EX. 13

               URBAN SHOPPING CENTERS, INC. ANNUAL REPORT 1997



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<TABLE>
<CAPTION>

CONTENTS
<S>                                                                       <C>
Letter to Shareholders....................................................  1

Business Concepts.........................................................  4

Property Locations........................................................ 12

Financial Highlights...................................................... 13

Management's Discussion................................................... 14

Financial Statements...................................................... 20

Notes to Financial Statements............................................. 24

Independent Auditors'Report............................................... 32

Selected Financial Data................................................... 33

Quarterly Financial Summary............................................... 33

Board of Directors/Officers............................................... 34

Shareholder Information................................................... 34

</TABLE>




Urban Shopping Centers, Inc. is a self-administered real estate investment
trust (REIT) in the business of owning, acquiring, managing, leasing,
developing and redeveloping super-regional and regional malls throughout the
United States. Urban Shopping Centers commenced operations in October 1993 and
is listed on The New York Stock Exchange and The Chicago Stock Exchange
(Symbol: URB).

     Urban Shopping Centers currently owns a portfolio consisting of interests
in seventeen retail properties comprised of more than 15 million square feet
of space and also has an approximate 1.1 million square foot regional mall and
an approximate 350,000 square foot community center under development. The
company opened Brandon TownCenter in Tampa, Florida in 1995 and Wolfchase
Galleria in Memphis, Tennessee on February 26, 1997. The company's portfolio,
excluding recent acquisitions and development, produced sales per square
foot of $364 in 1997, which ranks among the highest in the industry.

     Urban Shopping Centers owns interests in several of the premier shopping
centers in the United States, including Oakbrook Center (Oak Brook, Illinois),
Water Tower Place (Chicago, Illinois), Copley Place (Boston, Massachusetts),
San Francisco Shopping Centre (San Francisco, California) and Old Orchard
Center (Skokie, Illinois), as well as in Urban Retail Properties Co., its
property management, leasing and development affiliate. Urban Retail
Properties Co. is one of the nation's largest retail property managers,
managing more than 50 million square feet of regional malls and community
centers in 21 states and the District of Columbia.

<TABLE>
<CAPTION>

[Chart - Plot Points to Come]

Funds Available for Distribution (in millions)
----------------------------------------------
<S>  <C>  <C>
95   96   97

Sales Per Square Foot
----------------------------------------------
95   96   97

Dividend Payout Ratio
----------------------------------------------
95   96   97
</TABLE>
















URBAN SHOPPING CENTERS, INC.
ANNUAL REPORT 1997

TO OUR SHAREHOLDERS: 1997 was another active and successful year for Urban
Shopping Centers, Inc. We remained focused on all aspects of our business and
took several steps to continue to grow our company in a prudent manner.

HIGHLIGHTS Some of 1997's highlights include:
ACQUISITIONS During 1997, we completed four acquisitions, described below,
which increased the size of our owned retail portfolio by 3,531,000 square feet
or approximately 30%.
     In June, we invested in the partnership which owns San Francisco Shopping
Centre. San Francisco Shopping Centre is a vertical shopping mall located
on Market Street in downtown San Francisco. The center contains 495,000 square
feet of retail space on six levels and is anchored by a 312,000 square foot
Nordstrom store. This property, which is a mainstay of downtown San Francisco,
contains many of the same exciting and successful retailers that are already
in other centers in our portfolio.
     In August, we acquired an interest in Copley Place in Boston. Copley Place
is a mixed-use property and a well-known Boston landmark.  Anchored by Neiman
Marcus, Copley Place contains 369,000 square feet of retail space and 842,000
square feet of office space. We managed Copley Place prior to the acquisition
and are very pleased to be able to include it in our owned portfolio.
     In November, we acquired Hawthorn Center located in north suburban
Chicago. Hawthorn Center is a 1,234,000 square foot regional mall anchored by
Carson Pirie Scott, Marshall Field's, Sears and a new JCPenney.  We felt that
Hawthorn Center was an excellent complement to our portfolio, especially since
we already own Old Orchard Center, a dominant property approximately 17 miles
away. Because Hawthorn Center and Old Orchard both have distinct trade areas,
we feel we will be able to work with certain tenants who will be interested in
having a presence in both centers.
     Also in November, we acquired Fox Valley Center in Aurora, Illinois. This
1,433,000 square foot center, anchored by Carson Pirie Scott, JCPenney,
Marshall Field's and Sears, is located in a growing area approximately 32
miles west of Chicago. We are currently undertaking a renovation to further
attract the expanding population surrounding the center.
     We believe that the additions of Fox Valley Center and Hawthorn Center are
good strategic acquisitions because they give us a presence in two of the
fastest growing areas of Chicago and solidify our position as the dominant
owner/operator of regional malls in this major city.

DEVELOPMENT In February, we opened Wolfchase Galleria in Memphis, Tennessee.
This 1,086,000 square foot center is currently 99% leased, and has introduced
many new tenants to the Memphis market. It has quickly become the dominant mall
in Memphis and continues to attract shoppers from neighboring states.
     Development remains an important component of our growth story. As is
further described below, we have additional regional mall developments
scheduled for 1999 and beyond.

EXISTING PORTFOLIO We continue to be very focused on maximizing the value of
our existing properties. Despite the increasing size of our portfolio, our
management team remains committed to the hands-on, detailed asset management
approach that has served us so well in the past. Overall, our portfolio
continues to perform quite well, and remains one of the best leased and most
productive in our industry.

THIRD-PARTY BUSINESS Our property management, leasing and development
affiliate, Urban Retail Properties Co., is one of the country's largest retail
property managers. This company, in addition to managing a portion of Urban
Shopping Centers' own portfolio, continues to provide management, leasing,
development and consulting services to various institutional and
entrepreneurial owners who want to benefit from Urban Retail Properties Co.'s
retail relationships and expertise. We also continue to expand our presence
overseas. Urban Retail Properties Co.'s international affiliate, Urban Retail
International LLC, is currently working on assignments in Taiwan and Saudi
Arabia, and is also considering various other projects with foreign owners who
are attempting to develop retail projects around the world.


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LETTER TO OUR SHAREHOLDERS

CAPITAL STRUCTURE We remain committed to maintaining a strong financial
position as we grow our company. During 1997, we executed various debt
and equity transactions, further described below, which enhanced our balance
sheet and financial ratios.

1997 FINANCIAL OVERVIEW Our successes in acquisition and development are
matched by our record 1997 financial results. Funds Available for Distribution
(FAD) per common share grew 11.2% and our Board of Directors raised the
dividend for the fourth consecutive year. The stock market reacted
well to our year of success and the share price increased 20.3% during
1997. The end result was that Urban Shopping Centers' 27.3% total return to our
stockholders for 1997 was among the highest reported by regional mall REITs for
the third consecutive year. Over the last three years, the average total return
to our stockholders equaled 30.5% per year.

PROPERTY RESULTS Mall tenant sales for the year, excluding 1996 and 1997
acquisitions and new development, increased 4.7% to $1.39 billion compared to
$1.32 billion in 1996. Excluding our recent acquisitions and development, sales
per square foot were $364. The total mall gross leasable area occupied was
91.6% and 92.8% leased as of December 31, 1997.

DIVIDENDS, PAYOUT RATIO AND FINANCIAL STRATEGY Urban Shopping Centers' Board of
Directors increased the quarterly dividend in February 1997 to 50.75 cents per
share. At the Board's meeting in February 1998, the Directors approved another
dividend increase to 52.50 cents per share per quarter or $2.10 per share
annually.
     As long as we continue to find attractive ways to reinvest our capital,
one of our continuing goals is to annually increase the company's dividend --
thus increasing our yield for each shareholder -- while lowering our payout
ratio. We foresee continuing this trend in 1998. We believe our best strategy
is to continue to retain sufficient operating funds, which will increase our
overall financial flexibility, enabling us to take advantage of growth
opportunities when they arise. With 1997 Funds Available for Distribution of
$47.7 million, our total dividend of $35.5 million paid in 1997 represented a
payout ratio of 74%, compared to 79% in 1996.

