  ----------  ------------  ---------  -------------  -----------------
                                                                     (IN SQUARE  FEET)                 (LOTS OR UNITS)

<S>                                               <C>         <C>           <C>        <C>            <C>
Industrial Land                                   25,630,000           --          --             --                --
Residential Land/(1)/                                     --           --          --             --            16,173
Mixed-Use Projects
    Mission Bay (San Francisco, California)               --    5,000,000          --        850,000             4,555
    Pacific Commons (Fremont, California)/(2)/     1,012,000    6,624,000          --        250,000                --
    Union Station (Los Angeles, California)               --           --   5,750,000        750,000                --
    Santa Fe Depot (San Diego, California)                --           --   3,000,000        300,000                --
                                                  ----------   ----------   ---------      ---------            ------
Total                                             26,642,000   11,624,000   8,750,000      2,150,000            20,728 (4)
                                                  ==========   ==========   =========      =========            ======

Entitled and Approved /(3)/                       25,569,000           --   8,750,000      1,050,000             6,263
Entitlements/Approvals In Progress                 1,073,000   11,624,000          --      1,100,000            14,465

</TABLE>


(1)  Some of these potential lots/units are not yet owned by the Company or a
     joint venture of the Company but are pending acquisitions or subject to
     options. See ''Development -- Residential'' for detail.
(2)  Although entitled, certain additional approvals need to be obtained. See
     "Mixed-Use Projects--Pacific Commons, Fremont, CA.''
(3)  Entitled means having the necessary discretionary local government
     approvals to proceed with development.
(4)  Approximately 5,437 of these lots/units are owned in joint ventures and
     4,613 are controlled. See detail of residential units on pages 15 and 16.

                                       3
<PAGE>

   ACQUISITION OF NEW DEVELOPMENT PROPERTIES

   The Company believes that its diverse capabilities and access to capital
provide it with a competitive advantage in identifying and acquiring additional
development opportunities. The Company focuses on markets with strong job
growth, strong real estate demand dynamics and constraints on the supply of real
estate. In 1997, the Company invested approximately $58.4 million in the
acquisition directly or through joint ventures of new property. Following is a
summary of the significant properties acquired.

  *  Talega Valley--The Company acquired a 3,470-acre residential land
     development project located in San Clemente, California purchased in a
     joint venture with Starwood Capital and Standard Pacific Corporation.
     Planned development upon completion of entitlements and approvals includes
     up to 4,965 homes and supporting amenities. Development of this project is
     expected to begin in mid-1998.

  *  Stapleton Business Park-- The Company acquired a 294-acre land site
     adjacent to the Stapleton Airport in Denver, Colorado. Development
     potential for this land is up to an estimated 3.4 million square feet of
     warehouse/distribution and light industrial space. Development of this
     project commenced in March 1998.

  *  Northern California Industrial and Residential Land Sites-- The Company
     acquired a 27-acre industrial site in Oakland, California, with a
     development potential of up to an estimated 550,000 square feet.
     Development of 277,000 square feet on this site began in the third quarter
     of 1997. The Company also purchased a 16-acre industrial site in San Jose
     with a development potential of an estimated 271,000 square feet and a 13-
     acre industrial site in Richmond with a development potential of an
     estimated 228,000 square feet. Development of these projects is expected to
     begin in mid-1998 . In addition, the Company has an option to acquire a
     220-acre site capable, upon completion of entitlements and approvals, of
     supporting up to an estimated 1,000 residential units in Hercules.
     Development on this project is expected to begin in early 2000.

  *  Southern California Industrial and Residential Land Sites-- The Company
     acquired a 62-acre industrial site in Mira Loma, California, with
     development potential of an estimated 1.4 million square feet. Development
     of 417,000 square feet began on this site in the fourth quarter of 1997.
     The Company also purchased a 27-acre, 122-lot land site in Tustin,
     California; a 31-acre, 96-lot site in Carlsbad, California; an 8-acre, 47-
     lot housing development in the Long Beach (California) Marina; and 44 acres
     in Playa del Rey, California, which upon completion of entitlements and
     approvals, will support development of 121 lots.

OPERATIONS

   The Company's operations consist of three principal business lines: income-
producing properties, development, and fee services. In addition, the Company
owns approximately 782,000 acres of desert land. The Company believes that the
combination of income-producing properties and development activities allows it
to benefit from the more stable cash flow of its income-producing properties
and, at the same time, to pursue higher-yielding, yet more volatile, development
activities. The tables below provide information on the Company's income-
producing assets, development assets, and other land holdings.

                                       4
<PAGE>

   Income-Producing Properties

   The following table provides information on the Company's income-producing
properties:

<TABLE>
<CAPTION>


                                                                                                           Property
                                               Number of            Square Feet Owned                Operating Income (1)
                                               ---------            -----------------                -------------------
                                               Properties
                                               ----------                    -
                                            As of  December 31,         As of December 31,               As of December 31,
                                             -----------------     --------------------------     ---------------------------------
                                               1997       1996      1997       1996      1995        1997         1996       1995
                                             ---------    ----    --------  ----------  ------    ----------  ------------  -------
                                                                        (in thousands)                        (in thousands)
<S>                                         <C>           <C>     <C>       <C>         <C>       <C>         <C>           <C>
Industrial................................          57      53      14,326     12,606   11,424       $52,657      $41,851   $39,523
Office....................................          13      14       1,620      1,683    1,687        16,960       15,746    16,483
Retail....................................          12      12         928        928      957         9,341        8,839     8,423
Land development /(2) (3)/................           4       4       1,220      1,231      100         4,296        3,337     1,578
Land leases...............................          55      54           -          -        -         7,029        6,705     6,171
Equity in earnings of joint ventures......
   owning income-producing properties.....           -       -           -          -        -         7,436        5,993     5,826
                                                  ----    ----      ------     ------   ------       -------      -------   -------
       Total..............................         141     137      18,094     16,448   14,168       $97,719      $82,471   $78,004
                                                  ====    ====      ======     ======   ======       =======      =======   =======
</TABLE>

(1)   Property operating income represents rental revenue less property
  operating costs.
(2)   This category represents interim income-producing uses of properties
  intended for mixed-use development.
(3)  The increase in square feet and income in 1996 reflects the inclusion of
  Mission Bay which was previously excluded because of capitalization of
  revenues and expenses.

                                       5
<PAGE>

   Leasing.   The following tables summarize leasing statistics for the
Company's income-producing properties:

<TABLE>
<CAPTION>
                                                                        As of December 31,
                                                                        ------------------
                                                              1997           1996            1995
                                                           ----------     -----------     -----------
<S>                                                        <C>            <C>             <C>
                                                                    (square feet in thousands)
Industrial buildings
  Square feet owned......................................     14,326          12,606          11,424
  Square feet leased.....................................     14,061          12,345          10,945
  Percent leased.........................................       98.2%           97.9%           95.8%
Office buildings
  Square feet owned......................................      1,620           1,683           1,687
  Square feet leased.....................................      1,547           1,460           1,553
  Percent leased.........................................       95.5%           86.7%           92.1%
Retail buildings
  Square feet owned......................................        928             928             957
  Square feet leased.....................................        870             874             883
  Percent leased.........................................       93.8%           94.2%           92.3%
Land development /(1) (3)/
  Square feet owned......................................      1,220           1,231             100
  Square feet leased.....................................        981           1,129             100
  Percent leased.........................................       80.4%           91.7%          100.0%
Total /(2)/
  Square feet owned......................................     18,094          16,448          14,168
  Square feet leased.....................................     17,459          15,808          13,481
  Percent leased.........................................       96.5%           96.1%           95.1%
</TABLE>

(1)  This category represents interim income-producing uses of properties
    intended for mixed-use development
(2)  Excludes joint venture properties
(3)  The increase in square feet in 1996 reflects the inclusion of Mission Bay
    which was previously excluded because of capitalization of revenues and
    expenses

   Lease Expirations   The following table summarizes the lease expirations in
the total portfolio as of December 31, 1997:

<TABLE>
<S>                                <C>     <C>     <C>     <C>     <C>     <C>    <C>     <C>    <C>    <C>
                                    1998    1999    2000    2001    2002   2003    2004   2005   2006   THEREAFTER
                                   -----   -----   -----   -----   -----   ----   -----   ----   ----   ----------
Percent /(1)/....................   13.1%    9.6%    9.7%   14.5%   15.7%   4.9%    6.0%   5.7%   4.0%        16.8%
Square feet (in thousands).......  2,291   1,684   1,698   2,526   2,738    858   1,052    990    701        2,921

(1)  Excludes properties owned by joint ventures.
</TABLE>
     Approximately 740,000 square feet of month-to-month leases are shown as
     expiring in 1998.

                                       6
<PAGE>

   Development

   The following table shows (in acres and by net book value) the Company's
owned developable properties:

<TABLE>
<CAPTION>
                                                    Acres                                  Net Book Value
                                                                                           --------------
                                              As of December 31,                          As of December 31,
                                              ------------------                          ------------------
                                          1997      1996      1995                1997         1996         1995
                                         --------  --------  --------           ----------  ------------  -----------
<S>                                      <C>       <C>       <C>                <C>         <C>           <C>
                                                                                          (in thousands)
Major Mixed Use Projects...............     1,026     1,171     1,156             $331,360     $323,134      $317,727
Industrial Development.................     1,991     1,838     1,671              118,535       93,783        76,170
Retail and Office Development and
   Other Land..........................     1,156     1,209     6,086               37,187       61,902        59,647
Residential Properties.................     2,006     1,955       550               73,480       44,939        14,522
                                            -----     -----     -----             --------     --------      --------
     Total.............................     6,179     6,173     9,463             $560,562     $523,758      $468,066
                                            =====     =====     =====             ========     ========      ========
</TABLE>

   Development Joint Ventures. The Company participates in some development
opportunities through joint ventures. These joint ventures include both land and
residential development partnerships. The following table sets forth the
investment account balance and the Company's share of income (loss) from these
joint ventures in the periods presented.

<TABLE>
<CAPTION>
                                             Investment Account Balance                   Company's Share of Income (Loss)
                                             --------------------------                   --------------------------------
                                                  As of December 31,                             As of December 31,
                                             --------------------------                      -------------------------
                                            1997        1996          1995                1997         1996         1995
                                         ----------  -----------  ------------         ----------  ------------  ----------
                                                    (in thousands)                                (in thousands)
<S>                                        <C>         <C>           <C>                <C>         <C>           <C>
Commercial Development.................     $ 4,067       $4,423        $4,830            $  908        $ (39)      $1,209
Residential Development................      12,506          583            --             1,215          797           --
                                            -------       ------        ------            ------        -----       ------
     Total.............................     $16,573       $5,006        $4,830            $2,123        $ 758       $1,209
                                            =======       ======        ======            ======        =====       ======
</TABLE>

   OTHER LAND HOLDINGS

   The table below shows (by acres and in net book value) land held by the
Company for other uses:

<TABLE>
<CAPTION>
                                                         Acres                                   Net Book Value
                                                                                                 --------------
                                                    As of December 31,                          As of December 31,
                                                    ------------------                          ------------------
                                              1997        1996        1995                1997        1996       1995
                                            --------    --------   --------             ---------   --------   ---------
<S>                                      <C>         <C>          <C>                <C>         <C>          <C>
                                                                                                (in thousands)

Resources Portfolio....................     782,361      789,899      833,844           $ 4,260     $ 2,299     $ 1,788
Properties Held For Sale...............      19,008       41,323       11,863            28,129      37,223      84,232
                                            -------      -------      -------           -------     -------     -------
     Total.............................     801,369      831,222      845,707           $32,389     $39,522     $86,020
                                            =======      =======      =======           =======     =======     =======
</TABLE>

                                       7
<PAGE>

Income-Producing Properties

   INDUSTRIAL

   At December 31, 1997, the Company's industrial income-producing portfolio
included 57 properties with 176 buildings aggregating 14.3 million square feet
that were 98.2% leased. At December 31, 1997, the Company also had 3.7 million
square feet under construction of which approximately 1.7 million square feet
is expected to be added to the Company's portfolio.


   The following table summarizes the Company's industrial buildings by region
as of or for the year ended December 31, 1997:

<TABLE>
<CAPTION>
                                                                                                   For the Year Ended
                                                                                       --------------------------------------------
                                                                                                        Property         Excess of
                                      Number of           Number of                                     Operating        Revenues
                                      Buildings           Properties    Square Feet     Revenues          Costs          over Costs
                                      ---------           ----------    ----------     ----------    -------------     ------------
                                                                       (in thousands)              (in thousands)
<S>                               <C>                    <C>            <C>          <C>                 <C>               <C>
Arizona.........................         12                    5           1,195        $ 4,901          $ 1,707          $ 3,194
Northern California.............         24                    6           2,683          9,834            1,951            7,883
Southern California.............        126                   37           8,270         43,096            8,710           34,386
Illinois........................          4                    1             791          3,740              977            2,763
Oklahoma and Kansas.............          4                    4             406          1,053              286              767
Texas...........................          6                    4             981          4,562              898            3,664
                                        ---                   --          ------        -------          -------          -------
          Total.................        176                   57          14,326        $67,186          $14,529          $52,657
                                        ===                   ==          ======        =======          =======          =======
</TABLE>


   The following table summarizes the lease expirations in the industrial
portfolio as of December 31, 1997:

<TABLE>
<S>                                <C>     <C>     <C>     <C>     <C>     <C>    <C>    <C>    <C>      <C>
                                    1998    1999    2000    2001    2002   2003   2004   2005   2006     THEREAFTER
                                   -----   -----   -----   -----   -----   ----   ----   ----   ----     ----------
Percent..........................   10.2%    9.8%    9.9%   14.5%   16.1%   5.1%   6.5%   6.4%   4.5%          17.0%
Square feet (in thousands).......  1,437   1,375   1,399   2,040   2,270    711    911    899    633          2,386
</TABLE>

   Of the 1,437,000 of leased square feet that is scheduled to expire in 1998,
58% are located in Southern California, 20% are located in Arizona and the
balance spread throughout the portfolio. Approximately 671,000 square feet of
month-to-month leases are shown as expiring in 1998.


  OFFICE

   At December 31, 1997, the Company's office income-producing portfolio
included 13 properties consisting of 25 buildings and aggregating approximately
1.6 million square feet. At December 31, 1997, this portfolio was 95.5% leased.
The Company's most significant office projects are the South Bay Center in San
Jose, California (428,000 square feet) and the Railway Exchange Building in
Chicago, Illinois (369,000 square feet).

                                       8
<PAGE>

   The following table summarizes the Company's office buildings by region as of
or for the year ended December 31, 1997:


<TABLE>
<CAPTION>
                                                                                                   For the Year Ended
                                                                                       --------------------------------------------
                                                                                                        Property         Excess of
                                      Number of           Number of                                     Operating        Revenues
                                      Buildings           Properties    Square Feet     Revenues          Costs          over Costs
                                      ---------           ----------    ----------     ----------    -------------     ------------
                                                                       (in thousands)              (in thousands)
<S>                                  <C>                <C>             <C>             <C>          <C>                <C>
Northern California.............         10                     3            525        $ 9,862        $ 3,244             $ 6,618
Southern California.............         12                     7            573          8,747          3,229               5,518
Illinois........................          2                     2            466         10,373          5,936               4,437
Oregon..........................          1                     1             56            712            346                 366
Texas...........................       sold          sold                     --             19             (2)                 21
                                         --          ------------          -----        -------        -------             -------
          Totals................         25                    13          1,620        $29,713        $12,753             $16,960
                                         ==                    ==          =====        =======        =======             =======
</TABLE>

   The following table summarizes the lease expirations in the office portfolio
as of December 31, 1997:

<TABLE>
<S>                                <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
                                   1998   1999   2000   2001   2002   2003   2004   2005   2006   THEREAFTER
                                   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----------
Percent..........................  10.2%  10.5%   7.6%  21.2%  26.4%   7.2%   3.3%   0.0%   2.3%        11.3%
Square feet (in thousands).......   158    162    118    328    409    112     51      0     35          174
</TABLE>

   Of the 158,000 square feet of lease space that is scheduled to expire in
1998, 46% of such space is located in Southern California, 28% in Northern
California and the balance spread throughout the portfolio. Approximately 46,000
square feet of month-to-month leases are shown as expiring in 1998.

   RETAIL

   At December 31, 1997, the Company's retail income-producing portfolio
included 12 properties consisting of 24 buildings and aggregating 928,000 square
feet. At December 31, 1997, the retail portfolio was 93.8% leased. The Company's
retail properties are located primarily in Northern and Southern California,
with one complex in each of Colorado and Oregon. The largest retail project,
East Baybridge Center, is located on 40 acres near San Francisco in the cities
of Emeryville and Oakland. The 269,000-square-foot Phase I of this project
opened in mid-1994 and was pre-leased to such national retailers as Home Depot,
Sportmart, OfficeMax, Safeway's Pak 'n Save, and CompUSA. A 117,000-square-foot
building for Kmart was added to the center in late 1995.

   The following table summarizes the Company's retail portfolio by region as of
or for the year ended December 31, 1997:

<TABLE>
<CAPTION>
                                                                                                   For the Year Ended
                                                                                       --------------------------------------------
                                                                                                        Property         Excess of
                                      Number of           Number of                                     Operating        Revenues
                                      Buildings           Properties    Square Feet     Revenues          Costs          over Costs
                                      ---------           ----------    ----------     ----------    -------------     ------------
                                                                       (in thousands)              (in thousands)
<S>                                      <C>                 <C>          <C>           <C>           <C>               <C>
Northern California.......               9                    3            460           $ 7,465           $2,079          $5,386
Southern California.......              12                    7            330             4,163            1,168           2,995
Colorado..................               1                    1            100             1,116              531             585
Oregon....................               2                    1             38               529              154             375
                                        --                   --            ---           -------           ------          ------
        Total.............              24                   12            928           $13,273           $3,932          $9,341
                                        ==                   ==            ===           =======           ======          ======
</TABLE>

                                       9
<PAGE>


   The following table summarizes the lease expirations in the retail portfolio
as of December 31, 1997:

<TABLE>
<S>                                  <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
                                     1998   1999   2000   2001   2002   2003   2004   2005   2006   THEREAFTER
                                     ----   ----   ----   ----   ----   ----   ----   ----   ----   ----------
Percent............................  10.8%   3.7%  13.6%   7.8%   4.3%   4.0%  10.4%   0.6%   3.4%        41.4%
Square feet (in thousands).........    94     32    118     68     37     35     90      5     30          361
</TABLE>

   Of the 94,000 square feet expiring in 1998, 56% is located in Southern
California and the balance spread across the rest of the portfolio.
Approximately 23,000 square feet of month-to-month leases are shown as expiring
in 1998.

   LAND LEASES

   The following table summarizes the Company's land leases by region as of or
for the year ended December 31, 1997:

<TABLE>
<CAPTION>

                                                                           FOR THE YEAR ENDED
                                                                 ------------------------------------
                                                                                              EXCESS
                                                                                                OF
                                                                                PROPERTY     REVENUES
                                          NUMBER OF                            OPERATING       OVER
                                           LEASES      ACRES      REVENUE        COSTS        COSTS
                                          ---------  ----------  ----------  -------------   --------


<S>                                         <C>        <C>         <C>         <C>            <C>
                                                                          (IN THOUSANDS)
Arizona.................................          4          16      $  119          $ 36     $   83
Northern California.....................          5          24         565           106        459
Southern California.....................         45       5,297       6,539           687      5,852
Texas...................................          1           5         705            70        635
                                                 --       -----      ------          ----     ------
   Total................................         55       5,342      $7,928          $899     $7,029
                                                 ==       =====      ======          ====     ======
</TABLE>

   In February 1998, the Company executed a contract subject to various
conditions to acquire a large portfolio of land valued at approximately $55
million in the aggregate. The majority of this portfolio is subject to existing
land leases. The first of three closings occurred on February 23, 1998, in the
amount of $32.5 million.  Subsequent closings are scheduled to occur in April
and July 1998. There can be no assurances that all conditions for the remaining
closings will be satisfied.

                                       10
<PAGE>

   Income - Producing Joint Ventures

   The Company has direct or indirect equity interests in five joint ventures
that own income-producing properties. These joint ventures provided cash
distributions to the Company of $9.1 million for the year ended December 31,
1997, and equity in earnings of $7.4 million for the same period. The Company is
engaged in discussions concerning the possible sale of certain joint venture
interests, but there can be no assurances that any sale will be closed. As of
December 31, 1997, the Company owns joint venture interests in the following
income-producing properties in addition to its joint venture interests in
development properties described under "Development--Joint Ventures":



<TABLE>
<CAPTION>
                                                                                          Equity in Earnings (Losses)
                                                                               ---------------------------------------------
                                                                                                     Year
                                                                                                     Ended
                                No. of                             Ownership                       December 31,
                                                                               ---------------------------------------------
   TYPE                        Ventures            Size             Interest          1997           1996           1995
   ----                     ---------------  -----------------  ----------------  -------------  -------------  -------------
<S>                         <C>              <C>                <C>               <C>            <C>            <C>
                                                                                                 (in thousands)

Hotel.....................       2           2,000 rooms             25-50%          $7,321         $6,739         $6,520
Office....................       1           205,000 sq. ft.           67%               73           (568)          (243)
Apartments................       1           387 units                 50%               42           (178)          (451)
Furniture Mart............       1           1,200,000 sq. ft.         72%                -              -              -
                                                                                     ------         ------         ------
     Total................                                                           $7,436         $5,993         $5,826
                                                                                     ======         ======         ======
</TABLE>


DEVELOPMENT

   Industrial

  The Company's industrial activities include (1) the construction of buildings,
on owned land, for pre-arranged sales to users (build to sell), (2) the
construction of pre-leased buildings (build-to-suit)/and speculative buildings
to be added to the Company's income-producing portfolio, (3) the construction of
buildings for pre-arranged sales to investors (pre-sale), and (4) the sale of
land parcels to third parties for their own development. In certain instances,
the Company provides construction management services to third party purchasers
of land.

   For 1997, the Company commenced construction on 3.8 million square feet of
new industrial development and completed approximately 2.4 million square feet
of industrial construction.  Of the completed development, 2.1 million square
feet were added to the Company's income-producing portfolio and the remainder
were sold.

   The Company intends to continue expanding industrial development activity.
Approximately 1,991 acres of the Company's industrial land in 17 separate
locations would, once fully entitled and approved, support the development of up
to 26.6 million square feet of industrial development.