CAPITAL STRUCTURE Since becoming a public company, Urban Shopping Centers has
been singularly committed to maintaining a strong financial position.
Towards this end, our management team took advantage of the positive interest
rate environment during 1997 which enabled us to obtain favorable pricing and
lengthen the maturity dates on more than $875 million of debt secured by
several of our properties. Some of the financing transactions were as follows:

-    In February, we completed a $170 million debt refinancing on Water Tower
     Place. We reduced the all-in interest rate by more than a full percentage
     point.
-    In April, we successfully engineered a significant reduction in the
     pricing and a longer maturity for our $90 million secured revolving line
     of credit.
-    In June, we completed the arrangement of $80 million in  fixed rate
     financing for Wolfchase Galleria, replacing a variable rate construction
     loan.
-    Also in June, we completed a $73.6 million financing for San Francisco
     Shopping Centre at a favorable rate.
-    In November, we completed a refinancing of $140 million of floating rate
     collateralized notes at Oakbrook Center which lengthened the maturity of
     the previous financing at a minimal cost and resulted in an upgrade in the
     rating of the securities to AAA/Aaa from Standard & Poor's Ratings Group
     and Moody's Investors Service.
-    Also in November, we were able to finance a portion of our acquisitions
     of Fox Valley Center and Hawthorn Center with debt, having a nine and
     eleven year maturity, respectively, at attractive fixed interest rates.
-    Finally, in December, we refinanced the debt at Old Orchard Center which
     extended the maturity date from 2000 to 2009 and, at the same time,
     reduced the interest rate by approximately one and one half percentage
     point.



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[ A PHOTO ]

From left to right:

Dennis M. Zaslavsky, Executive Vice President and Chief Operating Officer,
Urban Shopping Centers, Inc.

Joseph M. Shrader, President - Management, Urban Retail Properties Co.

Ross B. Glickman, President - Leasing, Urban Retail Properties Co.

James L. Czech, Executive Vice President, Urban Shopping Centers, Inc;
President - Development, Urban Retail Properties Co.; and President, Urban
Retail International LLC

Matthew S. Dominski, President and Chief Executive Officer, Urban Shopping
Centers, Inc.

Adam, S. Metz, Executive Vice President and Chief Financial Officer,
Urban Shopping Centers, Inc.




All of this financing activity enabled us to extend the weighted average
maturity of our debt to approximately eight years and lower our weighted
average interest rate to 6.84%.
     On the equity side, we completed a $100 million private placement of
cumulative convertible preferred stock to Security Capital Preferred Growth
Incorporated, an affiliate of Security Capital Group Incorporated. Security
Capital Preferred Growth invests in private and public real estate operating
companies with strong intermediate-term prospects for growth. We are pleased
to welcome Security Capital as an investor.
     At December 31, 1997, our debt to total market capitalization was
approximately 48% and our interest expense coverage ratio was 2.30 to 1.

WHAT TO LOOK FOR IN 1998 Our development pipeline will be a primary focus for
Urban Shopping Centers in 1998 as we continue to implement our strategy
for success. The next development scheduled for completion is our approximate
1.1 million square foot Citrus Park Town Center and the adjacent approximate
350,000 square foot Citrus Park Plaza in the fast-growing northwest Tampa,
Florida region. The initial work on these developments began last March and all
four anchor tenants for the mall have been secured. Each development is
proceeding on schedule with both projects slated to open in March 1999.
     Roseville, California, which is located within the Sacramento metropolitan
area, has been selected as the next development site. Current plans for
Roseville to open in the Fall of 2000 are progressing on schedule. Sears,
Roebuck and Co. has already committed to be one of the anchor stores for the
approximate one million square foot mall. Negotiations are underway with three
other prominent anchor candidates.
     With respect to our existing portfolio, we will continue to monitor each
tenant in our proprietary database to ensure that each mall stays ahead of
current retail trends. We will remain committed to ensure that each mall that
we own or manage benefits from the economies of scale from our national
operations.

From an acquisition standpoint, we will continue our discipline of not
purchasing properties simply to get bigger. With our large third-party
management company, we benefit from many economies of scale while maintaining
the agility of a much smaller enterprise. We will pursue properties that offer
a strategic fit with our overall portfolio and are priced at a level which
provides attractive long-term returns.
     As we strive to accomplish our goals in the future, we will continue to
rely on the many professionals at Urban Shopping Centers. It is truly our
people who, through their continuing efforts and expertise, have made Urban
Shopping Centers a leader in the ownership, development, leasing and management
of regional malls. We recognize our staff as one of our greatest competitive
advantages in the regional mall industry. We speak for all of them when we
thank you, our shareholders, for your continued support.


Sincerely,

/s/ Matthew S. Dominski
-------------------------------------
Matthew S. Dominski
President and Chief Executive Officer


/s/ Adam S. Metz
-------------------------------------
Adam S. Metz
Executive Vice President and Chief Financial Officer




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RECOGNIZING OPPORTUNITY "We make a continuous effort to understand our mall
markets, our evolving customer profile, the local retail competition and our
existing tenant mix at each property. We benchmark the performance of each
property and each customer against a proprietary database that includes
information from all the properties we own or manage nationwide. That's why
we suggested to Eddie Bauer that the company expand its already successful
presence at Old Orchard Center in suburban Chicago. Our research indicated a
growing demand for "lifestyle" products at that mall. Eddie Bauer relocated to
a larger space and added its Eddie Bauer Home products line, resulting in a
strong jump in sales." Steve Warsaw, Senior Vice President - Leasing, Urban
Retail Properties Co.

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"Old Orchard was actually one of the first malls where our company located a
store. We like the superior way Urban Shopping Centers designs and manages
their properties. The customer there is the right customer for us. It made
sense for us to showcase all three of our retailing concepts at Old Orchard -
Sportswear, Home Store and AKA Eddie Bauer." Carla Armfield, General Manager,
Eddie Bauer, Old Orchard Center



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[ PHOTO ]

EXPANDING OUR VISION OF EXCELLENCE "When Urban Shopping Centers took on the
ownership/management of San Francisco Shopping Centre, we did the same
exhaustive review of its strengths and weaknesses that we do with any new
property added to the portfolio. In the case of San Francisco Shopping Centre,
the property is located in one of the best retail locations in the world -
similar to Fifth Avenue in New York, Rodeo Drive in Beverly Hills and Michigan
Avenue in Chicago. The property has huge upside potential but was lacking
strong strategic direction in its leasing activities and tenant mix. We are
progressing well through a four-stage process of changing the retail mix at the
property which will eventually help it reach its true potential."  R. Webber
Hudson, Senior Vice President - Leasing, Urban Retail Properties Co., with
Cheryl Halota, Senior Leasing Representative, Urban Retail Properties Co.

                                  [ PHOTO ]

"We entered into partnership with Urban Shopping Centers to own and operate
San Francisco Shopping Centre because no one else has their expertise in
managing vertical mall properties. Urban Shopping Centers has the know how to
best manage lease renewals and changes in retail mix that could make this
property even more productive than in the past." H. Patrick Hackett, Jr., HM
Centre Investors, L.P.



                                      5

[ PHOTO ]


IMPROVING OUR EXISTING PORTFOLIO "We firmly believe that Oakbrook Center is one
of the finest malls in the country. Urban Shopping Centers has gone to great
lengths to make Oakbrook a true destination mall: quality anchor stores, unique
specialty shops, new restaurant concepts and entertainment. While others are
copying what we have done there, we are constantly searching for ways to be
ahead of trends and keep the mall an interesting destination for regional
shoppers. Clubhouse International, a golf-themed restaurant, is exactly
the kind of new trend we look for to help improve our whole retail and
entertainment mix."Daniel J. Pollard, Vice President - Leasing, Urban
Retail Properties Co., with Chuck Fleming, General Manager, Oakbrook Center

                                  [ PHOTO ]

"We wanted a world-class venue for our clubhouse and that is Oakbrook Center,
no doubt. With its expert mix of retail and entertainment, Urban Shopping
Centers has created an environment which will attract the customers we want."
Doug Zeif, Chief Operating Officer, Restaurant Operations,
Clubhouse International


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[ PHOTO ]

CREATING NEW CONCEPTS "The Finish Line's new 22,000 square foot store at our
Wolfchase Galleria property is an innovative new concept that looks
sensational. Other retailers have also brought their new stores to our
properties because of our track record of helping such new retailing ideas
succeed. Urban Shopping Centers consistently delivers a superior mix of retail
tenants in an entertaining shopping environment. This makes our properties
dominant, destination malls that attract the customer base retailers want." Max
S. Reiswerg, Senior Vice President - Leasing, Urban Retail Properties Co.

                                  [ PHOTO ]

"The Memphis retail market had been fragmented for many years. We saw all the
major department stores in the region getting under one roof at Wolfchase
Galleria and we knew we wanted to be there with our larger concept store. We
have numerous leasing agreements with Urban Shopping Centers nationwide. They
do a very professional job with their tenant mix, helping each store reach it's
optimum potential." George Sanders, Senior Vice President, Store Development,
Finish Line, Inc.



                                      7





[ PHOTO ]

PURSUING NEW BUSINESS "Urban Shopping Centers continues to work hard to expand
our third-party management business. In the past year, we have added
approximately 15 new regional mall and community center contracts with various
institutional and entrepreneurial owners. Our clients recognize the benefits
associated with our large portfolio. We use our national relationships to
introduce new tenants to a property, and to operate properties more effectively
because of our economies of scale when negotiating for goods and services."
Andrea Weisberg, Vice President, Urban Retail Properties Co.

                                  [ PHOTO ]

"We have been involved with Urban Shopping Centers and its predecessor  company
since the early 1980s. Met Life has been both a partner and lender to them and
they have been a partner or property manager for us. By utilizing Urban Retail
Properties Co. as our manager for a whole portfolio of properties, we are
trying to leverage their unparalleled expertise." Donald Devine, Vice
President, Metropolitan Life Insurance Co.



                                      8






[ PHOTO ]

REALIZING SUCCESS "As the portfolio we own or manage expands, Urban Shopping
Centers' continued success can be dependent upon how well we apply the
expertise previously gained to the challenges a new property poses. At Copley
Place in Boston, for example, we have to carry our expertise in managing
conventional mall properties to another level. The challenge at Copley is to
successfully manage the symbiosis of a mixed-use property which contains
hotels, corporate offices and a retail mall. By efficiently applying many of
the joint operating and marketing strategies developed earlier for Water Tower
Place, we were able to make Copley Place greater than the sum of its individual
parts." Robert W. Powell, Jr., Executive Vice President -  Management, with
Cynthia S. Bohde, Senior Vice President - Marketing, both of Urban Retail
Properties Co.

                                  [ PHOTO ]

"We decided to partner with Urban Shopping Centers at Copley Place because of
their demonstrated experience at successfully operating mixed-use properties.
We are already pleased with their ability to achieve the operating goals we
jointly planned for at the outset of our relationship. We have every
expectation that Urban Shopping Centers will continue to meet or exceed our
goals." Michael Molletta, Vice President - Control, Overseas Partners Capital
Corp.


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[ PHOTO ]

BROADENING OUR HORIZONS "Shopping centers are a purely American concept. With
more than 50 million square feet of shopping center space under our management
in the U.S., Urban Shopping Centers is becoming known internationally as the
company with the expertise to help other countries develop and run high quality
malls. When the Core Pacific project decision makers saw our management
expertise at work in vertical properties like Water Tower Place and 900 North
Michigan Avenue in Chicago, they felt confident we were the right company to
help make Core Pacific a success. We are also working with mall developers in
places like Saudi Arabia, Egypt, Turkey and India, all of whom would like to
utilize our expertise in developing, leasing and managing successful malls."
Mark A. Flom, Senior Vice President - Development, Urban Retail Properties Co.
and Urban Retail International LLC

                                  [ PHOTO ]

"We were interested in working with Urban International because their mall
development, planning and management expertise will provide our Core Pacific
project with a base for success. The company was both familiar with the Asia
market and offered us unmatched vertical mall management expertise. We were
impressed with their efficiency in forming a development team for the Core
Pacific project and its willingness to establish a long-term business
relationship with us." Lucy Liu, Vice Chairman, Core Pacific City Co. Ltd.



                                     10



                                  [ PHOTO ]

PLANNING FOR THE FUTURE "We had to use the broad spectrum of our expertise in
developing the more than 1.5 million square feet that will eventually become
the Citrus Park Town Center and its adjacent power center. Our research
capabilities led us to these 230 acres that are at the epicenter of the fastest
growing part of the Tampa region. The area has the type of income and
population demographics that we want. We leveraged our permitting and
construction expertise to get ground broken in 1997. Now we will utilize our
leasing and management abilities to get the right mix of anchor stores,
specialty shops, restaurants and entertainment so that when this project opens
in 1999, it will become the destination mall for shoppers in northwest Tampa."
W. Wayne Litzau, Senior Vice President - Development, Urban Retail Properties
Co.

                                  [ PHOTO ]

"Urban Shopping Centers' whole development team gets good grades from me. This
is their second mall development in the Tampa area and both have worked well
because of the strong public/private partnership they have built with local
government. In building their Citrus Park Town Center, they helped create a
local infrastructure to service the property. That infrastructure has been a
catalyst to general growth in the area." Jim Norman, County Commissioner,
Hillsborough County, Florida



                                     11

PROPERTY LOCATIONS
                                   [ MAP ]

XXX  Indicates this state contains properties owned by Urban Shopping Centers,
     Inc.

 ...  Indicates this state contains properties managed by Urban Retail
     Properties Co.

<TABLE>
<CAPTION>
PROPERTY                          LOCATION      TOTAL SQ. FT.   OWNERSHIP
------------------------------------------------------------------------------
<S> <C>                        <C>                         <C>            <C>
1   Oakbrook Center            Oak Brook, Illinois         2,015,000      100%
------------------------------------------------------------------------------
2   Old Orchard Center         Skokie, Illinois            1,796,000      100%
------------------------------------------------------------------------------
3   Fox Valley Center          Aurora, Illinois            1,433,000      100%
------------------------------------------------------------------------------
4   Hawthorn Center            Vernon Hills, Illinois      1,234,000      100%
------------------------------------------------------------------------------
5   MainPlace                  Santa Ana, California       1,116,000      100%
------------------------------------------------------------------------------
6   Citrus Park Town Center*   Tampa, Florida              1,100,000      100%
------------------------------------------------------------------------------
7   Wolfchase Galleria         Memphis, Tennessee          1,086,000      100%
------------------------------------------------------------------------------
8   Penn Square Mall           Oklahoma City, Oklahoma     1,075,000      100%
------------------------------------------------------------------------------
9   Brandon TownCenter         Tampa, Florida                980,000      100%
------------------------------------------------------------------------------
10  Miami International Mall   Miami, Florida                973,000       40%
------------------------------------------------------------------------------
11  Coral Square Mall          Coral Springs, Florida        941,000       50%
------------------------------------------------------------------------------
12  Water Tower Place          Chicago, Illinois             728,000       55%
------------------------------------------------------------------------------
13  Valencia Town Center       Valencia, California          675,000       25%
------------------------------------------------------------------------------
14  San Francisco Shopping
    Centre                     San Francisco, California     495,000       50%
------------------------------------------------------------------------------
15  Copley Place               Boston, Massachusetts         369,000       33%
------------------------------------------------------------------------------
16  Citrus Park Plaza *        Tampa, Florida                350,000      100%
------------------------------------------------------------------------------
17  The Plaza at Brandon
    TownCenter                 Tampa, Florida                243,000      100%
------------------------------------------------------------------------------
18  Service Merchandise
    Plaza                      Columbus, Ohio                165,000      100%
------------------------------------------------------------------------------
19  New York Square            Aurora, Illinois              116,000      100%
------------------------------------------------------------------------------
</TABLE>