                                       11
<PAGE>

   The following table summarizes industrial development land by location as of
December 31, 1997:


<TABLE>
<CAPTION>
                                                                                                                       Potential
                                                    Potential                                                          Sq. Ft. of
                                          Acres  Developed Space    Revisions &                  Land               Developed Space
                                        12/31/97    12/31/96      Transfers /(1)/  Acquisitions  Sales   Development   12/31/97
                                          -----  ---------------  --------------   ------------  -----   ----------- --------------
                                                                       (square feet in thousands)
<S>                                       <C>    <C>              <C>              <C>           <C>     <C>         <C>
Southern California
  City of Industry......................     9.6       707             47              -        (193)         (365)              196
  La Mirada (held in joint venture).....    20.3       594              -              -           -          (237)              357

  Mira Loma.............................    44.9         -              -          1,380           -          (418)              962

  Ontario...............................   208.7     4,012             80              -           -          (739)            3,353

  Rancho Cucamonga......................    32.6       635              -              -           -             -               635

  Santa Fe Springs......................     2.0       245             12              -           -          (218)               39

  Anaheim/SF Corp. Center...............               224              -              -        (224)            -                 -

  Northpoint-Fullerton, CA..............                 -             68              -           -           (68)                -

Northern California
  Richmond..............................    54.5       608              -            227           -          (131)              704

  San Jose..............................    15.5         -              -            272           -             -               272

  Fremont /(2)/.........................    65.7     2,276           (926)             -           -          (338)            1,012

  Oakland...............................    13.9         -              -            553           -          (277)              276

  Livermore.............................       -         -             43              -           -           (43)                -
                                         -------    ------           ----          -----  ----------        ------      ------------
Total in California.....................   467.7     9,301           (676)         2,432        (417)       (2,834)            7,806
                                         -------    ------           ----          -----  ----------        ------      ------------

Chicago, Illinois
  International Centre, Woodridge          379.1     5,550              -              -           -          (833)            4,717

  Romeoville............................   140.5     2,004              -              -           -             -             2,004

Dallas, Texas
  Coppell...............................   171.6     2,984              -              -           -             -             2,984

  Garland...............................    48.9     1,423              -              -        (252)         (224)              947

Denver, Colorado........................   294.2         -              -          3,396           -             -             3,396

Phoenix, Arizona........................   214.3     3,553              -              -           -             -             3,553

Oklahoma City, Oklahoma.................   274.5     1,235              -              -           -             -             1,235
                                         -------    ------           ----          -----  ----------        ------      ------------
Total outside of California............. 1,523.1    16,749              -          3,396        (252)       (1,057)           18,836
                                         -------    ------           ----          -----  ----------        ------      ------------

Total................................... 1,990.8    26,050           (676)         5,828        (669)       (3,891)     26,642 /(3)/

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

</TABLE>



(1) Includes revisions to estimates of potential development or building size,
    or transfers of property between industrial development and other categories
    of property.
(2) The acreage at Fremont represents the estimated industrial development at
    the Company's 840-acre mixed-use project, Pacific Commons in Fremont. The
    remainder of the developable acreage at Pacific Commons will be research and
    development facilities, flex-tech, office and retail.
(3) Includes 1.1 million square feet for which  entitlements are in progress
    (635,000 square feet in Rancho Cucamonga and 438,000 square feet in
    Fremont).  The remainder is entitled.

   Because entitlement depends on discretionary government decisions as well as
the results of a variety of predevelopment studies undertaken at various points
in the planning for a project, there can be no assurances that the potential
square feet of entitlements will in fact be received or, if received, will
permit timely development in the light of market conditions.

                                       12
<PAGE>

   The following table summarizes the Company's industrial development
activities during the periods presented:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                      --------------------------
                                                            1997                    1996                1995
                                                       --------------          --------------       -------------
<S>                                                    <C>             <C>     <C>                  <C>
                                                                                 (square feet)
Under construction, beginning of period..............      2,286,961                 641,128             337,136
Construction starts..................................      3,804,000   /(1)/       3,259,308             791,846
Completed - Retained in portfolio....................     (2,089,200)             (1,269,525)           (437,604)
Completed - Sold.....................................       (308,761)               (343,950)            (50,250)
                                                          ----------              ----------            --------
 Under construction, end of period...................      3,693,000    /(2)/     2,286,961             641,128
                                                          ==========              ==========            ========

</TABLE>

(1) The Company's total commercial construction starts in 1997 were 3.9
    million square feet which included 81,000 square feet of retail
    development.
(2) Includes 925,000 square feet of "design-build" development for third-party
    landowners.


   The following table summarizes the Company's sales of industrial development
property in the periods presented:

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                         --------------------------
                                                                    1997              1996              1995
                                                                ------------     --------------     ------------
<S>                                                             <C>              <C>                <C>
                                                                                      (in thousands)
Sales.........................................................       $39,587           $40,525            $3,224
Cost of Sales.................................................        31,717            26,709             2,271
                                                                     -------           -------            ------
   Gain.......................................................       $ 7,870           $13,816            $  953
                                                                     =======           =======            ======
</TABLE>


  RESIDENTIAL

   In March 1996, the Company acquired The Akins Companies (''Akins''), a
residential real estate company consisting of a diversified group of entities
involved in home-building, community development and project management
activities. Akins is now called Catellus Residential Group ("CRG").  CRG has
three operating divisions:

  *  Community Development, which identifies and develops large-scale
     residential communities in prime housing markets;

  *  Merchant Housing, which designs, builds and markets a variety of for-sale
     products, from entry-level to estate homes; and

  *  Urban Housing, which develops and markets affordable rental and for-sale
     housing, primarily within high-density urban areas, as well as
     institutional housing such as faculty and student housing for universities.

     In 1997, the Company invested approximately $28.3 million in the
acquisition of residential property directly or through joint ventures
including:

  *  a 44-acre, 121-lot land site in Playa del Rey, California.

  *  a 31-acre, 96-lot land site in Carlsbad, California.

                                       13
<PAGE>

  *  an 8-acre, 47-lot land site in the Long Beach (California) Marina.

  *  a 27-acre, 122-lot land site in Tustin, California.

  *  A 3,470-acre, 4,965-lot residential land development project (Talega
     Valley) located in San Clemente, California, through a joint venture.

   In April, 1997, CRG, along with a proposed co-investor, responded to a
Department of Defense (''DOD'') Request for Proposal (''RFP'') for the
rehabilitation and construction of approximately 2,600 housing units at Fort
Carson, Colorado. The DOD considers up-to-date housing with amenities critical
to recruiting and retaining qualified personnel in the all-volunteer military,
and the Fort Carson project is the first RFP under an overall DOD program to
rehabilitate or construct 300,000 housing units for military personnel. The
Department of the Army (''DOA'') has indicated that CRG and its proposed co-
investor are the ''apparent selected offeror'' for the Fort Carson project.
There has been a lawsuit challenging the designation of CRG and its proposed
co-investor by a competing offeror. CRG is continuing its discussions with the
DOA. There can be no assurance that CRG will successfully negotiate the
agreements necessary to consummate the transaction.

   The rehabilitation and development of military housing is a new development
opportunity for the Company. CRG may respond to future RFPs for additional
projects under this program. There can be no assurances that CRG will be awarded
any contracts as a result of its responses to future RFPs.



                                       14
<PAGE>

The following table summarizes the Company's residential properties:

<TABLE>
<CAPTION>

                                                                                            Units/Lots at December 31, 1997
                                                                                            -------------------------------
                                                     OWNERSHIP/             Original                     TOTAL         TOTAL LOTS
                                                       PROFIT             TOTAL UNITS/    Total Units/  ENTITLED          WITH
                                                      INTEREST   ACRES       LOTS            LOTS         LOTS       ENTITLEMENTS
                                                     12/31/97   12/31/97                                               IN PROGRESS
                                                      -----------------------------------------------------------------------------
Owned Properties
-----------------------------------------------------
<S>                                                 <C>          <C>      <C>            <C>           <C>            <C>
Lakeside  Buena Park, California                     100%       53             350              174            174           -
Tracy, California                                    100%      450           2,400            2,400              -       2,400
Stockton, California                                 100%      398             800              800              -         800
Clodine, Texas                                       100%      877           2,100            2,100              -       2,100
Oakcliff, Texas                                      100%      110             285              285              -         285
Foothill Glen  Union City, California                100%       35             255              100            100           -
Ocean Bluffs  Carlsbad, California /(1)/             100%       31              96               96             96           -
Spinnaker Bay  Long Beach, California /(1)/          100%        8              47               47             47           -
Westbluffs  Playa del Rey, California /(1)/          100%       44             121              121              -         121
                                                        ----------------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES                                    2,006           6,454            6,123            417       5,706
                                                        ----------------------------------------------------------------------

JOINT VENTURE PROPERTIES
----------------------------------------------------
Talega  San Clemente, California                      33%    3,470           4,965            4,965          2,405       2,560
Signature Collection  Newport Beach, California       50%        8              30                8              8           -
Vidorra  Tustin, California /(1)/                     50%       22             122              105            105           -
Vista Ladera  Stevenson Ranch, California             50%        5              55               23             23           -
Ridgemoor  Rowland Heights, California                25%       62             394              116            116           -
Kentwood Collection  Westchester, California          50%        -              49                -              -           -
Bridgecourt Apartments  Emeryville, California /(2)/  50%        2             220              220            220           -
                                                        ----------------------------------------------------------------------
SUBTOTAL JOINT VENTURE PROPERTIES                            3,569           5,835            5,437          2,877       2,560
                                                        ----------------------------------------------------------------------

CONTROLLED PROPERTIES /(3)/
----------------------------------------------------
Chino Hills, California                              100%      279             215              215              -         215
Hercules, California                                 100%      220           1,000            1,000              -       1,000
Summerland Huntington Beach, California /(1)/        100%       48             345              345              -         345
Cypress Irvine, California /(1)/                     100%       45             104              104            104           -
Shriners San Francisco, California /(1)/              80%        5              84               84              -          84
La Quinta California                                 100%       40             201              201            201           -
Fort Carson Colorado Springs, Colorado                90%      598           2,664            2,664          2,664           -
                                                        ----------------------------------------------------------------------
SUBTOTAL CONTROLLED PROPERTIES                               1,235           4,613            4,613          2,969       1,644
                                                        ----------------------------------------------------------------------

MISSION BAY /(4)/
----------------------------------------------------
Mission Bay                                          100%       65           4,555            4,555              -       4,555
                                                        ----------------------------------------------------------------------
SUBTOTAL MISSION BAY                                            65           4,555            4,555              -       4,555
                                                        ----------------------------------------------------------------------
SUBTOTAL OWNED/JV/CONTROLLED/MISSION BAY PROPERTIES          6,875          21,457           20,728          6,263      14,465
                                                        ----------------------------------------------------------------------

MANAGED PROPERTIES
----------------------------------------------------
Marbella - San Juan Capistrano, California                                                        1              1           -
Irvine Pacific Condos- Orange, California                                                         6              6           -
UC Davis Student Housing - Davis, California /(2)/                                              181            181           -
                                                        ----------------------------------------------------------------------
SUBTOTAL MANAGED PROPERTIES                                      -               -              188            188           -
                                                        ----------------------------------------------------------------------
TOTAL - ALL PROPERTIES                                       6,875          21,457           20,916          6,451      14,465
                                                        ======================================================================

</TABLE>

(1) Acquired in 1997 for development by the Catellus Residential Group's
    Merchant Housing Unit.
(2) Rental Property.
(3) Represents properties which the Company does not currently own but which it
    has entered into contractual relationships to acquire, such as letters of
    intent, purchase agreements with customary conditions precedent, option
    agreements and other similar arrangements.  There can be no assurance the
    Company will actually acquire these properties.
(4) The 65-acres at Mission Bay are reflected in "Major Mixed-Use Projects" in
    the table on page 7 that shows development by acres and net book value.

                                       15
<PAGE>

    The following table summarizes the Company's residential property activities
  in 1996 and 1997:

<TABLE>
<CAPTION>

                                                               1996 ACTIVITY                                1997 ACTIVITY
                                                      -------------------------------------      -----------------------------------

                                                        TOTAL                         TOTAL                              TOTAL
                                                     LOTS/UNITS      UNIT    LOT   LOTS/UNITS         UNIT    LOT       LOTS/UNITS
                                                        1/1/96  ACQ. SALES  SALES   12/31/96     ACQ. SALES  SALES       12/31/97
                                                      -------------------------------------      -----------------------------------

OWNED PROPERTIES
------------------------------------------------------
<S>                                                    <C>     <C>   <C>    <C>    <C>           <C>  <C>    <C>        <C>
Lakeside  Buena Park, California                          350     -      -      -         350       -      -    176         174
Tracy, California                                       2,400     -      -      -       2,400       -      -      -       2,400
Stockton, California                                      800     -      -      -         800       -      -      -         800
Clodine, Texas                                          2,100     -      -      -       2,100       -      -      -       2,100
Oakcliff, Texas                                           285     -      -      -         285       -      -      -         285
Foothill Glen  Union City, California                     255     -      -    155         100       -      -      -         100
Ocean Bluffs  Carlsbad, California /(1)/                    -     -      -      -           -      96      -      -          96
Spinnaker Bay  Long Beach, California /(1)/                 -     -      -      -           -      47      -      -          47
Westbluffs  Playa del Rey, California /(1)/                 -     -      -      -           -     121      -      -         121
                                                     ----------------------------------------  --------------------------------
SUBTOTAL OWNED PROPERTIES                               6,190     -      -    155       6,035     264      -    176       6,123
                                                     ----------------------------------------  --------------------------------

JOINT VENTURE PROPERTIES
-----------------------------------------------------
Talega  San Clemente, California                            -     -      -      -           -   4,965      -      -       4,965
Signature Collection  Newport Beach, California             -    30      -      -          30       -     22      -           8
Vidorra  Tustin, California /(1)/                           -     -      -      -           -     122     17      -         105
Vista Ladera  Stevenson Ranch, California                   -    55      -      -          55       -     32      -          23
Ridgemoor  Rowland Heights, California                    347     -    108      -         239       -    123      -         116
Kentwood Collection  Westchester, California               49     -     22      -          27       -     27      -           -
Bridgecourt Apartments  Emeryville, California /(2)/      220     -      -      -         220       -      -      -         220
                                                     ----------------------------------------  --------------------------------
SUBTOTAL JOINT VENTURE PROPERTIES                         616    85    130      -         571   5,087    221      -       5,437
                                                     ----------------------------------------  --------------------------------

CONTROLLED PROPERTIES /(3)/
-----------------------------------------------------
Chino Hills, California                                   215     -      -      -         215       -      -      -         215
Hercules, California                                        -     -      -      -           -   1,000      -      -       1,000
Summerland  Huntington Beach, California /(1)/              -     -      -      -           -     345      -      -         345
Cypress  Irvine, California /(1)/                           -     -      -      -           -     104      -      -         104
Shriners  San Francisco, California /(1)/                   -     -      -      -           -      84      -      -          84
La Quinta  California                                       -     -      -      -           -     201      -      -         201
Fort Carson  Colorado Springs, Colorado                     -     -      -      -           -   2,664      -      -       2,664
                                                     ----------------------------------------  --------------------------------
SUBTOTAL CONTROLLED PROPERTIES                            215     -      -      -         215   4,398      -      -       4,613
                                                     ----------------------------------------  --------------------------------

MISSION BAY /(4)/
-----------------------------------------------------
Mission Bay                                             4,555     -      -      -       4,555       -      -      -       4,555
                                                     ----------------------------------------  --------------------------------
SUBTOTAL MISSION BAY                                    4,555     -      -      -       4,555       -      -      -       4,555
                                                     ----------------------------------------  --------------------------------
                                                       11,576    85    130    155      11,376   9,749    221    176      20,728
Subtotal Owned/JV/Controlled/   Mission Bay Properties
                                                     ----------------------------------------  --------------------------------

MANAGED PROPERTIES
-----------------------------------------------------
Marbella - San Juan Capistrano, California                 39     -     13      -          26       -     25      -           1
Irvine Pacific Condos- Orange, California                 136     -     56      -          80       -     74      -           6
UC Irvine Faculty Housing - Irvine, California              -     -      -      -           -      86     86      -           -
UC Davis Student Housing - Davis, California /(2)/          -     -      -      -           -     181      -      -         181
                                                     ----------------------------------------  --------------------------------
SUBTOTAL MANAGED PROPERTIES                               175     -     69      -         106     267    185      -         188
                                                     ----------------------------------------  --------------------------------
TOTAL - ALL PROPERTIES                                 11,751    85    199    155      11,482  10,016    406    176      20,916
                                                     ==========================================================================
</TABLE>

(1) Acquired in 1997 for development by the Catellus Residential Group's
    Merchant Housing Unit.
(2) Rental Property.
(3) Represents properties which the Company does not currently own but which it
    has entered into contractual relationships to acquire, such as letters of
    intent, purchase agreements with customary conditions precedent, option
    agreements and other similar arrangements.  There can be no assurance the
    Company will actually acquire these properties.
(4) The 65-acres at Mission Bay are reflected in "Major Mixed-Use Projects" in
    the table on page 7 that shows development by acres and net book value.

                                       16
<PAGE>

   Sales.   The following table summarizes the Company's sales of residential
development property, which include finished lots and housing units, for the
periods presented:

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                                ------------------------
                                                                      1997              1996              1995
                                                                  ------------     --------------     -------------
<S>                                                               <C>              <C>                <C>
                                                                                   (in thousands)
Sales...........................................................       $82,632           $21,945              $   -
Cost of Sales...................................................        77,305            20,138                  -
                                                                       -------           -------      -------------
   Gain.........................................................       $ 5,327           $ 1,807              $   -
                                                                       =======           =======      =============
</TABLE>


   MIXED-USE PROJECTS


   The Company's land portfolio includes four major mixed-use development sites,
which include development for residential, office, retail and entertainment
purposes.  The Company is currently in negotiation for the acquisition of a
fifth development site.

   Pacific Commons, Fremont, CA. Pacific Commons, which management believes is
the largest planned business park in Silicon Valley, consists of 840 acres
adjacent to I-880 sixteen miles north of San Jose.

   In late 1996, the Company received the necessary entitlements from the City
of Fremont for 8.5 million square feet of development, including 8.25 million
square feet of R&D, light industrial, warehouse/distribution, and corporate
campus space, as well as 250,000 square feet of retail space. At year-end, the
company completed the 376,000-square-foot Office Depot distribution facility.
In August 1997, construction was started on two buildings, a 51,000-square-foot
research and development facility and a 187,000-square-foot light industrial
building.  In 1997, the Company received habitat mitigation approvals necessary
to proceed with approximately 1.2 million square feet of development on a 78-
acre portion of the project, which is the site of the three buildings described
above and can support up to 574,000 square feet of additional development.

   The Company is currently working with the City of Fremont and various
federal, state, and local agencies to address the impact of the rest of the
proposed Pacific Commons development on wetlands and special status species.
Based on the results of the predevelopment species and wetland surveys, the
Company and the City of Fremont intend to file during the second quarter of
1998, all remaining documentation to apply for a permit to undertake the
proposed development activities, including a detailed mitigation design proposal
for the project. Discussions with various federal and state agencies concerning
the mitigation measures necessary for the site are continuing and the amount of
additional area that will ultimately be available for development will be
identified as these discussions proceed in coming months. There can be no
assurances that the necessary government approvals will be obtained for the
development of the remainder of the park, or that the timing of entitlements, if
obtained, will coincide with market conditions.

   Mission Bay, San Francisco, CA. The Company owns 166.9 acres of property in
San Francisco adjacent to downtown, which is part of an approximately 300-acre
mixed-use development project known as Mission Bay. The balance of the project
is primarily owned by the City and the Port of San Francisco. The current
proposed development for Mission Bay will include projects to be developed by
the Company and third parties up to the following:

                                       17
<PAGE>

<TABLE>
<CAPTION>                                                             Owned
                                                           Company     By
                                                            Owned     Others     Total
                                                           --------  --------  ---------
<S>       <C>                                             <C>         <C>       <C>
          Residential - Market Rate(units).............        4,300         -      4,300
                        Affordable(units)..............          255     1,445      1,700
                                                               -----     -----      -----
          Total........................................        4,555     1,445      6,000
                                                               =====     =====      =====

          R&D, Biotech, & office (sq. ft. in thousands)        5,000        --      5,000
          Retail and entertainment (sq. ft. in                   850        --        850
          thousands)...................................
          UCSF Campus (sq. ft. in thousands)...........           --     2,650      2,650
                                                               -----     -----      -----
          Total........................................        5,850     2,650      8,500
                                                               =====     =====      =====

          Hotel - (rooms)..............................          500                  500
                                                               =====                =====
</TABLE>

   In September 1996, the Mayor of San Francisco forwarded to various city
agencies a non-binding conceptual framework for the development of an
approximately 65-acre portion (''Mission Bay North'') of the project, with a
request that the agencies work diligently to make progress on the proposal. This
portion of the project begins at the terminus of the I-280 freeway and runs on
either side of King Street up to the site of the new Giants ballpark currently
under construction. In July 1997, the Mayor of San Francisco forwarded to
various city agencies a non-binding, conceptual framework for the development of
the remainder of the Mission Bay project (''Mission Bay South''). Mission Bay
South is bordered by Mission Bay North to the north, Mariposa Street to the
south, Seventh Street to the west, and the San Francisco Bay to the east.  As
presently proposed, approximately 60% of the incremental property taxes
generated by the project will be available to finance public infrastructure
improvements.

   The Mission Bay project will be developed around the new 2.65-million-square-
foot biotech/research expansion campus for the University of California at San
Francisco (UCSF). The proposed development also includes land donated to the
City which can accommodate up to 1,445 housing units to be built by other
developers. The Mission Bay South conceptual framework is conditioned upon a
number of contingencies, including the negotiation of an agreement between the
Company and The Regents of the University of California (''The Regents'') to
locate the UCSF expansion campus at Mission Bay South. In September 1997, the
Company entered into such an agreement with The Regents to locate the UCSF
expansion campus on a portion of Mission Bay South (29.3 acres of which would be
donated by the Company and 13.3 acres of which would be contributed by the City
of San Francisco). The parties are currently discussing an amendment to the
agreement. The obligations of both parties under this agreement are subject to a
number of conditions, including a review of the property. There can be no
assurances that these conditions will be satisfied.