* Under construction

                                      12
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>

($000's omitted, except share, per square foot and ratio amounts)
                                                       Years ended December 31
------------------------------------------------------------------------------
                                              1997          1996          1995
------------------------------------------------------------------------------
<S>                                    <C>           <C>           <C>
Total tenant sales (1)(2)              $ 1,926,202   $ 1,323,126   $ 1,278,097
Mall tenant sales (1)(2)(3)            $ 1,435,921   $   944,965   $   914,501
Sales per square foot (1)(3)(4)(5)     $       361   $       351   $       335
Property revenues (6)                  $   205,027   $   130,774   $   121,890
Interest expense coverage ratio (7)           2.30          2.67          2.60
Income before extraordinary items      $    22,093   $    19,969   $    18,644
Funds from operations (FFO) (8)        $    48,559   $    35,419   $    32,827
Funds available for distribution
 (FAD) (8)                             $    47,689   $    34,582   $    30,485
Average number of common and unit
 voting common shares outstanding       17,440,454    14,066,243    13,742,259
Common and unit voting common shares
 outstanding at end of period           17,667,343    17,081,336    13,742,259
Debt to total market capitalization (9)       47.6%         46.3%         49.3%
Occupancy (10)                                91.6%         91.2%         92.6%
==============================================================================


The chart below shows the calculation of funds from operations for the years
1995 through 1997:

<CAPTION>

                                              1997          1996          1995
------------------------------------------------------------------------------
<S>                                    <C>           <C>           <C>
Income before extraordinary items
 and minority interest                 $    35,464   $    30,702   $    28,595
Plus depreciation and amortization          31,435        19,232        17,695
Plus Company's share of depreciation
 and amortization from unconsolidated
 partnerships and Urban Retail
 Properties Co.                              6,502         4,129         3,995
Less preferred unit distributions and
 preferred stock dividends                  (2,771)          (75)           --
------------------------------------------------------------------------------
Total funds from operations            $    70,630   $    53,988   $    50,285
------------------------------------------------------------------------------
Company's share of funds from
 operations (11)                       $    48,559   $    35,419   $    32,827
==============================================================================

</TABLE>






The chart below shows the calculation of funds available for distribution for
the years 1995 through 1997:
<TABLE>
<CAPTION>

                                              1997          1996          1995
------------------------------------------------------------------------------
<S>                                    <C>           <C>           <C>
Total funds from operations            $    70,630   $    53,988   $    50,285
Plus non-cash effect of Oakbrook
 Center straight-lined ground rent
 and related interest                        3,332         3,173         3,218
Less adjustment to reflect actual cash
 received from Urban Retail
 Properties Co.                               (105)         (619)       (1,737)
Plus write-off of assets (12)                  581           308           787
Less straight-line rent adjustments (13)    (1,401)         (767)       (1,360)
------------------------------------------------------------------------------
Total funds available for distribution
 including other gains                 $    73,037   $    56,083   $    51,193
------------------------------------------------------------------------------
Company's share of funds available
 for distribution including other
 gains (11)                            $    50,214   $    36,794   $    33,420
==============================================================================

Total funds available for distribution
 excluding other gains                 $    69,364   $    52,711   $    46,697
------------------------------------------------------------------------------
Company's share of funds available
 for distribution excluding other
 gains (11)                            $    47,689   $    34,582   $    30,485
==============================================================================

</TABLE>

























(1) Only for those tenants who report sales.

(2) 1997 includes all regional malls. 1996 excludes Old Orchard Center, which
was acquired on December 18, 1996.

(3) Excludes anchors and movie theaters.

(4) Represents rolling twelve month sales per square foot as defined by the
International Council of Shopping Centers.

(5) 1997 includes all regional malls, except Wolfchase Galleria, which opened
on February 26, 1997. 1996 excludes Old Orchard Center, which was acquired on
December 18, 1996.

(6) Represents the Company's consolidated revenues and its share of revenues
from unconsolidated partnerships.

(7) Represents the ratio of total funds available for distribution before
interest expense (including the Company's share of unconsolidated entities) to
interest expense (including capitalized interest and excluding deferred
interest).

(8) FFO and FAD should not be considered as an alternative to net income or any
other GAAP measurement of performance as an indicator of operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity.

(9) Based upon a closing price of $34 7/8, $29 and $21 3/8 per share as of
December 31, 1997, 1996 and 1995, respectively.

(10) Occupancy of the regional malls as of December 31 of each year. 1996
excludes Old Orchard Center, which was acquired on December 18, 1996.

(11) Based upon a weighted average of 25,367,282, 21,440,480 and 21,050,426
common shares and units outstanding for 1997, 1996 and 1995, respectively.

(12) Includes the Company's share of unconsolidated partnerships and of Urban
Retail Properties Co.

(13) Includes the Company's share of unconsolidated partnerships.


                                      13

















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

The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Annual
Report. Historical and percentage relationships set forth in the Consolidated
Financial Statements and Notes should not be taken as indicative of future
operations of the Company.

REVIEW OF OPERATIONS Urban Shopping Centers, Inc. is in the business of owning,
acquiring, managing, leasing, developing and redeveloping retail shopping
centers. Strong performance of the Company's portfolio and property
acquisitions and new development produced a 37.9% increase in 1997 funds
available for distribution to $47.7 million from 1996 funds available for
distribution of $34.6 million. The 1996 funds available for distribution
increased 13.4% from 1995 funds available for distribution of $30.5 million.
Presented below is a discussion of sales, occupancy and rents at the
properties. Except as noted, this information is presented for all regional
malls on a combined basis.

SALES Management closely follows the level of retail sales at its properties.
Such sales affect profitability because they determine the amount the tenant
can afford to pay the landlord for total charges. Some of the specific sales
figures the Company follows are discussed and shown in the graph below.




































TOTAL TENANT SALES AND MALL TENANT SALES Management generally considers
increasing total tenant sales to be an indication that a property is attracting
more customers and providing a greater benefit to its tenants.  Mall tenant
sales indicate the amount of sales generated by the mall tenants.  During 1997,
mall tenants contributed approximately 89% of the Company's total regional mall
shopping center revenues. The following graph illustrates total tenant sales
and mall tenant sales at the Company's regional malls for 1993 through 1997.
     Excluding 1996 and 1997 acquisitions and new development, aggregate annual
sales volume at the regional malls for those mall shops and anchors that report
sales has increased 4.7% to $1.39 billion in 1997 from $1.32 billion in 1996.
Mall tenant sales (excluding anchors and movie theaters) increased 4.4% for the
same period.

Total Tenant Sales and Mall Tenant Sales Total
Tenant Sales (in millions)   Mall Tenant Sales (excludes anchors and movie
theaters) (in millions)

[Chart Plot Points to come]

SALES PER SQUARE FOOT Sales per square foot is reported based upon the
International Council of Shopping Centers definition and represents total
non-anchor reported sales divided by the total square feet occupied by the
tenants reporting those sales. Excluding 1996 and 1997 acquisitions and new
development, sales per square foot at the regional malls increased 3.8% to $364
in 1997 as compared to $351 in 1996. 1996 sales per square foot increased 4.8%
from 1995 sales per square foot of $335. We believe our sales per square foot
continue to be among the highest in the industry. Our sales level reflects the
quality and viability of our centers.

TENANT OCCUPANCY Tenant occupancy is one measure which reflects the demand for
space at our properties. The chart below shows the mall GLA occupancy rate at
the regional malls for 1993 through 1997. The slight decrease in occupancy in
1995 and 1996 is primarily attributable to temporary closures for the
renovation and re-merchandising of certain centers. Excluding 1996 and 1997
acquisitions and new development, occupancy was 92.6% at December 31, 1997. The
mall GLA was 92.8% leased at December 31, 1997.

Occupancy Rate at December 31
Occupancy, excluding anchors

[Chart Plot Points to come]

                                      14

















IN PLACE RENTS The average in place rents for the Company's regional malls
increased 3.3% to $30.52 per square foot at December 31, 1997 including 1997
acquisitions and new development, from $29.55 per square foot at December 31,
1996 excluding Old Orchard Center, which was acquired on December 18, 1996. The
December 31, 1996 average in place rents increased 2.5% from $28.83 per square
foot at December 31, 1995.