   The entitlement process for all of Mission Bay is underway and will continue
into 1998. There can be no assurances that the necessary entitlements will be
obtained for the project, or that the timing or scope of entitlements, if
obtained, will coincide with market conditions. It is not feasible to estimate
project development costs until entitlements have been obtained.

   Currently, the 166.9-acre portion of the project owned by the Company
contains approximately 1.1 million square feet of income-producing buildings and
approximately twenty land leases. The buildings, as of December 31, 1997, were
79% occupied. These operating assets are merely interim uses of the property and
are not expected to be part of any final project. Rental revenue from these
assets at Mission Bay was $6.4 million during 1997, resulting in property
operating income of $4.1 million.

                                       18
<PAGE>

   Union Station, Los Angeles, CA.   The Company currently owns approximately 43
acres surrounding and including the historic Los Angeles Union Station. Located
in downtown Los Angeles, Union Station is a transport hub, with Amtrak rail
service, commuter rail lines serving the surrounding five-county region
(Metrolink), and Los Angeles' growing subway and surface light rail systems.

   In 1996, the City of Los Angeles awarded the Company an entitlement package
permitting seven million square feet of office development with the flexibility
to substitute other uses such as office, hotel, sports and entertainment
facilities and housing. As part of this development, in 1996, the Company sold a
4.2-acre portion to the Metropolitan Water District and entered into a design-
build contract to build its new headquarters facility. The sale generated
proceeds of $13.2 million, a gain of $5.0 million. The Company has commenced
construction of the 500,000-square-foot, 12-story headquarters facility, which
is scheduled for completion in late 1998, with occupancy to occur in 1999.

   Santa Fe Depot, San Diego, CA.   The Company owns approximately 14 acres near
the waterfront in downtown San Diego, California, including Santa Fe Depot. The
site is served daily by Amtrak, a commuter rail line (Coaster), and San Diego's
expanding municipal trolley system. The site is currently entitled for a mixture
of office, hotel, retail and housing development. Management is reevaluating the
approved specific plan in the light of current and projected market conditions,
and is cooperating with the U.S. Navy, the Port Commission of San Diego, and San
Diego City and County agencies on a master plan for the entire North Embarcadero
portion of the waterfront.

  Fleet Industrial Supply Center and Annex, Alameda, CA.  In February 1998,
the Company was selected by the City Council of Alameda to enter into a 120-day
exclusive negotiating period for an agreement to develop the 143-acre Fleet
Industrial Supply Center and Annex (FISC) in Alameda, California.  The FISC
project represents the first phase of redevelopment of the Alameda Naval Air
Station, which was closed in mid-1997.

   The proposal submitted by Catellus includes residential and business park
uses for the FISC site.  Residential development proposed ranges from 179 to 425
single-family and multi-family housing units.  Business park development could
include up to 1.3 million square feet of office and research and development
space. The Alameda FISC site is located off of Highway 880 and is accessible
from both the City of San Francisco and the City of Oakland.

   The FISC site is being transferred to the City of Alameda by the Navy,
subject to certain conditions.  Environmental remediation on the site is
expected to be handled by the Navy and transfer of the land to the City of
Alameda is expected by September 1999.  During the 120-day negotiating period
(which the City of Alameda may extend by two periods of 90 days each), Catellus
and the City of Alameda will attempt to negotiate a Disposition and Development
Agreement.  In addition to this agreement, other approvals from the City and
other agencies will be required before development can commence.  There can be
no assurances that these negotiations will culminate in an agreement with the
City of Alameda, that the conditions for the transfer of the property by the
Navy will be satisfied, or that the conditions for other necessary approvals
will be satisfied.

                                       19
<PAGE>

   Joint Ventures

   The Company has direct or indirect equity interests in various land and
residential development partnerships.  The following table sets forth the
investment account balance and income the Company received from these
development joint ventures in the periods presented.
<TABLE>
<CAPTION>

                                         Investment Account Balance                 Company's Share of Income (Loss)
                                         --------------------------                 --------------------------------
                                             As of December 31,                             As of December 31,
                                         --------------------------                 --------------------------------

                                            1997        1996         1995             1997        1996         1995
                                         ----------  -----------  ----------        ---------  -----------  ----------
                                                   (in thousands)                             (in thousands)
<S>                                      <C>         <C>          <C>               <C>        <C>          <C>
Commercial Development.................     $ 4,067       $4,423      $4,830           $  908       $ (39)      $1,209
Residential Development................      12,506          583          --            1,215         797           --
                                            -------       ------      ------           ------       -----       ------
                                            $16,573       $5,006      $4,830           $2,123       $ 758       $1,209
                                            =======       ======      ======           ======       =====       ======
</TABLE>

FEE DEVELOPMENT AND MANAGEMENT SERVICES

   The diverse capabilities of its management team provide the Company with an
opportunity to export skills to third parties. Management believes that its
development and fee service business allows it both to facilitate development of
its own assets through sales to end-users (design-build contracts), as well as
provide services to landowners which can result in future development
opportunities.

   DEVELOPMENT SERVICES

   The Company is currently the developer on a design-build basis, in
partnership with Charles Pankow Builders, for the Metropolitan Water District
headquarters facility, for which it receives a fee. The Company intends to
pursue additional design-build opportunities when available to develop
relationships with other entities and to generate fees.

   MANAGEMENT SERVICES

   The Company's wholly-owned subsidiary, Catellus Management Corporation
(''CMC''), provides management, leasing, disposition, permit management and
inventory services for the railroad industry's non-railroad real estate assets.
CMC currently manages approximately 17,000 leases located in 27 states and two
Canadian provinces and 120,000 permits. Major customers are the Burlington
Northern Santa Fe and Canadian Pacific railroads. The Company uses a proprietary
management system that tracks title and leases and provides site plan mapping
and imaging data for each of the properties under management.


CATELLUS RESOURCES PORTFOLIO

   The Company owns approximately 782,000 acres of land in the Southern
California desert regions of Los Angeles, Kern, San Bernardino, Riverside and
Imperial Counties. The ownership of these desert properties are the result of
the historical land grants to the railroad predecessors and the Company. Because
of its location, lack of contiguity among parcels and other factors, this land
is not currently suitable for traditional development activities. As a result, a
new division of the Company, Catellus Resources Group, was created in 1995 to
explore the potential for agricultural, mineral, water, telecommunication,
energy, and waste management uses for this property.

   During 1997, the Catellus Resources Group completed its assessment of the
portfolio.  This evaluation included an analysis of the portfolio's water,
mineral, land, sales, agricultural and development potential.  The Company has
concluded from this assessment that the land, although valuable, is non-
strategic for Catellus and will continue to pursue sale opportunities involving
public and private buyers, as well as other arrangements to maximize the value
of this land. These exchanges and arrangements are complicated in nature and
therefore may take a significant amount of time to complete.

                                       20
<PAGE>

RVL, INC.

   In 1997, the Company formed a wholly-owned subsidiary, RVL, Inc., to make
passive investments in limited liability companies formed for the purpose of
acquiring properties requiring environmental remediation, performing the
necessary remediation and reselling the remediated properties. RVL owns passive
interests in two such limited liability companies, Remediation Enterprises, LLC
(''Remediation'') and Restoration Venture, LLC (''Restoration''). Remediation,
Restoration and their subsidiaries expect to acquire properties only after
extensive investigation designed to characterize the environmental problems and
quantify the costs of remediation, and after obtaining appropriate insurance for
overruns in the remediation budget. Between formation and December 31, 1997, the
Company has contributed $5.5 million in cash and property with a book value of
approximately $1.0 million to RVL.

   A limited liability company formed by Remediation and Restoration, Hercules,
LLC, acquired the Pacific Refinery at Hercules, California in September 1997.
The Company has entered into an agreement to provide entitlement services to
Hercules, LLC in return for an option to buy the property once defined
remediation work is completed.


   This investment represents a new field and a new area of investment for the
Company. There can be no assurances that the managing member of Remediation and
Restoration will manage the business successfully, that environmental problems
will be accurately characterized, or that insurance will be available or
adequate to cover remediation budget overruns. Any of these contingencies could
result in significant losses.


ENVIRONMENTAL MATTERS

   Various federal, state, and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect the Company's operations and costs. See
''Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Matters.'' Such regulations can increase the cost of
planning, designing, developing, managing and maintaining the Company's
properties. The Company has expended and will continue to expend significant
financial and managerial resources to comply with environmental regulations and
local permitting requirements. While the Company or outside consultants have
evaluated the environmental liabilities associated with most of the Company's
properties, any evaluation necessarily is based upon then-prevailing law,
identified site conditions and sampling methodologies. In addition, many of the
Company's properties are in the early stages of development, and the
environmental studies and investigations which have been performed are
preliminary. It is possible that significant unknown costs and liabilities may
arise in the future relating to these properties and that certain development
projects may be significantly delayed, modified, or canceled as a result of
associated remediation costs. In addition, other properties presently owned by
the Company or "formerly owned" by the Company and no longer accessible for
assessment by the Company, or its corporate predecessors have required or may
require remediation. Although there can be no assurance, the Company does not
believe that such costs will have a material adverse effect on its business,
financial condition or results of operations.


COMPETITION

   Real estate markets are regional, and levels of competition vary by market.
The Company encounters significant competition for leasing and sales of real
estate in each of its market areas, but no one competitor is dominant. The
Company is not dependent on any one customer for a significant portion of its
revenues.

                                       21
<PAGE>

Employees, Contractors and Consultants

   On December 31, 1997, the Company had 359 employees, including 53 employees
of Catellus Management Corporation and 131 employees of Catellus Residential
Group. The Company engages third parties to manage multi-tenant properties and
properties in locations which are not in close proximity to the Company's
regional or field offices. In addition, the Company engages outside consultants
such as architects and design firms in connection with its pre-development
activities. The Company also employs third party contractors on development
projects for infrastructure and building construction and retains consultants to
assist it in a variety of areas at the project level and at the corporate level
for efforts like strategic planning.


RISK FACTORS

   It is the Company's belief that this Annual Report on Form 10-K may contain
statements which, to the extent that they are not recitations of historical
fact, may constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange
Act of 1934. All forward-looking statements involve risks and uncertainties.
The forward-looking statements in this document are intended to be subject to
the safe harbor protection provided by Sections 27A and 21E.  Factors that most
typically affect the Company's operating results and financial condition include
(i) changes in general economic conditions in regions in which the Company's
projects are located, (ii) supply and demand for office, industrial, and
residential space, (iii) the delay in receipt of or the denial of government
approvals and entitlements for development projects, (iv) other public and
private development activity in the areas in which the Company owns property,
(v) land and building material costs, (vi) the availability and cost of project
financing, (vii) competition from other property owners, (viii) liability for
environmental remediation, (ix) the Company's ability to increase development
fees, (x) the Company's ability to sell non-strategic assets, (xi) changes in
the capital markets affecting the ability of the Company to minimize its
interest and preferred dividends, (xii) the Company's ability to control the
timing of the recognition of deferred tax liability, (xiii) the impact of
discretionary government actions, (xiv) the exposure of the Company's assets to
natural occurrences, such as earthquakes, tornadoes, and similar events, and
(xv) changes in the legal and regulatory environment, including the tax
treatment of the Company's activities and assets.

   For discussions identifying other important factors that could cause actual
results to differ materially from those anticipated in the forward looking
statements, see the Company's Securities and Exchange Commission filings,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Form 10-K and Note 15 to the Consolidated Financial
Statements included in this Form 10-K.  The Company cautions that the forgoing
list of risk factors is not exclusive.  Further, the Company does not undertake
to update any forward-looking statements that may be made from time to time by
or on behalf of the Company.


ITEM 2.  PROPERTIES

   The Company's real estate projects are generally described in Item 1 above,
which descriptions are incorporated in this Item by reference.  The Company's
principal executive office is located in San Francisco, California, and it has
regional or field offices in ten other locations in the United States. The
Company believes that its property and equipment are generally well maintained,
in good condition, and adequate for its present needs.

                                       22
<PAGE>

Item 3.  Legal Proceedings

   The Company, its subsidiaries and other related companies are named
defendants in several lawsuits arising from normal business activities, are
named parties in certain governmental proceedings (including environmental
actions) and are the subject of various environmental remediation orders of
local governmental agencies arising in the ordinary course of its business.
While the outcome of these lawsuits or other proceedings against the Company and
the cost of compliance with any governmental order cannot be predicted with
certainty, management does not expect any of these matters to have a material
adverse effect on the business, financial condition or liquidity of the Company.


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

   There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1997.


EXECUTIVE OFFICERS OF THE COMPANY

   The executive officers of the Company are listed below.  There were no family
relationships among any executive officers and directors of the Company.  All
officers serve at the pleasure of the Board of Directors of the Company, subject
to compliance with various employment agreements to which the Company and the
officers are parties.


   Executive Officers

<TABLE>
<CAPTION>
Name                                Age                                Position
------------------------------  -----------  ------------------------------------------------------------
<S>                             <C>          <C>
Nelson C. Rising................   56            President, Chief Executive Officer and Director
Stephen P. Wallace..............   43            Senior Vice President and Chief Financial Officer
Timothy J. Beaudin..............   39            Senior Vice President Property Operations
Ira E. Yellin...................   57            Senior Vice President Southern California Development
Kathleen Smalley................   40            Senior Vice President, General Counsel and Secretary
Paul A. Lockie..................   39            Vice President and Controller
</TABLE>

   Additional information concerning the business background of each executive
officer and director of the Company is set forth below:

   MR. RISING has served as President and Chief Executive Officer and a Director
of the Company since September 1994. For more than five years prior to joining
the Company, Mr. Rising was a Senior Partner with Maguire Thomas Partners, a Los
Angeles-based commercial developer with projects in Southern California, Dallas
and Philadelphia.

   MR. WALLACE was elected as Senior Vice President and Chief Financial Officer
in July 1995. Mr. Wallace was previously the Senior Vice President and Chief
Financial Officer at Castle & Cooke Homes, Inc. from May 1993. Before that Mr.
Wallace served as the Chief Financial Officer at A.M. Homes in Newport Beach,
California, and before that he was a Partner at Arthur Andersen LLP.

   MR. BEAUDIN was elected Senior Vice President Property Operations in January
1996. Before this appointment, Mr. Beaudin served as Vice President Property
Operations since February 1995. For more than five years before that, Mr.
Beaudin served as Senior Vice President--Managing Officer of the Financial
Services Group at CB Commercial Real Estate Group, a national real estate
brokerage firm.

                                       23
<PAGE>

   MR. YELLIN joined the Company in February 1996 as the Senior Vice President,
Southern California Development. For more than five years before joining the
Company, Mr. Yellin served as President of The Yellin Company, a Los Angeles
real estate investment, development and management company involved primarily in
the acquisition, restoration and redevelopment of historic buildings in the
Historic Core of Downtown Los Angeles.

  MS. SMALLEY joined the Company as a Senior Vice President, General Counsel,
and Secretary on January 1, 1997.  For more than five years before joining the
Company, Ms. Smalley was General Counsel and Investment Manager of Crow Family
Holdings ("CFH"), an investment management company that manages assets,
including real estate and related businesses, throughout the United States and
abroad.  Ms. Smalley also currently holds an appointment to Harvard Law School,
where she lectures in the real estate field.

  CFH, during Ms. Smalley's employment, managed investments in thousands of
entities holding real estate.  In connection with her duties as General Counsel
and Investment Manager for CFH, Ms. Smalley managed both legal functions and a
number of special assignments.  Among those special assignments was the
management of the bankruptcy of approximately 55 affiliated entities in two
jointly administered proceedings.  Ms. Smalley was not involved in the ownership
or management (other than as described below) of the properties owned by the
affected debtors before the debt restructuring negotiations and related filing
of bankruptcy petitions. In addition, there were approximately 35 other entities
affiliated with CFH that filed for protection under federal bankruptcy laws.  In
connection with her employment by CFH, Ms. Smalley served as an officer of the
direct or indirect general partner of some of these entities.

  MR. LOCKIE joined the Company as Vice President and Controller in February
1996.  Before joining the Company, Mr. Lockie served as the Chief Financial
Officer for Kimball Small Properties, Inc. ("KSP"), a San Jose, California real
estate development and management company.

  Mr. Lockie, in connection with his duties as Chief Financial Officer for KSP,
also served as Chief Financial Officer of several companies affiliated with KSP,
including Techmart Properties, Inc., the indirect general partner of a real
estate partnership that filed for protection under federal bankruptcy laws in
September, 1992.  In September, 1995, a final decree was entered closing the
case.

                                       24
<PAGE>

                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   The Company's Common Stock commenced trading on December 5, 1990 and is
listed on the New York Stock Exchange, the Pacific Stock Exchange and the
Chicago Stock Exchange under the symbol ''CDX.'' The following table sets forth
for the periods indicated the high and low sale prices of the Company's Common
Stock as reported by Bloomberg Financial Markets:

<TABLE>
<CAPTION>
                                                              Common Stock Price
                                                           -------------------------
                                                                HIGH          LOW
                                                           --------------  ---------
<S>                                                        <C>             <C>
  Year ended December 31, 1996
     First Quarter.......................................           8 1/4     5 7/8
     Second Quarter......................................          10         7 3/4
     Third Quarter.......................................          10 1/2     8 1/8
     Fourth Quarter......................................          11 1/2     9 1/2
  Year ended December 31, 1997
     First Quarter.......................................          16 5/8    11 1/8
     Second Quarter......................................          18 3/8    13 5/8
     Third Quarter.......................................          21 7/16   18 3/16
     Fourth Quarter......................................          22        16 5/16
</TABLE>


   The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to retain any earnings to support operations and to
finance development projects and does not intend to pay cash dividends on the
Common Stock in the foreseeable future.

   On March  24, 1998, there were approximately 31,980 holders of record of the
Company's Common Stock.

                                       25
<PAGE>

Item 6.  Selected Financial Data

   The following income statement and selected balance sheet data with respect
to each of the years in the five-year period ended December 31, 1997 have been
derived from the annual Consolidated Financial Statements.  The operating data
have been derived from the Company's underlying financial and management records
and are unaudited.  This information should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of results of operations for 1997, 1996 and 1995.

                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                          --------------------------------------------------------------------
                                                              1997           1996           1995         1994         1993
                                                          ------------  --------------  ------------  -----------  -----------
<S> <C>      <C>                                          <C>           <C>             <C>           <C>          <C>
                                                                      (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Income producing properties
             Rental revenue..............................    $128,953        $115,886     $ 102,828     $ 99,183     $107,625
             Property operating costs....................     (38,670)        (39,408)      (30,650)     (29,609)     (38,708)
             Equity in earnings of joint ventures, net...       7,436           5,993         5,826        4,240        1,878
                                                             --------        --------     ---------     --------     --------
                                                               97,719          82,471        78,004       73,814       70,795
                                                             --------        --------     ---------     --------     --------
Development activities and fee services
             Gain on development property sales..........      13,197          15,623           953           --           --
             Development and management fee income, net..       6,449           3,432         1,924        2,151        2,260
             Equity in earnings (losses) of joint
             ventures, net...............................       2,123             758         1,209        3,742          (60)
             Land holding costs, net.....................      (1,241)         (3,724)       (3,871)      (4,891)        (872)
                                                             --------        --------     ---------     --------     --------
                                                               20,528          16,089           215        1,002        1,328
                                                             --------        --------     ---------     --------     --------

Interest expense.........................................     (39,988)        (42,521)      (25,757)     (24,671)     (43,959)
Depreciation and amortization............................     (31,245)        (30,561)      (27,990)     (28,577)     (31,117)
General and administrative expense.......................     (10,897)         (8,019)      (10,924)     (14,818)     (13,143)
Gain on non-strategic land and other asset sales.........       5,029          24,405        32,789       13,307       33,165
Adjustment to carrying value of property /(1)/...........          --              --      (102,400)     (24,100)     (32,500)
Litigation, environmental and restructuring costs........       2,551           1,093          (961)      (2,854)     (12,637)
Other, net...............................................      (1,113)            (19)        2,504        3,091      (25,292)
                                                             --------        --------     ---------     --------     --------
Income (loss) before income taxes and extraordinary
    expense..............................................      42,584          42,938       (54,520)      (3,806)     (53,360)
Income tax (expense) benefit.............................     (17,343)        (17,537)       21,518        1,359        8,008
                                                             --------        --------     ---------     --------     --------
Net income (loss) before extraordinary expense...........      25,241          25,401       (33,002)      (2,447)     (45,352)
Extraordinary expense related to early retirement of
 debt, net of income tax benefit /(2)/...................          --              --            --           --       (7,401)
                                                             --------        --------     ---------     --------     --------
             Net income (loss)...........................      25,241          25,401       (33,002)      (2,447)     (52,753)
             Preferred stock dividends...................      (1,353)        (22,173)      (23,813)     (23,813)     (16,132)
             Premium on redemption of preferred stock....          --          (1,334)           --           --           --
                                                             --------        --------     ---------     --------     --------
             Net income (loss) applicable to common
             stockholders................................    $ 23,888       $ 1,894     $ (56,815)    $(26,260)    $(68,885)
                                                             ========        ========     =========     ========     ========

             Income (loss) per common share - basic
             and assuming dilution
             Before extraordinary expense................       $0.24           $0.03        $(0.78)      $(0.36)      $(0.87)
             Extraordinary expense /(2)/.................          --              --            --           --        (0.10)
                                                             --------        --------     ---------     --------     --------
             Net income (loss) per share after
             extraoridinary expense /(2)/................       $0.24           $0.03        $(0.78)      $(0.36)      $(0.97)
                                                             ========        ========     =========     ========     ========
             Average number of common shares
             outstanding - basic.........................      97,601          74,947        72,967       72,967       70,834
                                                             ========        ========     =========     ========     ========
             Average number of common shares
             outstanding - assuming
             dilution....................................     100,768          75,835        72,967       72,967       70,834
                                                             ========        ========     =========     ========     ========
</TABLE>

                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                            -----------------------

                                                        1997           1996            1995            1994             1993
                                                   -------------  -------------  --------------  ---------------  --------------
                                                                       (IN THOUSANDS, EXCEPT PERCENTAGES)
OTHER OPERATING DATA:
<S>                                                <C>               <C>            <C>             <C>              <C>
EBDDT /(3)/...................................   $ 62,771          $ 25,852         $18,254          $14,665         $(9,530)
Buildings owned (square feet) /(4)/...........     18,094            16,448          14,168           13,609          13,367
Leased percentage.............................       96.5%             96.1%           95.1%            95.0%           94.9%
Annual fixed charges /(5)/....................   $ 48,037          $ 67,550         $73,129          $72,533         $85,684
Debt and preferred stock to total market
    capitalization /(6)/......................      21.00%            46.81%          65.63%           66.56%          63.56%
Capital expenditures /(7)/....................   $235,569          $115,338         $68,523          $73,900         $61,060
Fixed Charge Coverage Ratio /(8)/.............       2.37              1.70            1.39             1.01            1.55
</TABLE>


<TABLE>
<CAPTION>
                                                                                AS OF DECEMBER 31,
                                                   --------------------------------------------------------------------------
                                                       1997           1996           1995            1994           1993
                                                   -------------  -------------  -------------  --------------  -------------
                                                                                 (IN THOUSANDS)
<S>                                                <C>            <C>            <C>            <C>             <C>
BALANCE SHEET DATA:
Total properties, net.............................   $1,122,975      $1,024,102     $1,007,451      $1,087,119     $1,091,832
Total assets......................................   $1,241,019      $1,123,118     $1,097,604      $1,207,363     $1,373,827
Mortgage and other debt...........................   $  568,699      $  496,742     $  496,180      $  530,641     $  663,764
Preferred Stock...................................           --      $  274,428     $  322,500      $  322,500     $  322,500
Total stockholders' equity........................   $  451,899      $  422,453     $  442,874      $  499,689     $  525,949
</TABLE>

(1) The Company took charges of $102.4 million in 1995, $24.1 million in 1994
    and $32.5 million in 1993 to adjust the carrying value of certain
    properties. The 1995 charge included $84.8 million resulting from the
    Company's decision to terminate the 1991 Development Agreement for its
    Mission Bay Project in San Francisco. See Note 6 to Consolidated Financial
    Statements included in this From 10-K for further discussion.
(2) Net income in 1993 reflects extraordinary expense of $7.4 million, net of
    income tax benefit, relating to a redemption premium paid to a lender and
    write-off of deferred financing costs on the Company's $388.2 million first
    mortgage loan.
(3) The Company uses a supplemental performance measure called Earnings Before
    Depreciation and Deferred Taxed (EBDDT) along with net income (loss) to
    report its operating results. EBDDT is not a measure of operating results or
    cash flows from operating activities as defined by generally accepted
    accounting principles. Additionally, EBDDT is not necessarily indicative of
    cash available to fund cash needs and should not be considered as an
    alternative to cash flows as a measure of liquidity. However, the Company
    believes that EBDDT provides relevant information about its operations and
    is necessary, along with net income (loss), for an understanding of its
    operating results.
    EBDDT is calculated by taking net income (loss) and making various
    adjustments. Depreciation, amortization and deferred income
    taxes are excluded from EBDDT as they represent non-cash charges. In
    addition, gains on the sale of non-strategic land and other assets,
    adjustments to the carrying value of property, premium on the redemption of
    preferred stock, restructuring costs, conversion of debenture costs and
    extraordinary expense related to early retirement of debt represent non-
    operating, unusual and/or nonrecurring items and are excluded from the EBDDT
    calculation. See "Management's Discussion and Analysis of Financial
    Condition and Results of Operations -- Earnings Before Depreciation and
    Deferred Taxes."
(4) Before 1996, square feet owned excluded approximately
    1.1 million square feet of existing buildings, primarily at Mission Bay.
(5) Represents interest incurred (See Note 3 to the Company's Consolidated
    Financial Statements) plus preferred stock dividends.
(6) Represents the ratio of total debt plus the face value of preferred stock to
    equity market capitalization (based on the number of common shares
    outstanding at the end of the period indicated and the closing stock price
    for that respective period) plus total debt and preferred stock.
(7) Represents expenditures for commercial and residential development for
    projects to be developed and sold or held for rental.
(8) Represents the ratio of earnings before interest, taxes, depreciation and
    amortization, adjustments to the carrying value of property, and preferred
    stock dividends to interest costs and preferred stock dividends.

                                       28
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS


OVERVIEW

     In the second half of 1994, the Company began building a new senior
management team.  It then implemented a new strategy, which included a number of
steps designed to eliminate operating deficits, restructure the organization,
enhance its core competencies, improve its capital structure and sell non-
productive land assets. In particular, the Company:

*      Sold $179 million of non-strategic assets from January 1, 1995 through
  December 31, 1997, using the proceeds to pay down a portion of its existing
  debt and fund new development.

*      Increased, development activity with industrial construction starts of
  381,000 square feet in 1994, 792,000 square feet in 1995, 3.3 million square
  feet in 1996 and 3.8 million square feet in 1997.

*      Acquired in 1996 The Akins Companies (now Catellus Residential Group), an
  established residential developer located in Southern California, to position
  the Company to pursue residential development opportunities.

*      Completed in 1997 a series of redemption calls for all outstanding
  preferred shares, eliminating approximately $24 million in annual preferred
  stock dividend payments. A total of $25.8 million of preferred stock was
  redeemed and $296.7 million was converted into common equity.

*      Decreased the Company's ratio of debt and preferred stock to total market
  capitalization from 66.6% at December 31, 1994 to 21% at December 31, 1997.

*      Improved operating results with EBDDT (earnings before depreciation and
  deferred taxes) increasing from $14.7 million in 1994 to $18.3 million in
  1995, $25.9 million in 1996 and $62.8 million in 1997.

     The Company intends to focus on increasing EBDDT by continuing to increase
the development of its significant land portfolio by acquiring new properties
or businesses to support additional development and by providing third-party
fee development and management services. In addition, the Company will continue
to focus on increasing cash flow from its portfolio of income-producing assets.
Capital to fund this planned growth is expected to come from operations, sales
of non-strategic assets and debt. In the future, the Company will continue to
assess the feasibility of entering into complementary new lines of business and
refining or reconfiguring its existing portfolio to take advantage of its
experience, opportunities presented, and changing market conditions.

     Although the Company has a large portfolio of income-producing properties
that provides stable operating results, the Company's earnings from period to
period will be affected by the nature and timing of development activity and
sales of development property and non-strategic assets. Many of the Company's
projects require a lengthy process to complete the development cycle before they
are sold. Additionally, sales of non-strategic assets are difficult to predict
and are generally subject to lengthy negotiations and contingencies that need to
be resolved before closing. These factors tend to ''bunch'' income in particular
periods rather than producing a more even pattern throughout the year. In
addition, gross margins may vary significantly as the mix of property varies.
The cost basis of the properties sold varies because: (i) a number of properties
have been owned for many decades, (ii) some properties were recently constructed
or acquired, and (iii) properties are owned in various geographical locations.

                                       29
<PAGE>

Results of Operations

Comparison of the years ended December 31, 1997 to 1996

Income-Producing Properties
---------------------------

     Rental revenue and property operating costs for the Company's income-
producing properties for the years ended December 31, 1997 and 1996 are
summarized below:

<TABLE>
<CAPTION>
                                                     Rental Revenue                        Property Operating Costs
                                      -----------------------------------------  ----------------------------------------
                                          1997          1996       Difference        1997          1996       Difference
                                      ------------  ------------  -------------  ------------  ------------  -------------
<S>                                   <C>           <C>           <C>            <C>           <C>           <C>
                                                                      (in thousands)
Industrial buildings................      $ 67,186      $ 55,865       $11,321        $14,529       $14,014         $ 515
Office buildings....................        29,713        28,407         1,306         12,753        12,661            92
Retail buildings....................        13,273        13,215            58          3,932         4,376          (444)
Land development /(1)/..............        10,853        10,589           264          6,557         7,252          (695)
Land leases.........................         7,928         7,810           118            899         1,105          (206)
                                          --------      --------       -------        -------       -------         -----
                                          $128,953      $115,886       $13,067        $38,670       $39,408         $(738)
                                          ========      ========       =======        =======       =======         =====
</TABLE>

(1) This category represents interim income-producing uses of properties
intended for mixed-use development.

     Building square footage owned, square footage leased, and occupancy are as
follows:

<TABLE>
<CAPTION>
                                                                      As of December 31,
                                                                      ------------------
                                                                   1997                 1996
                                                              ---------------      --------------
<S>                                                           <C>                  <C>
                                                              (in thousands except percentages)
   Industrial buildings
      Square feet owned.....................................          14,326              12,606
      Square feet leased....................................          14,061              12,345
      Percent leased........................................            98.2%               97.9%
   Office buildings
      Square feet owned.....................................           1,620               1,683
      Square feet leased....................................           1,547               1,460
      Percent leased........................................            95.5%               86.7%
  Retail buildings
      Square feet owned.....................................             928                 928
      Square feet leased....................................             870                 874
      Percent leased........................................            93.8%               94.2%
  Land development /(1)/
      Square feet owned.....................................           1,220               1,231
      Square feet leased....................................             981               1,129
      Percent leased........................................            80.4%               91.7%
   Total
      Square feet owned.....................................          18,094              16,448
      Square feet leased....................................          17,459              15,808
      Percent leased........................................            96.5%               96.1%

(1)  This category represents interim income-producing uses of properties intended for
 mixed-use development.
</TABLE>

                                       30
<PAGE>

     The increase in revenue from industrial buildings is primarily
attributable to ten newly constructed buildings totaling approximately 2.1
million square feet that were added to the portfolio in 1997 and a full year
of operations from eight buildings totaling approximately 1.3 million
square feet that were completed and added to the portfolio in 1996.
Approximately $8.2 million of the increase was attributable to base rents for
the new buildings completed in 1997 and 1996, approximately $1.6 million was
attributable to higher tenant pass-through charges and other income associated
with this new construction and approximately $1.5 million was a result of
increases in rental rates and tenant pass-through charges under existing
leases. Operating costs for the industrial portfolio increased by $.5 million
primarily because of property taxes and other operating expenses related to
the new construction.

     Rental revenue for the Company's office portfolio increased by $1.3 million
primarily because of higher rental rates and occupancy.  Operating costs for
office buildings increased by $0.1 million, primarily as a result of higher
utility costs and property taxes.

     The $0.4 million decrease in property operating costs for the retail
buildings was primarily due to a reduction in property taxes.

     The $0.3 million increase in rental revenue from the land development
portfolio resulted from higher occupancies during the year and expense
recoveries.  The decrease in operating costs for land development properties was
primarily because of lower property taxes as a result of refunds and sales of
properties.

     The increase in revenue from land leases was primarily because of increased
rent from new tenant leases and higher percentage rents.  The decreased expenses
from land leases was primarily attributable to a reduction in property taxes as
a result of  the sale of a land lease in mid-1996.

     In total, property operating costs were lower because of lower property
operating overhead costs and lower insurance premiums, partially offset by
higher property taxes.

     Income-producing joint venture earnings, net, increased by $1.4 million
primarily because of higher occupancies and room rates in a hotel joint venture
and higher occupancy and lower interest expense for an office building joint
venture.


Development Activities and Fee Services
---------------------------------------

     Gain on development property sales decreased from $15.6 million in 1996 to
$13.2 million in 1997, summarized as follows:

<TABLE>
<CAPTION>
                                                       1997           1996        Difference
                                                  --------------  -------------  -------------
Commercial Sales:                                               (in thousands)
<S>                                               <C>             <C>            <C>
Sales...........................................         $39,587       $40,525        $  (938)
Cost of sales...................................          31,717        26,709          5,008
                                                         -------       -------        -------
     Gain.......................................           7,870        13,816         (5,946)
                                                         -------       -------        -------

RESIDENTIAL SALES:
Sales...........................................          82,632        21,945         60,687
Cost of sales...................................          77,305        20,138         57,167
                                                         -------       -------        -------
     Gain.......................................           5,327         1,807          3,520
                                                         -------       -------        -------
Total gain on development property sales........         $13,197       $15,623        $(2,426)
                                                         =======       =======        =======
</TABLE>

                                       31
<PAGE>

     The 1996 commercial sales include an approximate $5.0 million gain from the
sale of a 4.2-acre site to the Metropolitan Water District at Los Angeles Union
Station. The 1997 commercial sales include a $2.2 million gain from the sale of
a 279,000-square-foot industrial building in La Mirada, California. Residential
sales in 1997 include a full year of activity from the Company's residential
group which was formed in March 1996.

     The Company expects there will be significant variability in income
generated from its development activities.

     Following is a summary of development property sales under contract but not
closed as of December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                    1997           1996
                                                                 ----------     ----------
                                                                     (in thousands)
<S>                                                           <C>            <C>
Commercial..................................................       $ 7,091        $     -
                                                                   =======        =======

Residential (lot and unit sales):
     Joint venture projects /(1)/...........................       $21,003        $20,901
                                                                   =======        =======
     Management projects /(2)/..............................       $ 8,404        $10,878
                                                                   =======        =======
</TABLE>

(1) The amounts shown are 100% of the gross sales price; the Company is entitled
    to receive 50% of the net profits from these joint ventures.
(2) The amounts shown are 100% of the gross sales price; the Company receives a
    fee based on the sales of these units, which averages 5% of revenues.


     Development and management fee income, net, increased by $3.0 million
primarily because of an increase in management fees from management contracts
signed in 1996 and higher development fees from a construction project at Los
Angeles Union Station that began in June 1996.

     Equity in earnings of development joint ventures increased by $1.4 million
primarily because of a 1997 property sale from a land development joint venture
and higher residential joint venture earnings.

     The $2.5 million reduction in losses from land holding costs, net, is
primarily attributable to sales of properties and property tax refunds.

Other Items on the Statement of Operations
------------------------------------------

     Interest expense was $2.5 million lower in 1997 primarily because of an
increase in capitalized interest related to increased development activity in
1997.

     Following is a summary of interest incurred for the years ended December
31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                  1997           1996        Difference
                                                              -------------  ------------  ---------------
                                                                             (in thousands)
<S>                                                           <C>            <C>           <C>
Total interest incurred.....................................       $46,684       $45,377          $ 1,307
Interest capitalized........................................        (6,696)       (2,856)          (3,840)
                                                                   -------       -------          -------
Interest expensed...........................................       $39,988       $42,521          $(2,533)
                                                                   =======       =======          =======
</TABLE>

     General and administrative expense increased by $2.9 million in 1997
primarily because of the increase in the Company's overall activities.

                                       32
<PAGE>

     The decrease in gain on sales of non-strategic land and other property in
1997 is summarized as follows:

<TABLE>
<CAPTION>
                                                                   1997          1996        Difference
                                                               ------------  -------------  -------------
                                                                             (in thousands)
<S>                                                            <C>           <C>            <C>
Sales........................................................       $31,122       $85,678       $(54,556)
Cost of sales................................................        26,093        61,273        (35,180)
                                                                    -------       -------       --------
      Gain...................................................       $ 5,029       $24,405       $(19,376)
                                                                    =======       =======       ========
</TABLE>

     In 1995, the Company began an accelerated program of selling non-strategic
assets, with the proceeds intended to pay down a portion of existing debt and
fund new development.  From 1995 through 1997, the Company sold $179 million of
non-strategic assets.  In addition, at the end of 1997, $58.8 million of such
assets were under contract or option for sale. Because of the diminishing amount
of such assets in the Company's portfolio, the Company expects future sales of
non-strategic assets to be substantially lower than the levels in the recent
past.

     In prior years the Company accrued estimates of its environmental liability
(see Note 11 to the Company's Consolidated Financial Statements). During 1997
and 1996, the Company either settled certain claims or received recoveries in
excess of what was expected. These settlements/recoveries resulted in increases
to net income of $2.6 million in 1997 and $1.1 million in 1996.

     Other, net, increased by $1.1 million in 1997 primarily because of the $1.0
million in costs associated with the filing of a registration statement with the
Securities and Exchange Commission in accordance with a Registration Rights
Agreement between the Company and the California Public Employees' Retirement
System.

Preferred Stock Dividends
-------------------------

     Preferred stock dividends declined by $20.8 million in 1997 compared to
1996 as a result of preferred stock calls. During 1996, the Company commenced
a series of calls for redemption of its outstanding preferred stock. As a
result of these calls, during 1996, a total of 453,326 shares of $3.75 Series
A Cumulative Convertible Preferred Stock ("Series A preferred stock") were
converted into 2,501,783 common shares and 508,113 shares of Series A
preferred stock were redeemed at a cost of approximately $26.7 million. In
1997, a total of 2,480,671 shares of Series A preferred stock and all of the
$3.625 Series B Cumulative Convertible Exchangable Preferred Stock were
converted into 29,001,469 shares of common stock, with 7,889 shares of Series
A preferred stock redeemed at a cost of approximately $440,000. With the
completion of these preferred stock calls in June 1997, the Company has no
remaining outstanding preferred stock.

                                       33
<PAGE>

Comparison of the years ended December 31, 1996 to 1995

Income-Producing Properties
---------------------------

     Rental revenue and property operating costs for the Company's income-
producing properties for the years ended December 31, 1996 and 1995,
respectively, are summarized below:

<TABLE>
<CAPTION>
                                                      Rental Revenue                        Property Operating Costs
                                                      --------------                        ------------------------
                                           1996           1995       Difference        1996          1995       Difference
                                       -------------  ------------  -------------  ------------  ------------  ------------
<S>                                    <C>            <C>           <C>            <C>           <C>           <C>
                                                                       (in thousands)
Industrial buildings.................      $ 55,865       $ 50,716       $ 5,149        $14,014       $11,193        $2,821
Office buildings.....................        28,407         28,662          (255)        12,661        12,179           482
Retail buildings.....................        13,215         11,364         1,851          4,376         2,941         1,435
Land development /(1)/...............        10,589          4,886         5,703          7,252         3,308         3,944
Land leases..........................         7,810          7,200           610          1,105         1,029            76
                                           --------       --------       -------        -------       -------        ------
                                           $115,886       $102,828       $13,058        $39,408       $30,650        $8,758
                                           ========       ========       =======        =======       =======        ======

(1) This category represents interim income-producing uses of properties intended for mixed-use development.
</TABLE>

     Of the increase in revenue from industrial buildings, $3.3 million was
attributable to eleven new buildings totaling 1.7 million square feet that were
completed in late 1995 and 1996.  Revenue also increased $1.2 million as a
result of higher tenant pass-through charges associated with the new
construction and higher operating costs.  Operating costs for the industrial
portfolio increased, in part, because of new buildings completed and higher
overhead, maintenance and repairs.

     Rental revenue for the Company's office portfolio decreased $0.3 million
because of a decrease in occupancy, primarily in one building, compared to the
same period in 1995.  As of the end of 1996, a majority of this office space had
been leased.  Revenue and costs for retail buildings increased primarily because
a 117,000-square-foot building leased to Kmart was acquired in December 1995 at
the East Baybridge shopping center.

     The increase in revenue and costs from land development properties
resulted, in large part, from determination by the Company at the end of 1995
that Mission Bay and certain other properties no longer qualified for the
capitalization of interest expense.  As a result, incremental revenue and
operating costs from interim uses, which had previously also been capitalized to
the project, were included in the consolidated statement of operations
effective January 1, 1996.  Rental revenue and property operating cost increases
attributable to Mission Bay and other such properties were $6.1 million and $3.3
million, respectively, in 1996.


                                       34
<PAGE>

Development Activities and Fee Services
---------------------------------------

     Gain on development property sales increased to $15.6 million in 1996 from
$953,000 in 1995, summarized as follows:

<TABLE>
<CAPTION>
                                                                 1996            1995        Difference
                                                            ---------------  -------------  ------------
Commercial Sales:                                                          (in thousands)
<S>                                                         <C>              <C>            <C>
Sales.....................................................          $40,525         $3,224       $37,301
Cost of sales.............................................           26,709          2,271        24,438
                                                                    -------         ------       -------
       Gain...............................................           13,816            953        12,863
                                                                    -------         ------       -------

RESIDENTIAL SALES:
Sales.....................................................           21,945              -        21,945
Cost of sales.............................................           20,138              -        20,138
                                                                    -------         ------       -------
       Gain...............................................            1,807              -         1,807
                                                                    -------         ------       -------
                Total gain on development property sales..          $15,623         $  953       $14,670
                                                                    =======         ======       =======
</TABLE>

     The significant increase in gain on development property sales is
attributable to improved industrial development activity ($7.9 million),
residential sales activity resulting from the acquisition of The Akins Companies
($1.8 million) and the sale of the Metropolitan Water District site at the
Company's Los Angeles Union Station project ($5.0 million).

     Development and management fee income, net, increased to $3.4 million
during 1996 from $1.9 million in 1995. This increase was primarily from "design-
build" fee income for the 500,000-square-foot Metropolitan Water District's
corporate headquarters at Los Angeles Union Station, residential development fee
income and fees under various management contracts.

Other Items on the Statement of Operations
------------------------------------------

     Total interest incurred was $3.9 million lower in 1996 compared to 1995
because of debt reduction in 1996 and late 1995.  However, during 1996, the
Company capitalized $2.9 million of interest compared to $23.6 million in 1995
because Mission Bay and certain other properties no longer qualified for
capitalization of interest.  As a result, interest expense increased $16.8
million.

     In late 1994, the Company experienced significant staff reductions and
realignment of responsibilities.  In connection with these changes, the Company
refined its general and administrative expense allocation to align certain
common costs more closely with the underlying activities.  This change in
allocations had the result of increasing property operating costs and decreasing
general and administrative expense in 1996 when compared to 1995.

     In 1995, the Company began an accelerated program of selling non-strategic
assets, with the proceeds intended to pay down a portion of its existing debt
and fund new development.  In connection with this program, the Company
completed sales totaling $85.7 million resulting in gains of $24.4 million in
1996 compared to completed sales of $62.2 million and gains of $32.8 million in
1995.

     In 1995, the Company took a $102.4 million charge to adjust the carrying
value of certain properties, where the carrying cost exceeded what management
expected to recover through future operations and ultimate sale of such
properties.  This charge included $84.8 million resulting from the Company's
decision to terminate the 1991 Development Agreement for its Mission Bay project
in San Francisco.

                                       35
<PAGE>

     Litigation and environmental costs decreased by $2.1 million. The $1.1
million income in 1996 represents amounts received from settlement proceeds in
environmental matters, with no offsetting cost being incurred. The $1.0
million expense in 1995 represents actual environmental costs incurred with
respect to operating properties, partly offset by income resulting from the
settlement of litigation in favor of the Company.