OCCUPANCY COSTS Occupancy costs generally consist of (i) minimum rent (the
contractual amount a tenant must pay), (ii) percentage rent (the percentage of
sales revenue a tenant must pay as additional rent) and (iii) expense
recoveries (the amount a tenant must pay to reimburse the landlord for the
costs of operating the mall), including real estate taxes.  Typically, when
occupancy costs for any specific tenant exceed a certain percentage of such
tenant's annual sales, the tenant may not be profitable.  Generally, tenants in
more productive regional malls are able to afford higher occupancy costs.
The following table sets forth the Company's regional mall occupancy costs (as
a percentage of sales) for the last five years.

<TABLE>
<CAPTION>

Years ended December 31            1997(1)  1996   1995   1994   1993
---------------------------------------------------------------------
<S>                                <C>      <C>    <C>    <C>    <C>
Mall Tenant Sales (2)              $1,253   $945   $915   $820   $784
Percent of Sales
   Minimum Rents                      8.6%   8.3%   8.2%   8.1%   8.1%
   Percentage Rents                    .4%    .4%    .4%    .5%    .5%
   Expense Recoveries (3)             3.4%   3.0%   2.8%   3.1%   2.9%
---------------------------------------------------------------------
In-Line Tenant
   Occupancy Costs (4)               12.4%  11.7%  11.4%  11.7%  11.5%
=====================================================================
</TABLE>

(1) 1997 excludes San Francisco Shopping Centre, Copley Place, Fox Valley
Center and Hawthorn Center, all acquired in 1997.

(2) In millions. Excludes sales from anchor tenants and movie theaters.

(3) Represents principally real estate tax and common area maintenance charges.

(4) Total mall tenant occupancy costs divided by total mall tenant sales
(excluding anchor tenants and movie theaters).

RESULTS OF OPERATIONS 1997 COMPARED TO 1996 Shopping center revenues increased
$57.2 million to $152.4 million in 1997 from $95.2 million in  1996. Minimum
rents and recoveries from tenants increased as a result of (i) the acquisitions
of Fox Valley Center and Hawthorn Center on November 14, 1997, (ii) the
acquisition of Old Orchard Center on December 18, 1996 and (iii) the opening of
Wolfchase Galleria on February 26, 1997. Minimum rents, percentage rents and
recoveries from tenants increased at Penn Square Mall,  MainPlace and Oakbrook
Center as a result of increases in average occupancy, rents and sales in 1997
as compared to 1996.






     Shopping center expenses, including depreciation and amortization,
increased $33.8 million to $86.0 million in 1997 from $52.2 million in 1996.
This increase was primarily attributable to (i) the acquisitions of Fox Valley
Center and Hawthorn Center on November 14, 1997, (ii) the acquisition of Old
Orchard Center on December 18, 1996 and (iii) the opening of Wolfchase Galleria
on February 26, 1997.
     Mortgage and other interest expense increased $19.7 million to $33.9
million in 1997 from $14.2 in 1996. This increase was primarily attributable
to (i) the acquisitions of Fox Valley Center and Hawthorn Center on November
14, 1997, (ii) the acquisition of Old Orchard Center on December 18, 1996 and
(iii) the opening of Wolfchase Galleria on February 26, 1997.
     General and administrative expense increased $0.6 million to $3.3 million
in 1997 from $2.7 million in 1996 primarily as a result of the Company's 1996
Incentive Unit Program.
     Income from unconsolidated partnerships increased $3.2 million to $6.2
million in 1997 from $3.0 million in 1996. This increase was primarily
attributable to (i) a decrease in interest expense at Water Tower Place as a
result of the February 10, 1997 refinancing, (ii) the purchase of an additional
approximate 18% interest in Miami International Mall on April 1, 1996, (iii)
the investment in a partnership resulting in a preferred 50% ownership interest
in San Francisco Shopping Centre on June 17, 1997 and (iv) the purchase of a
one-third equity interest in Copley Place on August 1, 1997.
     Income from the Management Company decreased $1.5 million to a $0.4
million loss in 1997 from $1.1 million in income in 1996. This decrease was
primarily attributable to (i) a decrease in management fees and lease
commissions as a result of a net decrease in management and leasing contracts,
including Old Orchard Center, which subsequent to the Company's acquisition on
December 18, 1996, is being managed by the Operating Partnership (such amounts
are eliminated in consolidation), (ii) an increase in mortgage interest as a
result of interest payable on the JMB Realty Corporation ("JMB Realty")
affiliated debt beginning in May 1996 and (iii) a write-down of an outstanding
mortgage loan receivable of an affiliated joint venture, recognized in the
fourth quarter of 1997. These decreases were partially offset by a decrease in
income taxes as a result of a decrease in operating income.


                                     15























MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)

     Other gains of $3.7 million in 1997 represent (i) the $1.8 million gain on
sale of an outparcel of land at Wolfchase Galleria during the second quarter of
1997 and (ii) the $1.9 million gain on sale of the Burdines store at Brandon
TownCenter during the third quarter of 1997. Other gains of $3.4 million in
1996 represent the gains on sale of four outparcels at Wolfchase Galleria.
     The extraordinary items, net of minority interest, of $5.7 million in 1997
represent prepayment penalties and the write-off of unamortized financing costs
related to the refinancing of indebtedness at Old Orchard Center, Oakbrook
Center, Wolfchase Galleria and Water Tower Place.

1996 COMPARED TO 1995 Shopping center revenues increased $6.2 million to $95.2
million in 1996 from $89.0 million in 1995. Minimum rents and recoveries from
tenants increased at Brandon TownCenter primarily due to its having been open
for a full year in 1996 as compared to a partial year in 1995.  Minimum rents
and recoveries from tenants increased as a result of the acquisition of Old
Orchard Center on December 18, 1996. Minimum rents and recoveries from tenants
increased at Penn Square Mall primarily due to its completed expansion of
various new mall shops and a 125,000 square foot JCPenney store on October 30,
1995. Percentage rents at certain centers increased in the fourth quarter of
1996.
     Interest income decreased $0.7 million to $1.9 million in 1996 from $2.6
million in 1995. This decrease was primarily attributable to a decrease in the
average outstanding investment balance in 1996. The Company's strategy is to
utilize cash to reduce borrowings on the Company's line of credit.
     Shopping center expenses, including depreciation and amortization,
increased $1.9 million to $52.2 million in 1996 from $50.3 million in 1995.
This increase was primarily attributable to (i) Brandon TownCenter having been
open for a full year in 1996 as compared to a partial year in 1995, (ii) the
acquisition of Old Orchard Center on December 18, 1996 and (iii) the completed
expansion of Penn Square Mall in October 1995. These increases were partially
offset by a decrease in management fees as a result of the termination of
management contracts with the Management Company for six of the Company's
consolidated investment properties during 1995. New management contracts were
entered into with the Operating Partnership and those fees are eliminated in
consolidation.
     Income from unconsolidated partnerships increased $1.7 million to $3.0
million in 1996 from $1.3 million in 1995. This increase was primarily
attributable to the purchase of an additional approximate 18% interest in Miami
International Mall on April 1, 1996 and an increase in operations at Water
Tower Place.
     Income from the Management Company decreased $2.0 million to $1.1 million
in 1996 from $3.1 million in 1995. This decrease was primarily attributable to
(i) a decrease in management fees as a result of the termination of management
contracts for six of the Company's consolidated investment properties during
1995, (ii) an increase in operating expenses and (iii) an increase in mortgage
interest as a result of interest payable on the JMB Realty affiliated debt
beginning in May 1996. These decreases were partially offset by increases in
development recoveries and lease commissions.
     Other gains of $3.4 million in 1996 represent the gains on sale of four
outparcels at Wolfchase Galleria. Other gains of $4.5 million in 1995 represent
the gains on sale of two Company purchase options.
     The extraordinary item, net of minority interest, of $1.0 million in 1995
represents the write-off of unamortized financing costs relating to the
repayment of the construction loan at Brandon TownCenter.



LIQUIDITY AND CAPITAL RESOURCES FINANCIAL CONDITION Net cash  flows from
operating activities increased $13.9 million in 1997 from 1996.  This increase
was primarily attributable to an increase in rental operations as discussed
above. Net cash flows from operating activities increased $5.9 million in 1996
from 1995. This increase was primarily attributable to an increase in rental
operations as discussed above and receipt of prepaid rents (included in
accounts payable and other liabilities in the accompanying consolidated balance
sheets).
     Net cash flows used in investing activities increased $50.5 million in
1997 from 1996. This increase was primarily attributable to (i) the
acquisitions of Fox Valley Center and Hawthorn Center in November 1997, (ii)
the investment in a partnership resulting in a 50% preferred ownership interest
in San Francisco Shopping Centre in June 1997, (iii) the acquisition of land in
Roseville, California in June 1997 and (iv) cash contributions to San Francisco
Shopping Centre, Citrus Park and Miami International Mall. These increases were
partially offset by proceeds from the sale of the Burdines store at Brandon
TownCenter in September 1997 and a decrease in additions to investment
properties as a result of the completion and opening of Wolfchase Galleria in


                                     16







































February 1997. Net cash flows used in investing activities increased $91.4
million in 1996 from 1995. This increase was primarily attributable to (i) the
purchase of Old Orchard Center in December 1996, (ii) the purchase of an
additional approximate 18% interest in Miami International Mall in April 1996,
(iii) the continuing construction costs incurred at Wolfchase Galleria in 1996
and (iv) a decrease in the net sales and maturities of short-term investments.
These increases were partially offset by the acquisition of development parcels
at Wolfchase Galleria in 1995 and a decrease in additions to investment
properties as a result of the completion and opening of Brandon TownCenter in
1995.
     Net cash flows from financing activities increased $35.2 million in 1997
from 1996. This increase was primarily attributable to the proceeds from a
permanent loan at Wolfchase Galleria and the issuance of common stock, unit
voting common stock and preferred stock in 1997. These increases were partially
offset by the repayment of the construction loan at Wolfchase Galleria and the
increased cash distributions to limited partners of the Operating Partnership
and dividends paid to shareholders. Net cash flows from financing activities
increased $92.8 million in 1996 from 1995. This increase was primarily
attributable to additional fundings in 1996 from (i) the Company's line of
credit, (ii) the construction loan at Wolfchase Galleria and (iii) the issuance
of common stock, preferred units in the Operating Partnership and unit voting
common stock in 1996. These increases were partially offset by the net fundings
from the construction loan at Brandon TownCenter in 1995.
     At December 31, 1997, the Company and its consolidated ventures had cash,
cash equivalents and short-term investments of $1.3 million.
     Beginning with the dividend declared and paid in the first quarter of
1998, the Company increased its quarterly dividend to $0.5250 per share, up
3.4% from $0.5075 per share previously.

CAPITALIZATION At December 31, 1997, the Company's debt (including the
Company's share of debt of unconsolidated partnerships and the Management
Company) totaled $954.4 million of which $918.6 million is fixed rate debt and
$35.8 million is floating rate debt. On December 11, 1997, the Company
refinanced the Old Orchard Center $158.6 million of indebtedness. In connection
with the refinancing, the Company paid $7.8 million in prepayment penalties.
The new loan of $168.0 million bears interest at 6.98% and matures on December
11, 2009. On November 14, 1997, the Company acquired Fox Valley Center and
Hawthorn Center. A portion of the acquisitions was financed by two
non-recourse, fixed rate loans. At Fox Valley Center, a nine-year $85.5 million
loan was secured while at Hawthorn Center, an eleven-year $77.9 million loan
was secured. Both loans bear interest at 6.75%. On November 3, 1997, the
Company refinanced the Oakbrook Center $140.0 million of indebtedness. The new
loan bears interest at a fixed rate of 6.14% through an interest rate swap
agreement and matures on October 29, 2004. On August 1, 1997, the Company
acquired a one-third equity interest in Copley Place Associates, LLC (the
"LLC"). Concurrent with the acquisition, the LLC secured financing for $195.0
million which bears interest at a fixed rate of 7.44% and matures on August 1,
2007. On June 17, 1997, the Company made an investment in a partnership
resulting in a preferred 50% ownership interest in San Francisco Shopping
Centre. Concurrent with the investment, a new loan of $73.6 million was
secured, of which $61.4 million was initially funded. On October 2, 1997, $7.8
million was paid down on the outstanding balance. The loan bears interest at a
fixed rate of 6.90% through an interest rate swap agreement and matures on July
1, 2002; however, it may be extended for three one-year periods.  On June 30,
1997, the Company secured  $80.0 million of indebtedness at Wolfchase Galleria.
The loan bears interest at 7.80% and matures on June 30, 2007. In connection
with the funding on the new loan, the Company repaid the $41.8 million then
outstanding balance on the construction loan at Wolfchase Galleria. On February
10, 1997, the Company refinanced the Water Tower Place $170.0 million of
indebtedness. The new loan matures on February 1, 1999; however, it may be
extended for two one-year periods. Of the total $170.0 million, $160.0 million
bears interest at LIBOR + 1.125% and $10.0 million bears interest at LIBOR +
1.500%. On July 26, 1995, the company signed an agreement with a group of
lenders for the establishment of a $90.0 million secured, revolving line of
credit ("Line"). The Line is currently subject to a floating interest rate of
0.85% over LIBOR (6.8305% at December 31, 1997). As of December 31, 1997, $35.8
million was outstanding. On November 6, 1996, the Company entered into an
agreement with a lender for a one year $5.0 million unsecured revolving line of
credit, which subsequently has been amended to increase the line to $7.5
million and extend the maturity to January 29, 1999. This line of credit bears
interest at the Reference Rate minus 1.50%. As of December 31, 1997, no amounts



                                     17













































MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

were outstanding on this line of credit.  As of December 31, 1997, the Company
entered into six separate unsecured interest swap agreements for an aggregate
amount of $93.5 million in order to hedge exposure on a portion of its floating
rate indebtedness.
     Although there can be no assurances, the Company believes that operating
cash flows will be sufficient to service all Company debt and anticipates
repayment or refinancing when such amounts are due in the ordinary course of
its business. The Company's interest expense coverage ratio (including the
Company's share of unconsolidated entities interest expense and including
capitalized interest and excluding deferred interest) decreased to 2.30 at
December 31, 1997 as compared to 2.67 at December 31, 1996. At December 31,
1997, the Company's debt to total market capitalization (which includes the
market value of issued and outstanding shares of capital stock of the Company
and of partnership interests in the Operating Partnership not held by the
Company, plus Company debt) was approximately 48% as illustrated by the table
on the following page.
     On November 13, 1997, the Company issued $100.0 million in cumulative
convertible redeemable preferred stock ("Preferred Stock") with a liquidation
preference of $33.34 per share. Quarterly dividends on the Preferred Stock are
equal to the greater of (i) $0.50 per share or (ii) the quarterly dividend then
payable on the shares of common stock into which the Preferred Stock is
convertible. The Preferred Stock is convertible into common stock, at the
option of the holder, at a conversion price of $33.34 per share (subject to
antidilution adjustments) at anytime after August 1998. After six years the
Preferred Stock may be redeemed, at the option of the Company, for cash at a
redemption price of $33.34 per share. The net proceeds of the issue, after
deducting transaction costs, were used to fund a portion of the November 14,
1997 acquisitions of Fox Valley Center and Hawthorn Center. As of December 31,
1997, the Company has amounts available of $367.8 million under two shelf
registrations for preferred stock, depository shares, common stock, stock
warrants and rights.
     The Company believes that its cash generated from property operations will
provide the necessary funds on a short-term and long-term basis for its
operating expenses, interest expenses on outstanding indebtedness and recurring
capital expenditures and all dividends to the shareholders necessary to satisfy
the REIT requirements. Sources of capital for future acquisitions, development
and non-recurring capital expenditures, such as major building renovations and
expansions, as well as for scheduled principal payments, including balloon
payments, on the outstanding indebtedness are expected to be obtained from the
following sources: (i) excess funds available for distribution, (ii) working
capital reserves, (iii) additional Company or property financing, (iv) proceeds
from the sale of assets, including outparcels and (v) additional equity raised
in the public or private markets (including the issuance of additional units
and/or unit voting common stock). Accordingly, the Company expects that it may
incur additional indebtedness. In light of current economic conditions,
relative costs of debt and equity capital, market values of properties, growth
and acquisition opportunities and other factors, the Company may consider an
increase or decrease in its ratio of debt to total market capitalization
accordingly.