     Other, net, decreased by $2.5 million in 1996 as a result of lower interest
income.

     The Company completed a preferred stock call in September 1996. As a
result, a charge of $1.3 million for the premium on that redemption was
recognized in 1996. No preferred calls occurred in 1995.

Earnings Before Depreciation and Deferred Taxes

     The Company uses a supplemental performance measure called Earnings Before
Depreciation and Deferred Taxes (EBDDT) along with net income (loss) to report
its operating results. EBDDT is not a measure of operating results or cash flows
from operating activities as defined by generally accepted accounting
principles. Additionally, EBDDT is not necessarily indicative of cash available
to fund cash needs and should not be considered as an alternative to cash flows
as a measure of liquidity. However, the Company believes that EBDDT provides
relevant information about its operations and is necessary, along with net
income (loss), for an understanding of its operating results.

     EBDDT is calculated by taking net income (loss) and making various
adjustments. Depreciation, amortization and deferred income taxes are excluded
from EBDDT as they represent non-cash charges. In addition, gains on the sale of
non-strategic land and other assets, adjustments to the carrying value of
property and premium on the redemption of preferred stock represent non-
operating, unusual and/or nonrecurring items and are excluded from the EBDDT
calculation. EBDDT is reconciled to net income (loss), as follows:

<TABLE>
<CAPTION>
                                                                              1997           1996           1995
                                                                          -------------  -------------  -------------
                                                                                        (in thousands)
<S>                                                                       <C>            <C>            <C>
Net income (loss) applicable to common stockholders.....................      $ 23,888       $  1,894       $(56,815)
Depreciation and amortization...........................................        31,245         30,561         27,990
Deferred income taxes...................................................        12,667         16,468        (22,532)
Gain on non-strategic land and other asset sales........................        (5,029)       (24,405)       (32,789)
Adjustment to carrying value of property................................             -              -        102,400
Premium on redemption of preferred stock................................             -          1,334              -
                                                                              --------       --------       --------
      Earnings before depreciation and deferred taxes...................      $ 62,771       $ 25,852       $ 18,254
                                                                              ========       ========       ========
Average number of common shares outstanding - basic.....................        97,601         74,947         72,967
                                                                              ========       ========       ========
Average number of common shares outstanding - assuming dilution.........       100,768         75,835         72,967
                                                                              ========       ========       ========
</TABLE>

     The $36.9 million increase in EBDDT in 1997 compared to 1996 was primarily
because of a reduction in preferred stock dividends and improved results from
income-producing assets.

     The $7.6 million increase in EBDDT from 1995 to 1996 was primarily because
of an increase in gain on development property sales, improved operating results
from income-producing assets and a decrease in general and administrative
expenses, all of which were partially offset by higher interest expense in 1996
because of the decision that the Mission Bay project no longer qualified for the
capitalization of interest.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operating activities

     Cash provided by operating activities reflected in the statement of cash
flows for the years ended December 31, 1997, 1996 and 1995 was $84.2 million,
$111.1 million and $102.2 million, respectively.  The $26.9 million decrease
from 1996 to 1997 is primarily because of a $52.4 million increase in 1997
expenditures for development of

                                       36
<PAGE>

property for sale and residential acquisitions and an increase in notes and
accounts receivable related to development and sales activity offset by improved
earnings from income-producing properties. The Company started construction on
112 residential units and completed 128 units in 1997 compared to 68 starts and
24 completions for the same period in 1996. Capital expenditures for development
properties for the years ended 1997, 1996 and 1995 are included in the schedule
of capital expenditures in the following discussion of cash flows from investing
activities.

     The $8.9 million increase in cash provided by operating activities in 1996
compared to 1995 is primarily the result of a significant increase in 1996
development property and non-strategic land sales, offset by an increase in
interest expense and increased capital expenditures for properties developed to
be sold.

     Cash generated from sales of non-strategic land and development property
was $108.4 million, $113.1 million and $58.4 million for the years ended
December 31, 1997, 1996 and 1995, respectively.  Cash generated from rental
operations increased principally because of the addition of new buildings.


Cash flow from investing activities

     Net cash used in investing activities reflected in the statement of cash
flows for the years ended December 31, 1997,  1996 and 1995 was $156.5 million,
$64.4 million and $30.7 million, respectively. The increase between 1997 and
1996 is primarily because of a $67.8 million increase in capital expenditures
and $18.0 million increase in joint venture contributions.

     Capital expenditures reflected in the statement of cash flows include the
following:

<TABLE>
<CAPTION>
                                                                                  1997          1996          1995
                                                                                ---------     ---------     --------
                                                                                          (in millions)
<S>                                                                             <C>           <C>           <C>
CAPITAL EXPENDITURES INCLUDED IN CASH FLOW FROM OPERATING ACTIVITIES/(1)/
Capital expenditures for residential and industrial development properties....    $ 47.2         $ 24.7        $ 2.7
Residential property acquisitions/(3)/........................................      44.5           16.3            -
Capitalized interest and property tax.........................................       2.7            1.0          0.1
                                                                                  ------         ------        -----
                                                                                    94.4           42.0          2.8
                                                                                  ------         ------        -----

CAPITAL EXPENDITURES INCLUDED IN CASH FLOW FROM INVESTING ACTIVITIES /(2)/
Construction and building improvements........................................      68.2           32.8         14.8
Commercial property acquisitions..............................................      30.1           12.2          9.3
Predevelopment................................................................      17.4           11.1          3.7
Infrastructure and other......................................................      15.5           11.5          9.6
Capitalized interest and property tax.........................................       4.3            2.2         26.1
Tenant improvements...........................................................       5.7            3.6          2.2
                                                                                  ------         ------        -----
                                                                                   141.2           73.4         65.7
                                                                                  ------         ------        -----
Total Capital Expenditures/(3)/...............................................    $235.6         $115.4        $68.5
                                                                                  ======         ======        =====

(1) This category includes capital expenditures for properties the Company intends to sell.
(2) This category includes capital expenditures for properties the Company intends to hold for its own account.
(3) Excludes $16.2 million invested in join ventures to acquire residential property.
</TABLE>

     Capital expenditures for residential and industrial development properties
-- relates to the development of residential and for-sale industrial development
properties.  The increase from 1996 to 1997 is primarily because of the increase
in both residential and for-sale industrial development activity and the fact
that 1997 reflects the first full year of  residential activity since the
purchase of the Akins Companies in March 1996.

                                       37
<PAGE>

     Construction and building improvements --  relates primarily to development
of new industrial properties held for lease and improvements to existing
buildings. Industrial development activity is summarized below:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                       -----------------------
                                                            1997                  1996                1995
                                                       ---------------       --------------       -------------
<S>                                                    <C>                   <C>                  <C>
                                                                              (square feet)
Under construction, beginning of period..............       2,286,961              641,128             337,136
Construction starts..................................       3,804,000/(1)/       3,259,308             791,846
Completed - Retained in portfolio....................      (2,089,200)          (1,269,525)           (437,604)
Completed - Sold.....................................        (308,761)            (343,950)            (50,250)
                                                      ---------------           ----------            --------
     Under construction, end of period...............       3,693,000/(2)/       2,286,961             641,128
                                                      ===============           ==========            ========

(1)  The Company's total commercial construction starts in 1997 were 3.9 million
     square feet which included 81,000 square feet of retail development.
(2)  Includes 925,000 square feet of  "design-build" development for third-party
     landowners.
</TABLE>

     As of December 31, 1997, the Company had 3.7 million square feet under
construction, all of which is expected to be completed in 1998. Of the 3.7
million square feet under construction, approximately 1.7 million square feet is
expected to be added to the Company's portfolio.

     Property Acquisitions--During the second quarter of 1997, the Company
began the process of actively identifying and acquiring development sites beyond
its historical land holdings. As a result, the Company invested approximately
$90.8 million in the acquisition of new property directly or through joint
ventures.

  *  Residential acquisitions-- In 1997, the Company invested approximately
     $60.7 million in the acquisition of residential development property
     directly or through joint ventures. These acquisitions will support up to
     5,351 new residential lots and included the following significant
     acquisitions: (1) a 44-acre, 121-lot site in Playa del Rey, California, (2)
     a 31-acre, 96-lot site in Carlsbad, California, (3) an 8-acre, 47-lot site
     in Spinnaker Bay in the Long Beach (California) Marina, (4) a 27-acre, 122-
     lot site in Tustin, California, and (5) a 3,470-acre, 4,965-lot site in a
     Talega Valley residential land development project in San Clemente,
     California, through a joint venture. Entitlements and approvals
     for 2,670 lots have been received and are in progress for the remainder.

  *  Industrial acquisitions-- In 1997, the Company invested approximately $30.1
     million in the acquisition of industrial development property. These
     acquisitions added approximately 5.8 million square feet of potential
     industrial development. During the year, the company acquired: (1) 294
     acres of land in Denver, Colorado, (2) 27 acres of land in Oakland,
     California, (3) 13 acres of land in Richmond, California, (4) 62 acres of
     land in Mira Loma, California, and (5) 16 acres of land in San Jose,
     California. Entitlements have been received and construction or development
     of these sites has commenced or is scheduled to commence by mid-1998.


     Predevelopment--relates primarily to amounts incurred in obtaining
entitlements for the Company's major mixed-use projects. The annual increases in
predevelopment costs primarily relate to activity at the Mission Bay and Pacific
Commons projects .

     Infrastructure and other--primarily represents infrastructure costs
incurred in connection with the Company's major mixed-use and development
projects. The increase in 1997 compared to 1996 primarily relates to the Pacific
Commons and Woodridge, Illinois, projects.

     Capitalized interest and property taxes--represents construction period
interest and property taxes capitalized to the Company's development projects.
The increase in 1997 compared to 1996 is due to the significant increase in
development activity, as noted above.  The decrease in 1995 to 1996 is primarily
related to the Company's decision in 1995 that the Mission Bay project no longer
qualified for capitalization of interest.

                                       38
<PAGE>

     The $33.7 million increase in net cash used in investing activities in 1996
compared to 1995 is primarily from a decrease in short-term investments and
restricted cash.

Cash flow from financing activities

     Net cash provided by financing activities reflected in the statement of
cash flows increased by $116.9 million in 1997 compared to 1996. This increase
is primarily because of a $76.6 million increase in net borrowings used to
finance development projects, a $17.1 million decrease in preferred stock
dividends paid and a $26.3 million decrease in preferred stock redemptions.

     As of December 31, 1997, the Company had total outstanding debt of $568.7
million, of which 61.5% was non-recourse to the Company and secured by
certainproperty of the Company, 38.2% was recourse to the Company and also
secured by certain property and 0.3% was unsecured. During the next twelve
months, approximately $218.9 million of debt matures, consisting primarily of
the secured line of credit but also including construction financing, term loans
and first mortgage loans. The Company expects that the maturing debt will most
likely be resolved through a combination of long-term fixed-rate financing
combined with a restructure of the secured line of credit. All other maturing
debt is expected to be repaid upon sale of the property securing it, extended,
refinanced or repaid.


Capital commitments

     As of December 31, 1997, the Company had approximately $38.8 million in
total commitments for capital expenditures. These commitments are primarily to
fund the construction of industrial development projects, predevelopment costs
and re-leasing costs.


Cash balances, available borrowings and capital resources

     As of December 31, 1997, the Company had $17.3 million in cash and cash
equivalents. In September 1997, the Company modified its secured revolving
credit line to increase the maximum commitment from $240 million to $265
million. At December 31, 1997, the Company had available $72.9 million under its
modified secured revolving credit facility, $14.7 million under its residential
construction facilities and $25 million under an unsecured line of credit.

     The Company's short- and long-term liquidity and capital resources
requirements will essentially be provided from three sources: ongoing operating
income from rental properties, proceeds from development, non-strategic and
other asset sales and fee services income. As noted above, a secured revolving
line of credit, an unsecured line of credit and residential construction loan
facilities are available to the Company for meeting liquidity requirements. The
Company currently estimates the debt requirements relating to its planned
development activities will exceed the current commitment under existing debt
facilities. The Company believes it will be able to obtain the additional
required debt capacity to complete its planned development activities.

     Debt covenants. Certain loan agreements contain restrictive financial
covenants, the most restrictive of which require the maximum funded debt to net
worth ratio not to exceed 0.75:1, require stockholders' equity to be no less
than $385 million and require that the Company maintain certain specified
financial ratios. In addition, certain agreements restrict the total leverage
for the Company. The Company was in compliance with all such covenants at
December 31, 1997.

     Income taxes. At December 31, 1997, the Company's deferred tax liability
consisted of deferred tax assets totaling $113.8 million and deferred tax
liabilities of $231.5 million. Deferred tax assets included $7.5 million
relating to net operating loss carryforwards (''NOLs'') of $21.5 million. The
Company has NOLs of $14.5 million, $6.5 million, $0.3 million and $0.2 million
which expire in 2007, 2008, 2009 and 2011 (none of the Company's

                                       39
<PAGE>

NOLs are scheduled to expire in 2010). The Company's other deferred tax assets
of $106.3 million relate primarily to differences between book and tax basis of
properties. These deferred tax assets are not subject to expiration and will
likely be realized at the time of taxable dispositions of the properties.
Deferred tax liabilities in excess of deferred tax assets are often associated
with the same property, with the result that the deferred tax asset will likely
be realized in a taxable disposition, without regard to other taxable income.
The Company believes it is more likely than not that it will realize the benefit
of its deferred tax assets, and that no valuation allowance is required. In
making this determination, the Company considered: the nature of its deferred
tax assets (and liabilities); the amounts and expiration dates of its NOLs; the
historical levels of taxable income; the significant unrealized appreciation of
its properties, including properties likely to be sold during the NOL
carryforward periods; and its ability in many cases to control the timing of
property sales in order to assure that deferred tax assets will be offset by
deferred tax liabilities or realized appreciation.

     A significant portion of the Company's NOLs was used to reduce tax
payments for 1997, and the Company believes it will use the balance of its
NOLs to reduce tax payments for 1998. The estimated amount of federal tax
payments if any, will depend on the Company's taxable income.


ENVIRONMENTAL MATTERS

     Many of the Company's properties are in urban and industrial areas and may
have been leased to or previously owned by commercial and industrial tenants who
may have discharged hazardous materials. The Company incurs on-going
environmental remediation costs, including clean-up costs, consulting fees for
environmental studies and investigations, monitoring costs, and legal costs
relating to clean-up, litigation defense and the pursuit of responsible third
parties. Costs incurred in connection with operating properties and properties
previously sold are expensed. As of December 31, 1997, management has provided a
reserve of approximately $11 million for such costs. These costs are expected to
be incurred over an estimated ten-year period, with a substantial portion
incurred over the next five years.

     Costs incurred for properties to be sold are deferred and will be charged
to cost of sales when the properties are sold. Costs relating to undeveloped
properties are capitalized as part of development costs. At December 31, 1997,
the Company's estimate of its potential liability for identified environmental
costs relating to properties to be developed or sold ranged from $12.6 million
to $38.2 million. These costs generally will be capitalized as they are incurred
over the course of the estimated development period of approximately 20 years.
Environmental costs capitalized during the years ended December 31, 1997 and
1996 totaled $5.7 million and $2.8 million, respectively.

     While the Company or outside consultants have evaluated the environmental
liabilities associated with most of the Company's properties, any evaluation
necessarily is based upon then-prevailing law, identified site conditions and
sampling methodologies. The Company monitors its exposure to environmental costs
for properties it owns on a regular basis. Properties formerly owned by the
Company or its predecessors are not generally accessible for assessment.
Although an unexpected event could have a material impact on the results of
operations for any period, based on existing assessments, the Company does not
believe that such costs for identified liabilities will have a material adverse
effect on its financial position, results of operations or cash flows.


Year 2000 Compliance

     The Company has examined the problem presented by the inability of many
computer programs to distinguish the year 2000 from the year 1900 (the "Year
2000 Problem").  The primary software package used by the Company is one
designed by an outside vendor to be Year 2000 compliant (that is, not to be
negatively affected by the occurrence or use of a date in 2000).  Other
significant operating software has also been designed by third party vendors,
and the current versions being used have been certified as being Year 2000
compliant.  Although there can be no assurances, at the present time the Company
does not believe problems likely to be faced by its vendors, lenders or
customers because of the Year 2000 Problem would be likely to have a material
adverse impact on the Company.  The Company would be affected by systemic
problems in the economy resulting from the Year

                                       40
<PAGE>

2000 Problem, such as problems in air traffic control, other transportation
systems or overall economic dislocation. In addition, the Company's development
activities could be halted or materially delayed if its banks are, as a result
of the Year 2000 Problem, unable to advance funds on construction loans, lines
of credit or similar facilities. Beginning in 1998, the Company will begin
testing all of its systems to ensure Year 2000 compliance. The Company expects
to redeploy systems resources from its current staff for such testing so as to
eliminate any incremental costs.

                                       41
<PAGE>

Item 8.  Financial Statements and Supplementary Data

         The financial statements and schedules required under Regulation S-X
promulgated under the Securities Act of 1933 are identified in Item 14 and are
incorporated herein by reference.

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

         None.


                                  PART III

         Except for the information relating to the executive officers of the
Company set forth in Part I of this Annual Report on Form 10-K, the
information required by the following items in this Part III is hereby
incorporated by reference to the relevant sections contained in the Company's
definitive Proxy Statement ("1998 Proxy Statement") which will be filed with
the Securities and Exchange Commission in connection with the 1998 Annual
Meeting of Stockholders.

Item 10. Directors and Executive Officers of the Registrant

         The information in the section caption "Election of Directors" in the
1998 Proxy Statement is incorporated herein by reference. Information
concerning executive officers required by this Item 10 is located under Part
I, Item 4 and pages 23 through page 24 of this Form 10-K.

         The information in the section captioned "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the 1998 Proxy Statement is
incorporated herein by reference.

Item 11. Executive Compensation

         The information in the sections captioned "Election of Directors --
Directors' Compensation," "Employment Agreements" and "Compensation of
Executive Officers" included in the 1998 Proxy Statement is incorporated
herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         The information in the sections captioned "Security Ownership of
Directors and Executive Officers" and "Security Ownership of Certain
Beneficial Owners" in the 1998 Proxy Statement is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

         The information in the section captioned "Certain Transactions" in
the 1998 Proxy Statement is incorporated herein by reference.



                                   PART IV

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

         (a)(1) and (a)(2) Financial Statements and Financial Statement
Schedules

         See Index to Financial Statements and Financial Statement Schedules
at F-1 herein.

                                       42
<PAGE>

        All other Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

        (a)(3) Exhibits

<TABLE>
<CAPTION>

      Exhibit
        No.
      ------
<S>     <C>    <C>
        3.1     Form of Restated Certificate of Incorporation of the Registrant(1)

        3.1A    Amendment to Restated Certificate of Incorporation of the Registrant(6)

        3.2     Form of Certificate of Designations, Preferences and Rights of $3.25 Series A Cumulative Convertible Preferred
                Stock(2)

        3.3     By-Laws, as amended*

        3.4     Form of Certificate of Designations, Preferences and Rights of $3.625 Series B Cumulative Convertible Exchangeable
                Preferred Stock(6)

        4.1     Form of stock certificate representing Common Stock(1)

        4.2     Loan Agreement dated as of February 16, 1994 between the Registrant and The Prudential Insurance Company of
                America(7)

        4.3     Loan Agreement dated as of October 28, 1996 between the Registrant and Bank of America National Trust and Savings
                Association(10)

       10.1     Exploration Agreement and Option to Lease dated December 28, 1989 between the Registrant and Santa Fe Pacific
                Minerals Corporation(1)

       10.2     Registration Rights Agreement dated as of December 29, 1989 among the Registrant, BAREIA, O&Y and Itel(1)

       10.2A    Letter Agreement dated November 14, 1995 between the Registrant and California Public Employees' Retirement
                System(9)

        10.3    Restated Tax Allocation and Indemnity Agreement dated December 29, 1989 among the Registrant and certain of its
                subsidiaries and Santa Fe Pacific Corporation ("SFP")(1)

        10.4    State Tax Allocation and Indemnity Agreement dated December 29, 1989 among the Registrant and certain of its
                subsidiaries and SFP(1)

        10.5    Registrant's Incentive Stock Compensation Plan(3)

        10.6    Termination, Substitution and Guarantee Agreement between ATSF and the Registrant dated December 21, 1990(4)

        10.7    Registrant's Amended and Restated 1991 Stock Option Plan*

        10.8    Registrant's Amended and Restated Executive Stock Option Plan*

</TABLE>

                                       43
<PAGE>

<TABLE>
<CAPTION>

<S>    <C>     <C>
        10.9    Form of First Amendment to Registration Rights Agreement among the Registrant, BAREIA, O&Y and Itel(5)

        10.10   Amended and Restated Executive Employment Agreement dated as of November 29, 1995 between the Registrant and Nelson
                C. Rising(9)

        10.11   Executive Employment Agreement dated February 10, 1995 between the Registrant and Timothy J. Beaudin(8)

        10.12   Employment Agreement dated July 24, 1996 between the Registrant and Stephen P. Wallace(9)

        10.13   Registrant's Amended and Restated 1995 Stock Option Plan*

        10.14   Registrant's Amended and Restated 1996 Performance Award Plan*

        10.15   Employment Agreement dated February 1, 1996 between the Registrant and Ira Yellin(10)

        10.16   Letter Agreement dated February 1, 1996 between the Registrant and Ira Yellin(10)

        10.17   Amended and Restated Employment Agreement dated September 16,1997 between the Registrant and Kathleen Smalley*

        10.18   Letter Agreement dated November 16, 1996 between the Registrant and Steve Wallace(10)

        10.19   Letter Agreement dated November 16, 1996 between the Registrant and Timothy Beaudin(10)

        10.20   Office lease dated November 22, 1996 between Bradbury Associates, L.P. and the Registrant(10)

        10.21   Registrant's Deferred Compensation Plan*

        21.1    Subsidiaries of the Registrant*

        23.1    Consent of Independent Accountants*

        24.1    Powers of Attorney from directors with respect to the filing of the Form 10-K*

        27      Financial Data Schedule*

        99.1    Report of the Independent Real Estate Appraisers dated March 12, 1996(9)
</TABLE>

         The Registrant has omitted instruments with respect to long-term debt
where the total amount of the securities authorized thereunder does not exceed
10 percent of the assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant agrees to furnish a copy of such instrument
to the Commission upon request.

                                       44
<PAGE>

        (b)     Reports on Form 8-K

                None.
______________________________

*Filed with this report on Form 10-K.

(1)  Incorporated by reference to the Registration Statement on Form 10
     (Commission File No. 0-18694) as filed with the Commission on July 18, 1990
     ("Form 10").

(2)  Incorporated by reference to the Form 8 constituting a Post-Effective
     Amendment No. 1 to the Form 8-A as filed with the Commission on February
     19, 1993.

(3)  Incorporated by reference to the Form 8 constituting Post-Effective
     Amendment No. 1 to the Form 10 as filed with the Commission on November 20,
     1990.

(4)  Incorporated by reference to the Form 10-K for the year ended December 31,
     1990.

(5)  Incorporated by reference to Amendment No. 2 to Form S-3 as filed with the
     Commission on February 4, 1993.

(6)  Incorporated by reference to the Form 10-K for the year ended December 31,
     1993.

(7)  Incorporated by reference to Amendment No. 1 to the Form 10-K for the year
     ended December 31, 1993.

(8)  Incorporated by reference to the Form 10-K for the year ended December 31,
     1994.

(9)  Incorporated by reference to the Form 10-K for the year ended December 31,
     1995.

(10) Incorporated by reference to the Form 10-K for the year ended December 31,
     1996.
                                       45
<PAGE>

                                  SIGNATURES

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


                       CATELLUS DEVELOPMENT CORPORATION

                                By /s/ Nelson C. Rising
                                   --------------------------------
                                       Nelson C. Rising
                                       President and Chief Executive
                                       Officer

Dated:  March 31, 1998

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

<TABLE>
<CAPTION>


        Signature                                           Title                                  Date
        ---------                                           -----                                  ----
<S>                                                 <C>                                      <C>

   /s/  Nelson C. Rising
----------------------------------                   President, Chief Executive                March 31, 1998
        Nelson C. Rising                             Officer and Director
                                                     Principal Executive Officer
   /s/  Stephen P. Wallace
----------------------------------                   Senior Vice President and                 March 31, 1998
        Stephen P. Wallace                           Chief Financial Officer
                                                     Principal Financial Officer
   /s/  Paul A. Lockie
----------------------------------                   Vice President and Controller             March 31, 1998
        Paul A. Lockie                               Principal Accounting Officer


</TABLE>

                                       46
<PAGE>

        *                                       Director
-------------------------------------
        Joseph F. Alibrandi


        *                                       Director
-------------------------------------
        Daryl J. Carter


        *                                       Director
-------------------------------------
        Richard D. Farman


        *                                       Director
-------------------------------------
        Christine Garvey


        *                                       Director
-------------------------------------
        William M. Kahane


        *                                       Director
-------------------------------------
        Donald J. McNamara


        *                                       Director
-------------------------------------
        Leslie D. Michelson


        *                                       Chairman of the Board, Director
-------------------------------------
        Jacqueline R. Slater


        *                                       Director
-------------------------------------
        Thomas M. Steinberg


        *                                       Director
-------------------------------------
        Beverly Benedict Thomas





*       By/s/ PAUL A. LOCKIE
          -------------------
        March 31, 1998
        Paul A. Lockie
        Attorney-in-fact

                                       47
<PAGE>

                      CATELLUS DEVELOPMENT CORPORATION
                        INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


                                                                                               PAGE
                                                                                               ----

 FINANCIAL STATEMENTS
<S>                                                                                          <C>
 Report of Independent Accountants dated January 30, 1998....................................  F-2
 Consolidated Balance Sheet at December 31, 1997 and 1996....................................  F-3
 Consolidated Statement of Operations for the years ended December 31, 1997, 1996 and 1995...  F-4
 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1997, 1996
      and 1995...............................................................................  F-5
 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995...  F-6
 Notes to Consolidated Financial Statements..................................................  F-7
 Summarized Quarterly Results (Unaudited)....................................................  F-23

</TABLE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>

<S>                                                          <C>
Report of Independent Accountants dated January 30, 1998....................................  S-1
Schedule II -- Valuation and Qualifying Accounts............................................  S-2
Schedule III -- Real Estate and Accumulated Depreciation....................................  S-3
Attachment A to Schedule III................................................................  S-4
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
Catellus Development Corporation

     In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Catellus
Development Corporation and its subsidiaries at December 31, 1997 and 1996 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Francisco, California
January 30, 1998

                                      F-2
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION
                          CONSOLIDATED BALANCE SHEET
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                ------------------------------------------
                                                                        1997                   1996
                                                                --------------------    ------------------
ASSETS
<S>                                                                  <C>                    <C>
      Properties.............................................            $1,358,807            $1,235,440
      Less accumulated depreciation..........................              (235,832)             (211,338)
                                                                         ----------            ----------
                                                                          1,122,975             1,024,102

     Other assets and deferred charges, net..................                50,138                50,547
     Notes receivable, less allowance........................                30,971                11,924
     Accounts receivable, less allowance.....................                19,641                12,965
     Cash and cash equivalents...............................                17,294                23,580
                                                                         ----------            ----------
                    Total....................................            $1,241,019            $1,123,118
                                                                         ==========            ==========


LIABILITIES AND STOCKHOLDERS' EQUITY
     Mortgage and other debt.................................            $  568,699            $  496,742
     Accounts payable and accrued expenses...................                62,681                54,178
     Deferred credits and other liabilities..................                40,035                43,007
     Deferred income taxes                                                  117,705               106,738
                                                                         ----------            ----------
               Total liabilities.............................               789,120               700,665
                                                                         ----------            ----------

     Commitments and contingencies (Note 15)

     Stockholders' equity
        Preferred stock......................................                    --               274,428
        Common stock (106,503 and 77,028 shares
           issued at December 31, 1997 and 1996).............                 1,065                   770
        Paid-in capital......................................               476,047               197,709
        Accumulated deficit..................................               (25,213)              (50,454)
                                                                         ----------            ----------
               Total stockholders' equity....................               451,899               422,453
                                                                         ----------            ----------
                    Total....................................            $1,241,019            $1,123,118
                                                                         ==========            ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION
                     CONSOLIDATED STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                   ------------------------------------------------
                                                                       1997              1996              1995
                                                                   -------------     -------------     ------------
INCOME PRODUCING PROPERTIES
<S>                                                                <C>               <C>               <C>
     Rental revenue..........................................          $128,953          $115,886        $ 102,828
     Property operating costs................................           (38,670)          (39,408)         (30,650)
     Equity in earnings of joint ventures, net...............             7,436             5,993            5,826
                                                                       --------          --------        ---------
                                                                         97,719            82,471           78,004
                                                                       --------          --------        ---------
DEVELOPMENT ACTIVITIES AND FEE SERVICES
     Gain on development property sales......................            13,197            15,623              953
     Development and management fee income, net..............             6,449             3,432            1,924
     Equity in earnings of joint ventures, net...............             2,123               758            1,209
     Land holding costs, net.................................            (1,241)           (3,724)          (3,871)
                                                                       --------          --------        ---------
                                                                         20,528            16,089              215
                                                                       --------          --------        ---------
Interest expense.............................................           (39,988)          (42,521)         (25,757)
Depreciation and amortization................................           (31,245)          (30,561)         (27,990)
General and administrative expense...........................           (10,897)           (8,019)         (10,924)
Gain on non-strategic land and other asset sales.............             5,029            24,405           32,789
Adjustment to carrying value of property.....................                --                --         (102,400)
Litigation and environmental costs...........................             2,551             1,093             (961)
Other, net...................................................            (1,113)              (19)           2,504
                                                                       --------          --------        ---------
     INCOME (LOSS) BEFORE INCOME TAXES.......................            42,584            42,938          (54,520)
                                                                       --------          --------        ---------
Income tax (expense) benefit
     Current.................................................            (4,676)           (1,069)          (1,014)
     Deferred................................................           (12,667)          (16,468)          22,532
                                                                       --------          --------        ---------
                                                                        (17,343)          (17,537)          21,518
                                                                       --------          --------        ---------
     NET INCOME (LOSS).......................................            25,241            25,401          (33,002)
Preferred stock dividends....................................            (1,353)          (22,173)         (23,813)
Premium on redemption of preferred stock.....................                --            (1,334)              --
                                                                       --------          --------        ---------
     NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS.....          $ 23,888          $  1,894        $ (56,815)
                                                                       ========          ========        =========

     Net income (loss) per share of common stock -
         basic and assuming dilution.........................             $0.24             $0.03           $(0.78)
                                                                       ========          ========        =========
     Average number of common shares outstanding - basic.....            97,601            74,947           72,967
                                                                       ========          ========        =========
     Average number of common shares outstanding -
         assuming dilution...................................           100,768            75,835           72,967
                                                                       ========          ========        =========

</TABLE>

                See notes to consolidated financial statements.

                                      F-4
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                (IN THOUSANDS)

 <TABLE>
<CAPTION>


                                                PREFERRED STOCK             COMMON STOCK         PAID-IN       ACCUMULATED
                                                ---------------             ------------
                                             SHARES         AMOUNT        SHARES     AMOUNT      CAPITAL        DEFICIT
                                             ------         ------        ------     ------      -------     -----------

<S>                                        <C>             <C>                  <C>             <C>           <C>              <C>
Balance at December 31, 1994.............       6,450      $ 322,500       72,967     $  730     $220,338        $(43,879)
  Series A preferred stock dividends.....          --             --           --         --      (12,938)             --
  Series B preferred stock dividends.....          --             --           --         --      (10,875)             --
  Net loss...............................          --             --           --         --           --         (33,002)
                                               ------      ---------      -------     ------     --------        --------
Balance at December 31, 1995.............       6,450        322,500       72,967        730      196,525         (76,881)
  Redemption of Series A preferred stock.        (508)       (25,406)          --         --       (1,334)             --
  Conversion of Series A preferred stock.        (453)       (22,666)       2,502         25       22,641              --
  Series A preferred stock dividends.....          --             --           --         --      (11,298)             --
  Series B preferred stock dividends.....          --             --           --         --      (10,875)             --
  Exercise of stock options and other....          --             --        1,559         15        2,050           1,026
  Net income.............................          --             --           --         --           --          25,401
                                               ------      ---------      -------     ------     --------        --------
Balance at December 31, 1996.............       5,489        274,428       77,028        770      197,709         (50,454)
  Redemption of Series A preferred stock.          (8)          (395)          --         --          (69)             --
  Conversion of Series A preferred stock.      (2,481)      (124,033)      13,696        137      123,896              --
  Conversion of Series B preferred stock.      (3,000)      (150,000)      15,306        153      149,847              --
  Series B preferred stock dividends.....          --             --           --         --       (1,353)             --
  Exercise of stock options and other....          --             --          473          5        6,017              --
  Net  income............................          --             --           --         --           --          25,241
                                               ------      ---------      -------     ------     --------        --------
Balance at December 31, 1997.............          --      $      --       106,503    $1,065     $476,047        $(25,213)
                                               ======      =========       =======    ======     ========        ========
</TABLE>



                See notes to consolidated financial statements.

                                      F-5
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                ---------------------------------------------------
                                                                                    1997             1996                1995
                                                                                -------------     -----------        --------------
<S>                                                                             <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)..............................................            $  25,241          $  25,401            $ (33,002)
     Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
          Depreciation and amortization.............................               31,245             30,561               27,990
          Deferred income taxes.....................................               12,667             16,468              (22,392)
          Amortization of deferred loan fees and other costs........                2,959              4,799                2,743
          Equity in earnings of joint ventures......................               (9,559)            (6,751)              (7,035)
          Operating distributions from joint ventures...............               12,129             10,235                8,332
          Cost of non-strategic land and development properties sold              111,509             84,276               23,716
          Expenditures for development properties...................              (94,371)           (41,978)              (2,761)
          Adjustment to carrying value of property..................                   --                 --              102,400
          Other, net................................................                1,911             (1,904)               2,224
     Change in assets and liabilities:..............................
          Accounts and notes receivable.............................              (26,713)            (9,681)               1,306
          Other assets and deferred charges.........................               (1,110)           (13,444)              (5,652)
          Accounts payable and accrued expenses.....................               15,482             12,341                  850
          Other.....................................................                2,779                754                3,483
                                                                                ---------          ---------            ---------
Net cash provided by operating activities...........................               84,169            111,077              102,202
                                                                                ---------          ---------            ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Property acquisitions..........................................              (30,105)           (12,230)              (9,326)
     Capital expenditures...........................................             (105,396)           (57,517)             (54,190)
     Tenant improvements............................................               (5,697)            (3,613)              (2,246)
     Net proceeds from sale of other assets.........................                2,623              8,969                   --
     Contributions to joint ventures................................              (17,966)                --                   --
     Reduction in short-term investments and  restricted cash.......                   --                 --               35,067
                                                                                ---------          ---------            ---------
Net cash used in investing activities...............................             (156,541)           (64,391)             (30,695)
                                                                                ---------          ---------            ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings.....................................................              181,680            222,052               99,013
     Repayment of borrowings........................................             (107,467)          (224,470)            (135,884)
     Dividends paid.................................................               (5,975)           (23,067)             (23,813)
     Redemption of preferred stock..................................                 (471)           (26,739)                  --
     Contributions to/distribution from minority partners, net......               (5,167)             1,201                   --
     Proceeds from issuance of common stock.........................                3,486                174                   --
                                                                                ---------          ---------            ---------
Net cash provided by (used in) financing activities.................               66,086            (50,849)             (60,684)
                                                                                ---------          ---------            ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................               (6,286)            (4,163)              10,823
Cash and cash equivalents at beginning of year......................               23,580             27,743               16,920
                                                                                ---------          ---------            ---------
Cash and cash equivalents at end of year............................            $  17,294          $  23,580            $  27,743
                                                                                =========          =========            =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the year for:
          Interest (net of amount capitalized)......................            $  36,717          $  39,144            $  23,208
          Income taxes..............................................            $   1,338          $   1,009            $     444
</TABLE>

                See notes to consolidated financial statements.

                                      F-6
<PAGE>

                        CATELLUS DEVELOPMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  DESCRIPTION OF BUSINESS

         Catellus Development Corporation (the Company) is a diversified real
estate operating company, with a large portfolio of income-producing properties
and developable land, that manages and develops real estate for its own account
and others. The Company's portfolio of industrial, residential, retail and
office projects, undeveloped land and joint venture interests are primarily
located in major markets in California and 7 other western states. The Company's
income-producing properties consist primarily of industrial facilities, along
with a number of office and retail buildings located in California, Arizona,
Illinois, Texas, Colorado and Oregon. The Company also has substantial
undeveloped land holdings primarily in these same states.

         In March 1996, the Company acquired The Akins Companies (Akins), a
residential real estate company involved in home building, community development
and project management services, primarily in Southern California. Akins was
acquired in exchange for 1,528,421 shares of the Company's common stock in a
transaction that qualified for the pooling of interest method of accounting.
However, prior financial statements were not restated because Akins was not
material to the financial position, results of operations or cash flows of the
Company. Concurrent with this acquisition, Akins changed its legal name to
Catellus Residential Group (Residential Group) and commenced development of
certain of the Company's residential land holdings, projects previously started
by Akins and new development activities on properties owned by others.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation--The accompanying consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiaries
and investees over 50% owned which are controlled by the Company. All other
investees are accounted for using the equity method.

         Revenue recognition--Rental revenue, in general, is recognized when due
from tenants; however, revenue from leases with rent concessions or fixed
escalations is recognized on a straight-line basis over the initial term of the
lease. Direct costs of negotiating and consummating a lease are deferred and
amortized over the initial term of the related lease.

         The Company recognizes revenue from the sale of properties using the
accrual method. Sales not qualifying for full recognition at the time of sale
are accounted for under the percentage-of-completion method. In general,
specific identification is used to determine the cost of sales. Estimated future
costs to be incurred by the Company after completion of each sale are included
in cost of sales.

         Cash and cash equivalents --The Company considers all highly liquid
investments with a maturity of three months or less at time of purchase to be
cash equivalents.

         Financial instruments--The historical cost basis of the Company's notes
receivable is representative of fair value based on a comparison to year-end
interest rates for receivables of comparable risks and maturities. Mortgage and
other debt have carrying values which approximate estimated fair value based on
a comparison to year-end interest rates for debt with similar terms and
remaining maturities, with the exception of one of the Company's first mortgage
loans. As of December 31, 1997, this loan had an estimated aggregate fair market
value of approximately $270 million and remaining principal of $251.6 million.

         Property and deferred costs--Real estate is stated at cost or the lower
of cost or estimated fair value. For operating properties and properties held
for long-term investment, a write-down to estimated fair value is recognized
when a property's estimated undiscounted future cash flow, before interest
charges, is less than its book value. For properties held for sale, a write-down
to estimated fair value is recorded when the Company determines that the
carrying cost exceeds the estimated selling price, less cost to sell. This
evaluation is made by management

                                      F-7
<PAGE>

on a property by property basis. The evaluation of fair value and future cash
flows from individual properties requires significant judgment; it is reasonably
possible that a change in estimate could occur.

     The Company capitalizes construction and development costs. Costs
associated with financing or leasing projects are also capitalized and amortized
over the period benefited by those expenditures.

     Depreciation is computed using the straight-line method. Buildings and
improvements are depreciated using lives of between 20 and 40 years. Tenant
improvements are depreciated over the primary terms of the leases (generally 3-
15 years), while furniture and equipment are depreciated using lives ranging
between 3 and 10 years.

     Maintenance and repair costs are charged to expense as incurred, while
significant improvements, replacements and major renovations are capitalized.

     Allocated costs--Direct and indirect costs incurred by the Company in
connection with development property sales and development and management fees
are reflected as an offset to the associated revenues in the accompanying
consolidated statement of operations.

     Notes Receivable--Notes receivable are carried at the principal balance,
less estimated uncollectible amounts of $0.8 million as of December 31, 1996.
Interest is recognized as earned; however, the Company discontinues accruing
interest when collection is considered doubtful.  All notes are secured by real
property.

     Allowance for uncollectible accounts--Accounts receivable are net of an
allowance for uncollectible accounts totaling $2.1 million and $2.4 million at
December 31, 1997 and 1996, respectively.

     Environmental costs--The Company incurs on-going environmental remediation
costs, including clean-up costs, consulting fees for environmental studies and
investigations, monitoring costs, and legal costs relating to clean-up,
litigation defense, and the pursuit of responsible third parties. Costs incurred
in connection with operating properties and properties previously sold are
expensed. Costs relating to undeveloped land are capitalized as part of
development costs. Costs incurred for properties to be sold are deferred and
charged to cost of sales when the properties are sold.

     The Company maintains a reserve for known, probable costs of environmental
remediation to be incurred in connection with operating properties and
properties previously sold. When there is a legal requirement for environmental
remediation of developable land, the Company will accrue for the estimated cost
of remediation and capitalize that amount. Where there is no legal requirement
for remediation, costs will be capitalized, as incurred, as part of the project
costs.

     Income taxes--Income taxes are recorded based on the future tax effects of
the difference between the tax and financial reporting bases of the Company's
assets and liabilities. In estimating future tax consequences, expected future
events are considered except for potential income tax law or rate changes.

     Net income (loss) per share--Net income (loss) per share of common stock is
computed by dividing net income (loss), after reduction for preferred stock
dividends and premium on redemption of preferred stock, by the weighted average
number of shares of common stock and equivalents outstanding during the period
(see table below for effect of dilutive securities).

                                      F-8
<PAGE>

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                            ----------------------------------------------------------------------------------------

                                                        1997                        1996                            1995
                                            ----------------------------  ----------------------------    --------------------------

                                                                 Per                           Per                           Per
                                                                Share                         Share                         Share
                                            Income   Shares    Amount     Income    Shares   Amount        Income  Shares  Amount
                                            -------  ------    ------     ------    ------   ------        ------  ------  -------
                                                                     (In thousands, except per share data)
<S>                                         <C>       <C>      <C>        <C>        <C>     <C>          <C>        <C>     <C>
Net income (loss).......................    $25,241                       $ 25,401                        $(33,002)
Less: Preferred stock dividends.........     (1,353)                       (22,173)                        (23,813)
         Premium on redemption of
         preferred stock................          -                         (1,334)                              -
                                            -------                       --------                        --------
Net income (loss) applicable to
         common stockholders............     23,888    97,601      $0.24     1,894   74,947      $0.03     (56,815)  72,967  ($0.78)

                                                                   =====                         =====                        ======
Effect of dilutive securities:
         Stock options..................          -     3,167                    -      888                      -        -
                                            -------   -------             --------   ------               --------   ------
Net income (loss) applicable to common
       stockholders plus assumed
       conversion of options............    $23,888   100,768      $0.24  $  1,894   75,835      $0.03    $(56,815)  72,967  ($0.78)

                                            =======   =======  =========  ========   ======  =========    ========   ======  ======
</TABLE>


     Preferred stock convertible into 29,040,000 and 34,346,000 shares of common
stock was outstanding at December 31, 1996 and 1995, respectively, but was not
included in the computation of diluted income (loss) per share because the
assumed conversion would be anti-dilutive for each period.  In addition, at
December 31, 1995, options to purchase 2,877,000 shares of common stock were not
included in the computation of diluted income (loss) per share because the
options' exercise price was greater than the average annual market price of the
common stock.

     Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenue and expenses. Actual results could differ from those
estimates.

     Reclassifications--Certain prior year amounts have been reclassified to
conform with the current year financial statement presentation.

     New Accounting Standards--In the fourth quarter 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which
changes the method of calculation and presentation of earnings per share.  This
change did not have any impact on previously reported earnings per share amounts
for the years ended December 31, 1997, 1996 or 1995.

     During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, ''Reporting Comprehensive Income'',
and No. 131, ''Segment Reporting''. Both standards are effective for fiscal
years beginning after December 15, 1997. The Company plans to adopt these
standards in the first quarter of 1998 and does not expect that they will have a
material effect on its financial presentation and disclosure.