CAPITAL INVESTMENTS On November 14, 1997, the Company acquired Fox Valley
Center and Hawthorn Center. The Company plans to renovate Fox Valley Center at
a cost of $10.0 - $12.0 million. Work has begun on the renovation and is
expected to be completed by early 1999. In addition, the Company entered into
a put option agreement with an unaffiliated third party for the purchase of a
regional mall. The unaffiliated third party may exercise the put option from
October 1, 1998 through December 31, 1998 for a purchase price to the Company
of $115.0 million plus any capital expenditures incurred by the third party.
     The Company's current development project is the approximate 1.1 million
square foot Citrus Park Town Center ("Citrus Park") in Tampa, Florida.
Burdines, Dillard's, JCPenney and Sears have agreed to be anchor stores for the
project. Citrus Park is scheduled to open in March 1999. In addition, an
approximate 350,000 square foot community center opposite the regional mall,
Citrus Park Plaza, is also scheduled to open in March 1999.  A bond offering of
$26.7 million to fund the roadwork surrounding the property was completed by
the Citrus Park Community Development District (the "CDD") during the fourth
quarter of 1996. The Company assisted the CDD in obtaining the financing for
the roadwork by guaranteeing the irrevocable letter of credit which supports
the bonds.
     The Company's next planned development project is scheduled to be in
Roseville, California, which is near Sacramento. Current plans for Roseville to
open in the Fall of 2000 are progressing on schedule. Sears has already
committed to be one of the anchor stores for the approximate one million
square foot mall. Negotiations are underway with three other prominent anchor
candidates.

                                     18



     Certain statements set forth herein contain forward-looking statements,
including, without limitation, statements relating to the timing and
anticipated capital expenditures of the Company's development program and
acquisitions. Although the Company believes that the expectations reflected in
such forward-looking statements are based on reasonable assumptions, the actual
results may differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such differences include general
economic conditions, local real estate conditions, construction delays due to
the unavailability of construction materials, weather conditions or other
delays beyond the control of the Company. Consequently, such forward-looking
statements should be regarded solely as reflections of the Company's current
operating and development and acquisition plans and estimates.  These plans and
estimates are subject to revision from time to time as additional information
becomes available, and actual results may differ from those indicated in the
referenced statements.















DEBT TO TOTAL MARKET CAPITALIZATION


<TABLE>
<CAPTION>
                                                     100%             Pro Rata
                                                  Balance                Share
                                                       of                   of
($000's omitted,                         Annual  Mortgage             Mortgage
except share and           Maturity    Interest     Notes Ownership      Notes
per share amounts)             Date        Rate   Payable  Interest    Payable
------------------------------------------------------------------------------
Consolidated Entities:
<S>                      <C>            <C>      <C>        <C>    <C>
  Old Orchard Center     Dec.  2009     6.9800%  $ 168,000  100.0%  $  168,000
  Oakbrook Center        Oct.  2004     6.1375%    140,000  100.0%     140,000
  MainPlace              Oct.  1998     5.4066%     80,000  100.0%      80,000
  Wolfchase Galleria     June  2007     7.8000%     79,716  100.0%      79,716
  Fox Valley Center      Nov.  2006     6.7500%     85,528  100.0%      85,528
  Hawthorn Center        Nov.  2008     6.7500%     77,864  100.0%      77,864
  Operating Partnership  April 2000(1)      (1)     35,800  100.0%      35,800
------------------------------------------------------------------------------
                                                   666,908             666,908

Unconsolidated Entities:(2)
  Water Tower Place      Feb.  1999(3)      (3)    170,000   55.0%      93,500
  Coral Square Mall      Dec.  2000     7.4000%     53,300   50.0%      26,650
  Miami International
   Mall                  Dec.  2003     6.9100%     47,050   40.0%      18,820
  San Francisco Shopping
   Centre                July  2002(4)  6.9045%     53,531   50.0%      26,766
  Copley Place           Aug.  2007     7.4400%    194,409   33.3%      64,803
  Management Company     Aug.  2001     7.5400%     51,000   95.0%      48,450
  Management Company     Sept. 2001     7.0000%      9,000   95.0%       8,550
------------------------------------------------------------------------------
                                                   578,290             287,539
------------------------------------------------------------------------------
Company debt                                                        $  954,447
==============================================================================
Convertible preferred units (convertible into 1,018,182
 common units)                                                      $   28,000
Convertible preferred stock (convertible into 2,999,400 shares of
 common stock)                                                      $  100,000

Market value of equity interests
  as of December 31, 1997, based upon
  26,439,629 common shares/units at
  $34 7/8 per share                                                 $  922,082
==============================================================================
Total market capitalization                                         $2,004,529
==============================================================================
Company debt to total market capitalization                                 48%
==============================================================================
</TABLE>






(1) The line of credit, subject to lenders' approval, may be extended for an
additional one or two year period and is currently subject to a floating rate
of 0.85% over LIBOR (6.8305% at December 31, 1997). The total available under
the line of credit is $90.0 million.

(2) Excludes Valencia Town Center as the Company is currently not entitled to
any cash distributions until the outside partner has received a return on and
of its contributions to the partnership.

(3) The loan matures on February 1, 1999; however, it may be extended for two
one-year periods. Of the total $170.0 million, $160.0 million bears interest at
LIBOR + 1.125% and $10.0 million bears interest at LIBOR + 1.500% (7.090% and
7.465%, respectively, at December 31, 1997).

(4) The loan matures on July 1, 2002; however, it may be extended for three
one-year periods.


                                     19









































CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

($000's omitted, except share and per share amounts)               December 31
------------------------------------------------------------------------------
                                                             1997         1996
------------------------------------------------------------------------------
<S>                                                    <C>          <C>
ASSETS
Investment properties:
  Land, including peripheral land parcels              $  152,913   $  102,559
  Buildings and improvements                            1,072,673      766,847
  Equipment, furniture and fixtures                         3,297        2,560
  Construction in progress                                  6,025       62,216
------------------------------------------------------------------------------
                                                        1,234,908      934,182
  Accumulated depreciation                               (125,594)     (97,558)
------------------------------------------------------------------------------
    Investment properties, net of accumulated
     depreciation                                       1,109,314      836,624

Investments in unconsolidated partnerships                118,800       15,233
Investment in the Management Company                       15,058       15,557
Cash, cash equivalents and short-term investments           1,268        5,276
Receivables:
  Tenant, net of allowance for doubtful accounts of
   $3,092 and $2,141 in 1997 and 1996, respectively        14,031       11,619
  Other                                                     7,065        8,307
Deferred expenses and other assets                         15,440       11,460
------------------------------------------------------------------------------
                                                       $1,280,976   $  904,076
==============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Mortgage notes payable                               $  666,908   $  439,886
  Land sale-leaseback proceeds                             75,000       75,000
  Deferred lease accrual                                   18,593       16,252
  Accounts payable and other liabilities                   38,538       30,512
  Investments in unconsolidated partnerships               39,665       36,030
  Commitments and contingencies
------------------------------------------------------------------------------
    Total liabilities                                     838,704      597,680