                                      F-9
<PAGE>

NOTE 3.  MORTGAGE AND OTHER DEBT

         Mortgage and other debt at December 31, 1997 and 1996 consisted of the
following (in thousands):


<TABLE>
<CAPTION>
                                                                                         1997             1996
                                                                                      -----------      -----------
<S>                                                                                   <C>              <C>
First mortgage loan, interest at an average rate of 8.71%, due at
  various dates through March 1, 2004 (a).......................................         $251,589         $259,063
Secured revolving credit line, interest variable (7.567% at December 31, 1997),
  due November 1, 1998 (b)......................................................          192,100          118,600
First mortgage loans, interest at 7.625% to 10.05%, due at various
  dates through March 1, 2009 (c)...............................................           65,843           67,249
Assessment district bonds, interest at 6.218% to 8.7%, due at various
  dates through April 10, 2021 (d)..............................................           17,825           21,012
Residential construction loans, interest variable (9.25% to 9.75%
  at December 31, 1997), due at various dates through September 25, 1998  (e)...            6,453           10,105
Term loan, secured, interest variable (7.625% at December 31, 1997),
  due August 1, 2002 (f)........................................................           12,929            9,000
Secured promissory notes, interest variable (9.5% to 10.5% at December 31, 1997),
  due at various dates through June 12, 2002 (g)................................           21,570            6,160
Construction loans, interest variable...........................................               --            5,028
Other loan, interest at 4.6%, due at various dates through
   December 31, 1999............................................................              390              525
                                                                                         --------         --------
                                                                                         $568,699         $496,742
                                                                                         ========         ========
</TABLE>

(a) This loan with The Prudential Insurance Company of America is collateralized
    by certain of the Company's operating properties and by an assignment of
    rents generated by the underlying properties. This loan has a penalty if
    paid prior to maturity.

(b) On October 28, 1996, the Company entered into an agreement for a $240
    million credit line which replaced six existing credit lines or term
    facilities. On September 15, 1997, the credit line was expanded by an
    additional $25 million to $265 million, subject to the underlying borrowing
    base. This credit line is used to fund the Company's development projects,
    interim capital requirements and to provide working capital for general
    corporate purposes. At December 31, 1997, $72.9 million was available for
    future borrowings. The credit line is collateralized by certain of the
    Company's operating properties, an assignment of rents generated by the
    underlying properties and certain land holdings.

(c) These first mortgage loans are collateralized by certain of the Company's
    operating properties and by an assignment of rents generated by the
    underlying properties. A majority of these loans have penalties if paid
    prior to maturity.

(d) The assessment district bonds are issued through local municipalities to
    fund the construction of public infrastructure and improvements which
    benefit the Company's properties. These bonds are secured by certain of the
    Company's properties.

(e) The Company's residential construction loans are used to finance development
    projects and are secured by the related land and improvements. The
    Residential Group and certain joint venture partners have guaranteed $6.1
    million of these borrowings. At December 31, 1997, $14.7 million was
    available for future borrowings under these residential construction loans.

                                      F-10
<PAGE>

(f) This secured term loan is collateralized by an operating property and by an
    assignment of rents generated by the underlying property.

(g) These promissory notes were used to finance land purchases for residential
    development projects and are secured by deeds of trust.

     As of December 31, 1997, the Company had a $25 million unsecured revolving
line of credit which matures May 1, 1998. There have been no advances under this
credit facility and, as of December 31, 1997, the entire $25 million was
available for future borrowings.

     Certain loan agreements contain restrictive financial covenants, the most
restrictive of which allows for a maximum funded debt to net worth not to exceed
75%, require stockholders' equity to be no less than $385 million, and that the
Company maintain certain specified financial ratios. In addition, certain
agreements restrict the level of total leverage for the Company. The Company was
in compliance with all such covenants at December 31, 1997.

     The maturities of mortgage and other debt outstanding as of December 31,
1997 are summarized as follows (in thousands):

<TABLE>
<S>                                                                                    <C>
     1998............................................................................     $218,933
     1999............................................................................       11,744
     2000............................................................................        9,774
     2001............................................................................       10,612
     2002............................................................................       83,231
     Thereafter......................................................................      234,405
                                                                                          --------
                                                                                          $568,699
                                                                                          ========
</TABLE>

     Interest costs relating to mortgage and other debt for the years ended
December 31, 1997, 1996 and 1995 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         1997         1996          1995
                                                                         ----         ----          ----
<S>                                                                 <C>          <C>          <C>
     Total interest incurred......................................     $46,684      $45,377      $ 49,316
     Interest capitalized.........................................      (6,696)      (2,856)      (23,559)
                                                                       -------      -------      --------
     Interest expensed............................................     $39,988      $42,521      $ 25,757
                                                                       =======      =======      ========
</TABLE>


NOTE 4.  INCOME TAXES

         The income tax expense (benefit) reflected in the consolidated
statement of operations differs from the amounts computed by applying the
federal statutory rate of 35% to income (loss) before income taxes as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                                 1997           1996         1995
                                                                                 ----           ----         ----
<S>                                                                     <C>              <C>           <C>
         Federal income tax expense (benefit) at statutory rate...........          $14,904       $15,028      $(19,082)
         Increase (decrease) in taxes resulting from:
            State income taxes, net of federal impact.....................            2,345         2,441        (2,460)
            Other.........................................................               94            68            24
                                                                                    -------       -------      --------
                                                                                    $17,343       $17,537      $(21,518)
                                                                                    =======       =======      ========
</TABLE>

                                      F-11
<PAGE>

     Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities and for operating loss and tax credit carryforwards. Significant
components of the Company's net deferred tax liability as of December 31, 1997
and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          1997          1996
                                                                          ----          ----
Deferred tax liabilities:
<S>                                                                  <C>          <C>
     Involuntary conversions (condemnations) of property...........     $ 89,076      $ 90,074
     Capitalized interest and taxes................................       88,580        89,119
     Like-kind property exchanges..................................       22,463        22,392
     Investments in partnerships...................................       23,335        20,544
     Other.........................................................        8,043         5,999
                                                                        --------      --------
                                                                         231,497       228,128
                                                                        --------      --------

     Deferred tax assets:
     Operating loss and tax credit carryforwards...................        9,757        14,345
     Intercompany transactions (prior to spin-off).................       14,620        16,332
     Capitalized rent..............................................       23,873        23,469
     Adjustment to carrying value of property......................       43,669        46,026
     Depreciation and amortization.................................       10,399         8,897
     Environmental reserve.........................................        4,624         4,633
     Other.........................................................        6,850         7,688
                                                                        --------      --------
                                                                         113,792       121,390
     Deferred tax assets valuation allowance.......................           --            --
                                                                        --------      --------
                                                                         113,792       121,390
                                                                        --------      --------
     Net deferred tax liability....................................     $117,705      $106,738
                                                                        ========      ========
</TABLE>

     During 1996, the Company generated a net operating loss carryforward of
$0.2 million for tax purposes which expires in 2011. Deferred income tax expense
was reduced to reflect the future benefit of this amount. Deferred tax assets
included $7.5 million relating to net operating loss carryforwards ("NOLs") of
$21.5 million. The Company has NOLs of $14.5 million, $6.5 million, $0.3 million
and $0.2 million which expire in 2007, 2008, 2009 and 2011 (none of the
Company's NOLs are scheduled to expire in 2010).

     The benefit of $1.7 million for the year ended December 31, 1997 associated
with the exercise of stock options is credited directly to paid-in capital on
the accompanying statement of shareholders' equity.


NOTE 5.  JOINT VENTURE INVESTMENTS

     The Company has investments in a variety of unconsolidated real estate-
oriented joint ventures that are involved in both operation of income-producing
properties and development of various other projects.  At December 31, 1997,
these joint venture investments included two hotels, one office building, a
1,200,000-square-foot trade mart center for the contract and home furnishing
industries, an apartment complex and other projects in the early stages of
development.

     The Company guarantees a portion of the debt and interest of certain of its
joint ventures. At December 31, 1997, these guarantees totaled $17.4 million.

                                      F-12
<PAGE>

     The condensed combined balance sheets and statement of operations of these
unconsolidated joint ventures, along with the Company's proportionate share, are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                              PROPORTIONATE
                                                                            COMBINED                             SHARE
                                                                     -----------------------              ---------------------
                                                                     1997              1996               1997             1996
                                                                     ----              ----               ----             ----
<S>                                                              <C>               <C>                 <C>             <C>
Assets:
     Income-producing properties:
           Property.........................................        $ 226,704         $ 233,150          $104,872         $107,656
           Other............................................           22,285            26,506            11,978           13,134
     Development projects:
           Property.........................................          113,483            62,720            23,085            4,461
           Other............................................            4,970            15,647             1,052            1,627
                                                                    ---------         ---------          --------         --------
                    Total...................................        $ 367,442         $ 338,023          $140,987         $126,878
                                                                    =========         =========          ========         ========

Liabilities and venturers' deficit:
     Income-producing properties:
           Notes payable....................................        $ 410,003         $ 401,266          $160,643         $161,748
           Other............................................           14,256            18,984             4,720            5,957
     Development projects:
           Notes payable....................................           23,847             8,525             1,842              144
           Other............................................            2,283               376               246               87
                                                                    ---------         ---------          --------         --------
                    Total liabilities.......................          450,389           429,151           167,451          167,936
                                                                    ---------         ---------          --------         --------

     Venturers' deficit:
          Income-producing properties.......................         (175,270)         (160,594)          (48,512)         (46,915)
          Development projects..............................           92,323            69,466            22,048            5,857
                                                                    ---------         ---------          --------         --------
                                                                      (82,947)          (91,128)          (26,464)         (41,058)
                                                                    ---------         ---------          --------         --------
                    Total liabilities and venturers' deficit        $ 367,442         $ 338,023          $140,987         $126,878
                                                                    =========         =========          ========         ========
</TABLE>

     The Company's proportionate share of venturers' deficit is an aggregate
amount for all ventures. Because the Company's ownership percentage differs from
venture to venture, and certain ventures have accumulated deficits while others
have accumulated equity, the Company's percentage of venturers' deficit is not
reflective of the Company's ownership percentage of the ventures. The Company
does not recognize its share of losses generated by joint ventures in excess of
its investment unless it is committed, legally or otherwise, to fund deficits in
the future.

     The Company has contributed appreciated property to certain of its joint
venture investments. Although the properties are recorded by the venture at fair
value on the date of contribution, the related gains have been deferred in the
Company's financial statements and will be recognized when the properties are
sold by the joint ventures.

                                      F-13
<PAGE>

<TABLE>
<CAPTION>
                                                         COMBINED                                   PROPORTIONATE SHARE
                                          ------------------------------------               -----------------------------------
                                          1997            1996            1995               1997           1996           1995
                                          ----            ----            ----               ----           ----           ----
<S>                                   <C>              <C>             <C>                <C>            <C>           <C>
Revenue
     Income-producing properties..        $144,291        $134,144        $127,678           $37,622        $35,527        $33,356
     Development projects.........          52,545          49,235           5,735            13,556          9,516          2,054
                                          --------        --------        --------           -------        -------        -------
                                           196,836         183,379         133,413            51,178         45,043         35,410
                                          --------        --------        --------           -------        -------        -------
Expenses
     Income-producing properties..         127,746         122,964         118,670            30,186         29,534         27,530
     Development projects.........          48,161          45,256           5,018            11,433          8,758            845
                                          --------        --------        --------           -------        -------        -------
                                           175,907         168,220         123,688            41,619         38,292         28,375
                                          --------        --------        --------           -------        -------        -------
Net earnings before income tax....        $ 20,929        $ 15,159        $  9,725           $ 9,559        $ 6,751        $ 7,035
                                          ========        ========        ========           =======        =======        =======
</TABLE>

         The Company had a loan outstanding to one of its joint ventures in the
amount of $1.7 million at December 31, 1995. During 1996, the Company converted
this note to equity in the joint venture.


NOTE 6.  PROPERTY

         Net book value by property type at December 31, 1997 and 1996 consisted
of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                 1997                1996
                                                                                 ----                ----
Income-producing properties:
<S>                                                                         <C>                 <C>
     Industrial buildings...............................................       $  351,704          $  291,608
     Office buildings...................................................          102,934             108,184
     Retail buildings...................................................           83,612              86,070
     Land development...................................................          331,360             323,134
     Land leases........................................................            8,036               6,627
                                                                               ----------          ----------
                                                                                  877,646             815,623
                                                                               ----------          ----------
Land holdings:
     Developable properties.............................................          229,202             200,624
     Natural resources..................................................            4,260               2,299
     Properties held for sale...........................................           28,129              37,223
                                                                               ----------          ----------
                                                                                  261,591             240,146
                                                                               ----------          ----------
Other (including proportionate share of joint ventures'
      net deficits of $26,464 and $41,058)..............................          (16,262)            (31,667)
                                                                               ----------          ----------
                                                                               $1,122,975          $1,024,102
                                                                               ==========          ==========
</TABLE>

         During 1997 and 1996, the Company took charges of $8.6 million and
$9.9 million, respectively, to cost of sales relating to non-strategic land
assets identified for sale during the year. During 1995, the Company took a
charge of $102.4 million to adjust the carrying value of certain properties. The
1995 charge included $84.8 million resulting from the Company's decision to
terminate the 1991 Development Agreement for its Mission Bay project in San
Francisco. The revised carrying value of the Mission Bay project represented
management's best estimate of its fair value, assuming the Company is successful
in re-entitling the property.

                                      F-14
<PAGE>

NOTE 7.  OTHER FINANCIAL STATEMENT CAPTIONS

OTHER ASSETS AND DEFERRED CHARGES, NET

         The Company's other assets and deferred charges at December 31, 1997
and 1996 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                               1997            1996
                                               ----            ----
<S>      <C>                                 <C>             <C>
         Unamortized lease commission......    $18,451        $16,183
         Rent concessions..................     10,410         10,061
         Deferred financing fees...........      8,752         10,904
         Other.............................     12,525         13,399
                                               -------        -------
                                               $50,138        $50,547
                                               =======        =======
</TABLE>

         Amortization of lease commissions was $3.2 million, $3.0 million and
$2.5 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Amortization of deferred finance fees of $3.0 million, $4.8 million and $2.7
million for the years ended December 31, 1997, 1996 and 1995, respectively, is
included in interest expense.

DEFERRED CREDITS AND OTHER LIABILITIES

         The Company's deferred credits and other liabilities at December 31,
1997 and 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                1997            1996
                                                ----            ----
<S>      <C>                                 <C>             <C>
         Environmental and legal reserve...    $12,995        $14,139
         Minority interest.................      5,991          8,008
         Deferred revenues.................      4,934          3,696
         Security deposits.................      4,258          4,155
         Other.............................     11,857         13,009
                                               -------        -------
                                               $40,035        $43,007
                                               =======        =======
</TABLE>

         The environmental reserve is more fully described in Notes 11 and 15.
Deferred revenues represent cash received by the Company in connection with
transactions which do not meet the criteria for sales recognition.

NOTE 8.  LEASES

         The Company, as lessor, has entered into noncancelable operating
leases expiring at various dates through 2039. Rental revenue under these leases
totaled $131.1 million in 1997, $118.7 million in 1996 and $106.8 million in
1995. Included in this revenue are rentals contingent on lessee's operations of
$3.0 million in 1997, $2.7 million in 1996 and $2.1 million in 1995. Future
minimum rental revenue under existing noncancelable operating leases as of
December 31, 1997 are summarized as follows (in thousands):

<TABLE>
<S>      <C>                                               <C>
         1998............................................   $ 96,957
         1999............................................     88,816
         2000............................................     79,569
         2001............................................     66,908
         2002............................................     53,239
         Thereafter......................................    445,053
                                                            --------
                                                            $830,542
                                                            ========
</TABLE>


                                      F-15
<PAGE>

         The book value of the Company's properties under operating leases or
held for rent at December 31, 1997 and 1996 are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                                             1997           1996
                                                             ----           ----
<S>      <C>                                            <C>           <C>
         Buildings....................................    $ 584,121       $ 527,190
         Land and improvements........................      199,980         173,828
                                                          ---------       ---------
                                                            784,101         701,018
         Less accumulated depreciation................     (220,084)       (197,586)
                                                          ---------       ---------
                                                          $ 564,017       $ 503,432
                                                          =========       =========
</TABLE>

          The Company, as lessee, has entered into noncancelable operating
leases expiring at various dates through 2023. Rental expense under these leases
totaled $2.5 million in 1997, $1.6 million in 1996 and $1.7 million in 1995.
Future minimum lease payments as of December 31, 1997 are summarized as follows
(in thousands):

<TABLE>
<CAPTION>

<S>      <C>                                                   <C>
         1998................................................    $2,182
         1999................................................     1,875
         2000................................................     1,414
         2001................................................     1,046
         2002................................................       728
         Thereafter..........................................     2,183
                                                                 ------
                                                                 $9,428
                                                                 ======
</TABLE>

                                      F-16
<PAGE>

NOTE 9.  REVENUES AND DIRECT COSTS BY ACTIVITY

         Revenues and related costs exclusive of depreciation and amortization
for the years ended December 31, 1997, 1996 and 1995 are summarized by activity
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                             PROPERTY            EXCESS (DEFICIT)
                                                                                         OPERATING  COSTS          OF REVENUES
                                                                     REVENUES           OR COSTS OF SALES           OVER COSTS
                                                                  --------------    ------------------------     ---------------
<S>                                                                <C>               <C>                    <C>
1997
INCOME-PRODUCING PROPERTIES:
     Industrial buildings......................................       $ 67,186                $ 14,529               $ 52,657
     Office buildings..........................................         29,713                  12,753                 16,960
     Retail buildings..........................................         13,273                   3,932                  9,341
     Land development..........................................         10,853                   6,557                  4,296
     Land leases...............................................          7,928                     899                  7,029
     Equity in earnings of joint ventures......................          7,436                      --                  7,436
                                                                      --------                --------               --------
                                                                       136,389                  38,670                 97,719
                                                                      --------                --------               --------
DEVELOPMENT ACTIVITIES AND FEE SERVICES:
     Commercial property sales.................................         39,587                  31,717                  7,870
     Residential property sales................................         82,632                  77,305                  5,327
     Development and management fees...........................         13,976                   7,527                  6,449
     Equity in earnings of joint ventures......................          2,123                      --                  2,123
     Land holdings.............................................          3,675                   4,916                 (1,241)
                                                                      --------                --------               --------
                                                                       141,993                 121,465                 20,528
                                                                      --------                --------               --------
                                                                      $278,382                $160,135               $118,247
                                                                      ========                ========               ========
1996
INCOME-PRODUCING PROPERTIES:
     Industrial buildings......................................       $ 55,865                $ 14,014               $ 41,851
     Office buildings..........................................         28,407                  12,661                 15,746
     Retail buildings..........................................         13,215                   4,376                  8,839
     Land development..........................................         10,589                   7,252                  3,337
     Land leases...............................................          7,810                   1,105                  6,705
     Equity in earnings of joint ventures......................          5,993                      --                  5,993
                                                                      --------                --------               --------
                                                                       121,879                  39,408                 82,471
                                                                      --------                --------               --------
DEVELOPMENT ACTIVITIES AND FEE SERVICES:
     Commercial property sales.................................         40,525                  26,709                 13,816
     Residential property sales................................         21,945                  20,138                  1,807
     Development and management fees...........................         11,945                   8,513                  3,432
     Equity in earnings of joint ventures......................            758                      --                    758
     Land holdings.............................................          4,874                   8,598                 (3,724)
                                                                      --------                --------               --------
                                                                        80,047                  63,958                 16,089
                                                                      --------                --------               --------
                                                                      $201,926                $103,366               $ 98,560
                                                                      ========                ========               ========
1995
INCOME-PRODUCING PROPERTIES:
     Industrial buildings......................................       $ 50,716                $ 11,193               $ 39,523
     Office buildings..........................................         28,662                  12,179                 16,483
     Retail buildings..........................................         11,364                   2,941                  8,423
     Land development..........................................          4,886                   3,308                  1,578
     Land leases...............................................          7,200                   1,029                  6,171
     Equity in earnings of joint ventures......................          5,826                      --                  5,826
                                                                      --------                --------               --------
                                                                       108,654                  30,650                 78,004
                                                                      --------                --------               --------
DEVELOPMENT ACTIVITIES AND FEE SERVICES:
     Commercial property sales.................................          3,224                   2,271                    953
     Development and management fees...........................          4,674                   2,750                  1,924
     Equity in earnings of joint ventures......................          1,209                      --                  1,209
     Land holdings.............................................          5,240                   9,111                 (3,871)
                                                                      --------                --------               --------
                                                                        14,347                  14,132                    215
                                                                      --------                --------               --------
                                                                      $123,001                $ 44,782               $ 78,219
                                                                      ========                ========               ========
</TABLE>

                                      F-17
<PAGE>

NOTE 10.  NON-STRATEGIC LAND AND OTHER ASSET SALES

          Based on management's assessment of the maximum value to be derived
from its various real estate holdings, the Company sells certain operating
properties, land parcels and other assets.

          The Company's non-strategic land and other asset sales for the years
ended December 31, 1997, 1996 and 1995 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          1997              1996              1995
                                                                          ----              ----              ----
<S>                                                                  <C>               <C>               <C>
NON-STRATEGIC LAND AND OTHER ASSETS:
Non-strategic land:
     Sales.......................................................        $28,347           $76,553          $62,199
     Cost of sales...............................................         24,918            56,894           29,410
                                                                         -------           -------          -------
          Gain...................................................          3,429            19,659           32,789
                                                                         -------           -------          -------
Other:
     Sales.......................................................          2,775             9,125               --
     Cost of sales...............................................          1,175             4,379               --
                                                                         -------           -------          -------
          Gain...................................................          1,600             4,746               --
                                                                         -------           -------          -------
Total:
     Sales.......................................................         31,122            85,678           62,199
     Cost of sales...............................................         26,093            61,273           29,410
                                                                         -------           -------          -------
          Gain...................................................        $ 5,029           $24,405          $32,789
                                                                         =======           =======          =======
</TABLE>

NOTE 11.  LITIGATION AND ENVIRONMENTAL COSTS

          Litigation and environmental costs for the years ended December 31,
1997, 1996 and 1995 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                1997            1996             1995
                                                                                ----            ----             ----
      <S>                                                                    <C>             <C>             <C>
          Litigation recovery...........................................       $   --          $   --         $ 6,450
          Environmental recovery (expense), net.........................        2,551           1,093          (7,411)
                                                                               ------          ------         -------
                                                                               $2,551          $1,093         $  (961)
                                                                               ======          ======         =======
</TABLE>

          Environmental costs charged to operations, including amounts charged
to cost of sales, for 1997, 1996 and 1995 totaled $0.1 million, $1.1 million and
$8.1 million, respectively. Environmental costs capitalized in 1997, 1996 and
1995 were $5.7 million, $2.8 million and $1.7 million, respectively.

   See further discussion regarding litigation and environmental matters at
                                   Note 15.

                                      F-18
<PAGE>

NOTE 12.  OTHER, NET

          Other income (expense) for the years ended December 31, 1997, 1996 and
1995 is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          1997             1996           1995
                                                                          ----             ----           ----
      <S>                                                              <C>              <C>            <C>
          Interest income...........................................    $   931          $ 1,212        $ 3,769
          Cost of S-3 registration..................................     (1,000)              --             --
          All other, net............................................     (1,044)          (1,231)        (1,265)
                                                                        -------          -------        -------
                                                                        $(1,113)         $   (19)       $ 2,504
                                                                        =======          =======        =======
</TABLE>

          The Company registered shares issued to the California Public
Employees' Retirement System during 1997. As the Company did not receive any
proceeds from this offering, such costs were expensed in the fourth quarter
1997.


NOTE 13.  EMPLOYEE BENEFIT AND STOCK OPTION PLANS

          The Company has a profit sharing and savings plan for all employees.
Funding consists of employee contributions along with matching and discretionary
contributions by the Company. Total expense for the Company under this plan was
$0.7 million, $0.4 million and $0.2 million in 1997, 1996 and 1995.

          The Company has various plans through which employees may purchase
common stock of the Company.

          The Incentive Stock Compensation Plan (Substitute Plan) was adopted to
provide substitute awards to employees whose awards under certain plans of the
former parent company, Santa Fe Pacific Corporation (SFP), were forfeited as a
result of the Company's spin-off from SFP in 1990. The number of shares,
exercise price and expiration dates of these awards were set so the participant
retained the full unrealized potential value of the original SFP grant. Options
became exercisable after March 5, 1992 and expire from 1996 through 1999.

          The Company also has four stock option plans under which each of two
committees of Board of Directors may grant options to purchase up to 8,750,000
shares of common stock (Stock Option Plan, 1995 Stock Option Plan, Amended and
Restated Executive Stock Option Plan and Amended and Restated 1996 Performance
Award Plan). The exercise price of options granted under these plans is
generally the fair market value of the common stock on the date of grant.
Options generally are exercisable no earlier than six months from the date of
grant and expire ten years after the date of grant. All options granted to date
are exercisable (a) in installments on a cumulative basis at a rate of 25% each
year commencing on the first anniversary of the date of grant, (b) in increments
based on stock price performance benchmarks, or (c) in increments based on a
combination of stock price performance benchmarks and time vesting requirements.

          The Company also has various plans through which non-employee
directors may purchase common stock of the Company.

          Under the Amended and Restated Executive Stock Option Plan, each non-
employee director was automatically granted an option, upon initial election to
the Board of Directors, to purchase 5,000 shares of common stock at a price of
127.63% of the fair market value on the date of grant, increasing 5% on each
anniversary of the grant date commencing on the sixth anniversary. These options
are exercisable in installments on a cumulative basis at a rate of 20% each
year. No further options may be granted to non-employee directors under this
plan.

          Under the Amended and Restated 1996 Performance Award Plan, each non-
employee director is automatically granted an option to purchase 5,000 shares of
common stock upon initial election to the Board of Directors and annually
thereafter during his or her term of service. The exercise price of these
options is the fair

                                      F-19
<PAGE>

market value of the common stock on the date of grant and the options are
exercisable based upon stock price performance benchmarks.


     In addition, under the Amended and Restated 1996 Performance Award Plan,
each non-employee director may elect to defer receipt of his or her annual
retainer fee, committee meeting fees and chairmen's retainer until termination
of board service or upon the occurrence of an earlier specified date which is at
least three years after the election of deferral and to acquire stock rather
than receive the cash retainer at a purchase price equal to 90% of the fair
market value of the common stock on the date of deferral.

     The Company has elected to follow Accounting Principles Board Opinion No.
25, ''Accounting for Stock Issued to Employees'' (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, ''Accounting for Stock-
Based Compensation'' (Statement 123) requires use of option valuation models
that were developed for use in valuing publicly traded stock options. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.

     Pro forma information regarding net income (loss) and income (loss) per
share is required by Statement 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method. The
weighted-average fair value of options granted during 1997, 1996 and 1995 were
$6.36, $3.30 and $2.34. The fair value of options granted was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.22%, 5.82% and 6.11%; zero percent dividend yields;
volatility factors of the expected market price of the Company's common stock of
29.95%, 29.56% and 30.77%, and a weighted-average expected life of the options
of five years.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands, except income (loss) per
share information):

<TABLE>
<CAPTION>
                                                                      1997            1996             1995
                                                                      ----            ----             ----
<S>                                                                <C>            <C>            <C>
     Pro forma net income (loss) applicable to
         common stockholders...................................       $21,120          $ 671        $(57,074)
                                                                      =======          =====        ========

     Pro forma income (loss) per share - basic.................       $  0.22          $0.01        $  (0.78)
                                                                      =======          =====        ========

     Pro forma income (loss) per share -
         assuming dilution.....................................       $  0.21          $0.01        $  (0.78)
                                                                      =======          =====        ========
</TABLE>


                                      F-20
<PAGE>

     A summary of the Company's stock option activity, and related information
for the years ended December 31, 1997, 1996 and 1995 is as follows (in
thousands, except exercise price information):

<TABLE>
<CAPTION>
                                              1997                             1996                                1995
                                ------------------------------   ---------------------------------    -----------------------------
                                              Weighted-Average                   Weighted-Average                  Weighted-Average
                                 Options       Exercise Price     Options         Exercise Price       Options      Exercise Price
                                ----------    ----------------   ----------      -----------------    ----------    ---------------
<S>                             <C>              <C>               <C>             <C>               <C>             <C>
Outstanding-beginning
    of year.................      6,361            $ 8.13            2,877            $ 9.84            1,779            $10.69
Granted.....................        778            $16.58            4,189            $ 8.85            1,305            $ 6.04
Exercised...................       (473)           $ 7.35              (68)           $ 7.15               --                --
Expired.....................         --                --               --                --             (207)           $14.51
Forfeited...................       (144)           $ 8.99             (637)           $10.81               --                --
                                  -----                              -----                              -----
Outstanding-end of year.....      6,522            $ 9.16            6,361            $ 8.13            2,877            $ 9.84
                                  =====                              =====                              =====
Exercisable at end of year..      2,129            $ 7.84              404            $ 7.32              277            $ 9.08
</TABLE>

          Exercise prices for options outstanding as of December 31, 1997 ranged
from $5.58 to $21.38.  The weighted-average remaining contractual life of those
options is 8.02 years.


NOTE 14.  CAPITAL STOCK

          The Company has authorized the issuance of 150 million shares of $.01
par value common stock. The Company has reserved 8,750,000 shares of common
stock pursuant to various compensation programs.

          Prior to September 1996, the Company had outstanding 3,449,999 shares
of $3.75 Series A Cumulative Convertible Preferred Stock (Series A preferred
stock) and 3,000,000 shares of $3.625 Series B Cumulative Convertible
Exchangeable Preferred Stock (Series B preferred stock). The Series A preferred
stock had an annual dividend of $3.75 per share and a stated value of $50 per
share. The Series A preferred stock was convertible into common stock at a price
of $9.06 per common share and was also redeemable, at the Company's option, at
any time after February 16, 1996, at $52.625 per share. The Series B preferred
stock had an annual dividend of $3.625 per share and a stated value of $50 per
share. The Series B preferred stock was convertible into common stock at a price
of $9.80 per common share and was also redeemable, at the Company's option, at
any time after November 15, 1996, at $52.5375 per share.

          During 1996, the Company commenced a series of calls for redemption of
its outstanding preferred stock. As a result of these calls, during 1996,
453,326 Series A preferred shares were converted into 2,501,783 common shares
and 508,113 Series A preferred shares were redeemed at a cost of approximately
$26.7 million. In 1997, 2,480,671 shares of Series A preferred stock and all of
the Series B preferred stock were converted into 29,001,469 shares of common
stock, with 7,889 shares of Series A preferred stock redeemed at a cost of
approximately $440,000. With the completion of these calls in June 1997, the
Company has no remaining outstanding  preferred stock.


NOTE 15.  COMMITMENTS AND CONTINGENCIES

          As of December 31, 1997, the Company has outstanding standby letters
of credit and surety bonds in the amount of $23 million in favor of local
municipalities or financial institutions to guarantee performance on real
property improvements or financial obligations.

          The Company, as a partner in certain joint ventures, has made certain
financing guarantees (Note 5).

                                      F-21
<PAGE>

          The Company is a party to a number of legal actions arising in the
ordinary course of business. While the Company cannot predict with certainty the
final outcome of these proceedings, considering the substantial legal defenses
available, management believes that none of these actions, when finally
resolved, will have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.

          Inherent in the operations of the real estate business is the
possibility that environmental liability may arise from the ownership, or
previous ownership, of real properties owned. The Company may be required in the
future to take action to correct or reduce the environmental effects of prior
disposal or release of hazardous substances by third parties, the Company, or
its corporate predecessors. Future environmental costs are difficult to estimate
because of such factors as the unknown magnitude of possible contamination, the
unknown timing and extent of the corrective actions which may be required, the
determination of the Company's liability in proportion to that of responsible
parties, and the extent to which such costs are recoverable from insurance.

          At December 31, 1997, management estimates that future costs for
remediation of identified or suspected environmental contamination on operating
properties and properties previously sold approximate $11 million, and has
provided a reserve for that amount. It is anticipated that such costs will be
incurred over the next ten years with a substantial portion incurred over the
next five years. Management also estimates that similar costs relating to the
Company's properties to be developed or sold may range from $12.6 million to
$38.2 million. These amounts will be capitalized as components of development
costs when incurred, which is anticipated to be over a period of twenty years,
or will be deferred and charged to cost of sales when the properties are sold.
The Company's estimates were developed based on reviews which took place over
several years based upon then prevailing law and identified site conditions.
Because of the breadth of its portfolio and past sales, the Company is unable to
review extensively each property on a regular basis. Such estimates are not
precise and are always subject to the availability of further information about
the prevailing conditions at the site, the future requirements of regulatory
agencies and the availability of other parties to pay some or all of such costs.

          In April 1991, a lawsuit was brought against the Company alleging
breach of contract for a finder's fee in connection with an August 1990 sale of
land in Fremont, California. On November 1, 1993, the jury returned a verdict in
favor of the plaintiff and made an award of approximately $440,000 which,
together with pre-judgment interest, totaled approximately $600,000.
Additionally, the jury awarded approximately $7.7 million in punitive damages
for what it found was the Company's bad faith denial of an alleged contract.
While the Company was vigorously pursuing an appeal, it recognized an expense of
$8.3 million in the 1993 consolidated statement of operations. In December 1995,
the Company reached a settlement with the plaintiff and $7.5 million of the
expense was reversed in the 1995 consolidated statement of operations.

                                      F-22
<PAGE>

SUMMARIZED QUARTERLY RESULTS (UNAUDITED)

          The Company's income and cash flow are determined to a large extent by
property sales. Sales and net earnings have fluctuated significantly from
quarter to quarter, as evidenced by the following summary of unaudited quarterly
consolidated results of operations. Property sales fluctuate from quarter to
quarter, reflecting general market conditions and the Company's intent to sell
property when it can obtain attractive prices. Cost of sales may also vary
widely because it is determined by the Company's historical cost basis in the
underlying land.

<TABLE>
<CAPTION>

                                                         1997                                           1996
                                        ---------------------------------------        ---------------------------------------
                                        FIRST     SECOND       THIRD     FOURTH        FIRST      SECOND     THIRD      FOURTH
                                        -----     ------       -----     ------        -----      ------     -----      ------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>      <C>         <C>        <C>          <C>       <C>         <C>         <C>
INCOME-PRODUCING PROPERTIES:
    Rental revenue .................    $30,805  $ 31,421    $ 32,901   $ 33,826     $ 28,034   $ 29,380    $ 28,606   $ 29,866
    Property operating costs .......    (9,056)   (10,045)     (9,794)    (9,822)      (8,987)    (9,928)     (9,953)   (10,540)
DEVELOPMENT ACTIVITIES AND FEE
SERVICES:
    Gain on development property
    sales...........................       484      3,154       3,368      6,191           --      6,569       2,746      6,308

    Development and management fee
     income, net ...................       719      1,435       2,223      2,072          403        410       1,182      1,437
Gain on non-strategic land and other
    asset sales  ...................     3,640        418         570        401        3,087      7,358       1,330     12,630
Interest expense ...................    (9,794)   (10,205)    (10,035)    (9,954)     (10,939)   (10,841)    (10,536)   (10,205)
General and administrative expense .    (2,615)    (2,701)     (2,926)    (2,655)      (2,060)    (1,997)     (1,661)    (2,301)
Depreciation and amortization ......    (7,476)    (7,723)     (7,839)    (8,207)      (7,672)    (7,432)     (7,550)    (7,907)
Net income .........................  $  5,109   $  5,685    $  6,278   $  8,169     $  1,714   $  8,817    $  2,752   $ 12,118
                                      ========   ========    ========   ========     ========   ========    ========   ========
Net income (loss) per common share -
      basic ........................  $   0.05   $   0.06    $   0.06   $   0.08     $  (0.06)  $   0.04    $  (0.05)  $   0.09
                                      ========   ========    ========   ========     ========   ========    ========   ========
Net income (loss) per common share -
      assuming dilution ............  $   0.05   $   0.06    $   0.06   $   0.07     $  (0.06)  $   0.04    $  (0.05)  $   0.09
                                      ========   ========    ========   ========     ========   ========    ========   ========

EBDDT (1) ..........................  $ 10,563   $ 16,297    $ 17,199   $ 18,712     $  1,521   $  8,716    $  5,567   $ 10,048
                                      ========   ========    ========   ========     ========   ========    ========   ========
</TABLE>


(1) The Company uses a supplemental performance measure called Earnings Before
    Depreciation and Deferred Taxes (EBDDT) along with net income to report its
    operating results. EBDDT is not a measure of operating results or cash flows
    from operating activities as defined by generally accepted accounting
    principles. Additionally, EBDDT is not necessarily indicative of cash
    available to fund cash needs and should not be considered as an alternative
    to cash flows as a measure of liquidity. However, the Company believes that
    EBDDT provides relevant information about its operations and is necessary,
    along with net income, for an understanding of its operating results.

    EBDDT is calculated by taking net income and making various adjustments.
    Depreciation, amortization and deferred income taxes are excluded from EBDDT
    as they represent non-cash charges. In addition, gains on the sale of non-
    strategic land and other assets and premium on the redemption of preferred
    stock represent nonrecurring items and are excluded from the EBDDT
    calculation.

                                      F-23
<PAGE>

                     REPORT OF INDEPENDENT ACCOUNTANTS ON
                         FINANCIAL STATEMENT SCHEDULES

The Board of Directors
and Stockholders of Catellus
Development Corporation

     Our audits of the consolidated financial statements referred to in our
report dated January 30, 1998, appearing on page F-2 of this Form 10-K of
Catellus Development Corporation, also included an audit of the Financial
Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion,
these Financial Statement Schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.

PRICE WATERHOUSE LLP

San Francisco, California
January 30, 1998

                                      S-1
<PAGE>

<TABLE>
<CAPTION>
                                           CATELLUS DEVELOPMENT CORPORATION

                                   SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                          THREE YEARS ENDED DECEMBER 31, 1997
                                                    (IN THOUSANDS)

                                                                        ADDITIONS
                                                               ----------------------------
                                                   BALANCE AT    CHARGED TO    CHARGED TO                   BALANCE AT
                                                   BEGINNING     COSTS AND       OTHER                      END OF YEAR
                                                    OF YEAR       EXPENSES      ACCOUNTS     DEDUCTIONS
                                                  -----------  ----------------------------  -----------   ------------
<S>                                                <C>           <C>           <C>           <C>     <C>    <C>
Year ended December 31, 1995
    Allowance for doubtful receivables.........       $ 1,863        $  504    $      --     $  616  (1)        $ 1,751
    Reserve for abandoned projects.............           977           407            --        38  (2)          1,346
    Reserve for environmental and legal costs..         8,395         5,965            --         5  (3)         14,355
Year ended December 31, 1996
    Allowance for doubtful receivables.........         1,751         1,053            81       533  (1)          2,352
    Reserve for abandoned projects.............         1,346            --            --        30  (2)          1,316
    Reserve for environmental and legal costs..        14,355            --           200       416  (3)         14,139
Year ended December 31, 1997
    Allowance for doubtful receivables.........         2,352           359             6       636  (1)          2,081
    Reserve for abandoned projects.............         1,316         1,275         1,226     1,422  (2)          2,395
    Reserve for environmental and legal costs..        14,139            --           574     1,718  (3)         12,995

</TABLE>
____________

Notes:
(1)  Balances written off as uncollectible.
(2)  Costs of unsuccessful projects written off.
(3)  Environmental and legal costs incurred.

                                      S-2
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1997
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                      COST CAPITALIZED       GROSS AMOUNT AT WHICH CARRIED
                                              INITIAL COST TO            SUBSEQUENT               AT CLOSE OF PERIOD
                                                  CATELLUS             TO ACQUISITION                (1)(2)(3)(4)
                                           ------------------------ ----------------------- ----------------------------------
                                                      BUILDINGS &                 CARRYING             BUILDINGS &
DESCRIPTION                 ENCUMBRANCES    LAND     IMPROVEMENTS    IMPROVEMENTS   COSTS     LAND     IMPROVEMENTS   TOTAL
--------------------------  -------------  ---------  ------------- ------------ ---------- --------- ------------ -----------
<S>                        <C>           <C>            <C>          <C>        <C>        <C>       <C>          <C>

Income-producing
    properties:
     Mission Bay,
      San Francisco, CA...   $   --       $ 80,587       $  3,952     $ 24,070   $ 42,790   $ 80,587   $   70,812   $  151,399
     Other properties
       less than 5% of
       total .............    534,077      144,312         35,492      557,049    211,708    144,312      804,249      948,561
                             --------     --------       --------     --------   --------   --------   ----------   ----------
                              534,077      224,899         39,444      581,119    254,498    224,899      875,061    1,099,960
                             --------     --------       --------     --------   --------   --------   ----------   ----------
Land holdings ............     34,622      121,478         11,697       98,327     32,862    121,478      142,886      264,364
                             --------     --------       --------     --------   --------   --------   ----------   ----------
Total ....................   $568,699     $346,377       $ 51,141     $679,446   $287,360   $346,377   $1,017,947   $1,364,324
                             ========     ========       ========     =======    ========   ========   ==========   ==========

</TABLE>

 <TABLE>
 <CAPTION>
                                                                        LIFE ON
                                                                         WHICH
                                                                      DEPRECIATION
                                                                       IN LATEST
                                                DATE OF                   INCOME
DESCRIPTION                  ACCUMULATED     COMPLETION OF   DATE       STATEMENT IS
                            DEPRECIATION     CONSTRUCTION   ACQUIRED     COMPUTED
---------------------------  -----------     ------------   ---------   -----------
<S>                          <C>              <C>         <C>           <C>

Income-producing

    properties:
     Mission Bay,
      San Francisco, CA...     $  3,323          N/A          various       (5)
     Other properties
      less than 5% of
      total ..............      218,991          N/A          various       (5)
                               --------
                                222,314
                               --------
Land holdings ............        2,773          N/A          various       (5)
                               --------
Total.....................     $225,087
                               ========


</TABLE>


Notes:

(1)  A reserve of $2,395,000 against predevelopment costs has been established
     for projects to be abandoned.
(2)  The aggregate cost for Federal income tax purpose is approximately
     $1,051,000.
(3)  See Attachment A to Schedule III for reconciliation of beginning of period
     total to total at close of period.
(4)  Excludes investments in joint ventures and furniture and equipment.
(5)  Reference is made to Note 2 to the Consolidated Financial Statements for
     information related to depreciation.

                                      S-3
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION
                          ATTACHMENT A TO SCHEDULE III
         RECONCILIATION OF COST OF REAL ESTATE AT BEGINNING OF PERIOD
                          WITH TOTAL AT END OF PERIOD
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                1997                1996                  1995
                                                             -----------       --------------        --------------
<S>                                                          <C>               <C>                   <C>
Balance at January 1                                          $1,258,121          $1,218,995             $1,276,955
                                                              ----------          ----------             ----------
     Additions during period:
          Acquisitions....................................        30,105              10,987                  9,326
          Improvements....................................       201,774             104,646                 58,967
          Reclassification from other accounts............           965                  30                    270
                                                              ----------          ----------             ----------
                   Total additions........................       232,844             115,663                 68,563
                                                              ----------          ----------             ----------
     Deductions during period:
          Cost of real estate sold........................       122,270              75,364                 23,716
          Other
              Write-down of properties to estimated
                        net realizable value..............            --                  --                102,400
              Reclassification to personal property
                       and other accounts.................         3,096               1,173                     --
              Increase reserve for abandoned projects.....         1,275                  --                    407
                                                              ----------          ----------             ----------
                   Total deductions.......................       126,641              76,537                126,523
                                                              ----------          ----------             ----------
Balance at December 31....................................    $1,364,324          $1,258,121             $1,218,995
                                                              ==========          ==========             ==========
</TABLE>



            RECONCILIATION OF REAL ESTATE ACCUMULATED DEPRECIATION
              AT BEGINNING OF PERIOD WITH TOTAL AT END OF PERIOD
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   1997                1996                   1995
                                                              ----------          ----------             ----------
<S>                                                           <C>                 <C>                   <C>
Balance at January 1......................................    $  202,352          $  177,312             $  154,002
                                                              ----------          ----------             ----------
     Additions during period:
          Charged to expense..............................        26,349              25,994                 24,342
                                                              ----------          ----------             ----------
     Deductions during period:
          Cost of real estate sold........................         3,488               1,190                    795
          Other...........................................           126                (236)                   237
                                                              ----------          ----------             ----------
                    Total deductions......................         3,614                 954                  1,032
                                                              ----------          ----------             ----------
Balance at December 31....................................    $  225,087          $  202,352             $  177,312
                                                              ==========          ==========             ==========
 </TABLE>

                                      S-4