Minority interest                                         132,616      111,733
Stockholders' equity:
  Preferred stock, $.01 par value, 5,000,000 shares
   authorized, issued and outstanding 2,999,400 shares
   in 1997 (liquidation preference of $100,000)                30           --
  Common stock, $.01 par value, authorized 140,000,000
   shares, issued and outstanding 17,259,408 shares in
   1997 and 16,737,279 shares in 1996                         173          167
  Unit voting common stock, $.01 par value, authorized
   5,000,000 shares, issued and outstanding 407,935
   shares in 1997 and 344,047 shares in 1996                    4            4
  Additional paid-in capital                              459,738      326,495
  Retained earnings (deficit)                            (150,289)    (132,003)
------------------------------------------------------------------------------
    Total stockholders' equity                            309,656      194,663
------------------------------------------------------------------------------
                                                       $1,280,976   $  904,076
==============================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                     20



















































                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

($000's omitted, except share and per share amounts)   Years ended December 31
------------------------------------------------------------------------------
                                          1997            1996            1995
------------------------------------------------------------------------------
<S>                                  <C>           <C>             <C>
Revenues:
  Shopping center revenues:
    Minimum rents                   $   94,812      $   60,944      $   57,683
    Percentage rents                     5,575           4,056           3,414
    Recoveries from tenants             47,493          27,659          24,972
    Other                                4,480           2,521           2,971
------------------------------------------------------------------------------
                                       152,360          95,180          89,040
  Interest income                        1,620           1,864           2,587
------------------------------------------------------------------------------
                                       153,980          97,044          91,627
------------------------------------------------------------------------------
Expenses:
  Shopping center expenses              52,138          30,924          30,655
  Mortgage and other interest           33,876          14,246          14,501
  Ground rent                            4,689           4,420           4,404
  Depreciation and amortization         33,866          21,236          19,683
  General and administrative             3,269           2,650           2,428
  Write-off of assets                      140             308             232
------------------------------------------------------------------------------
                                       127,978          73,784          71,903
------------------------------------------------------------------------------

    Operating income                    26,002          23,260          19,724
Income from unconsolidated partnerships  6,227           3,000           1,297
Income (loss) from the Management
 Company                                  (438)          1,070           3,078
------------------------------------------------------------------------------
    Income before other gains,
     minority interest and
     extraordinary items                31,791          27,330          24,099
Other gains                              3,673           3,372           4,496
Minority interest                      (12,560)        (10,733)         (9,951)
------------------------------------------------------------------------------

    Income before extraordinary items   22,904          19,969          18,644
Extraordinary items (net of minority
 interest)                              (5,719)             --          (1,014)
------------------------------------------------------------------------------

    Net income                          17,185          19,969          17,630
Dividends on preferred stock              (811)             --              --
------------------------------------------------------------------------------
    Income applicable to common and
     unit voting common stock       $   16,374      $   19,969      $   17,630
==============================================================================

Basic income per common and unit
voting common share:
  Before extraordinary items        $     1.27      $     1.42      $     1.35
  Extraordinary items                     (.33)             --            (.07)
------------------------------------------------------------------------------
    Net income                      $     0.94      $     1.42      $     1.28
==============================================================================

Diluted income per common and
unit voting common share:
  Before extraordinary items        $     1.27      $     1.42      $     1.35
  Extraordinary items                     (.33)             --            (.07)
------------------------------------------------------------------------------
    Net income                      $     0.94      $     1.42      $     1.28
==============================================================================

Dividends declared and paid per
common and unit voting common
share                               $     2.03      $     1.98      $     1.94
==============================================================================
Weighted average common and unit
voting common shares outstanding    17,440,454      14,066,243      13,742,259
==============================================================================

</TABLE>


See accompanying notes to consolidated financial statements.



                                     21































CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                             Common Stock and Unit
                            Preferred Stock   Voting Common Stock   Additional       Retained
($000's omitted,            ---------------  ---------------------     Paid-In       Earnings
except share amounts)       Shares   Amount   Shares      Amount       Capital      (Deficit)       Total
---------------------------------------------------------------------------------------------------------
<S>                         <C>      <C>      <C>          <C>        <C>          <C>           <C>
Balances at
 December 31, 1994                            13,742,259   $ 137      $258,139     $ (115,718)   $142,558
Net income                                            --      --            --         17,630      17,630
Dividends declared
 and paid                                             --      --            --        (26,660)    (26,660)
Reallocation of minority
 interest                                             --      --           981             --         981
---------------------------------------------------------------------------------------------------------

Balances at December 31, 1995                 13,742,259     137       259,120       (124,748)    134,509
Shares issued in connection with:
  Public offering                              3,225,000      32        80,405             --      80,437
  Issuance of unit voting
   common stock                                   42,424       1         1,134             --       1,135
  Stock option plan                               71,653       1         1,656             --       1,657
Net income                                            --      --            --         19,969      19,969
Dividends declared and paid                           --      --            --        (27,224)    (27,224)
Reallocation of minority interest                     --      --       (15,820)            --     (15,820)
---------------------------------------------------------------------------------------------------------

Balances at
 December 31, 1996                            17,081,336     171       326,495       (132,003)    194,663
Shares issued in
 connection with:
  Private placement         2,999,400   $30           --       --       98,929             --      98,959
  Issuance of common stock                       177,316       2         5,739             --       5,741
  Issuance of unit voting
   common stock                                   69,197       1         2,265             --       2,266
  Conversion of units                            127,656       1         1,433             --       1,434
  Stock option plan                              211,838       2         4,852             --       4,854
Net Income                                            --      --            --         17,185      17,185
Dividends declared and paid                           --      --            --        (35,471)    (35,471)
Reallocation of minority interest                     --      --        20,025             --      20,025
---------------------------------------------------------------------------------------------------------

Balances at
 December 31, 1997          2,999,400   $30   17,667,343   $ 177      $459,738     $ (150,289)   $309,656
=========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.





                                     22



                                         CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

($000's omitted)                                       Years ended December 31
------------------------------------------------------------------------------
                                                     1997       1996      1995
------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                       $ 17,185   $ 19,969   $17,630
Adjustments to reconcile net income
  to net cash provided by operating activities:
    Depreciation and amortization                  33,866     21,236    19,683
    Write-off of assets                               140        308       232
    Provision (recovery) for losses on accounts
     receivable                                       972       (225)      195
    Income from unconsolidated partnerships        (6,227)    (3,000)   (1,297)
    Loss (income) from the Management Company,
     net of distributions                             438         --    (1,083)
    Minority interest                              12,560     10,733     9,951
    Other gains                                    (3,673)    (3,372)   (4,496)
    Extraordinary items                             5,719         --     1,014
    Changes in other assets and liabilities         5,693      7,091     5,038
------------------------------------------------------------------------------
      Net cash provided by operating activities    66,673     52,740    46,867
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment properties, net of
 change in related payables                       (43,794)   (48,011)  (49,946)
Acquisition of investment properties              (97,994)   (76,639)       --
Acquisition of partnership interests              (31,400)    (9,431)       --
Acquisition of development parcels                 (3,388)        --    (8,604)
Proceeds from sale of investment property,
 net of selling costs                              16,933         --        --
Proceeds from sale of options and land parcels,
 net of selling costs                               2,296      4,679     4,496
Cash contributions to unconsolidated
 partnerships and the Management Company          (28,022)    (2,253)     (329)
Cash distributions from unconsolidated
 partnerships and the Management Company            9,071      5,563     2,615
Net sales and maturities of short-term
 investments                                           --        161    15,160
Decrease (increase) in restricted cash                303        (26)    2,097
Decrease (increase) in notes receivable              (412)        21        12
------------------------------------------------------------------------------
      Net cash used in investing activities      (176,407)  (125,936)  (34,499)
------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt, net of
 related costs                                    487,601     87,982    53,195
Proceeds from issuance of common stock,
 unit voting common stock and preferred stock     105,751     83,229        --
Repayment of debt                                (433,864)   (58,900)  (34,717)
Cash distributions to partners                    (18,291)   (14,606)  (14,162)
Dividends paid                                    (35,471)   (27,224)  (26,660)
------------------------------------------------------------------------------
      Net cash provided by (used in) financing
       activities                                 105,726     70,481   (22,344)
------------------------------------------------------------------------------
Net decrease in cash and cash equivalents          (4,008)    (2,715)   (9,976)
Cash and cash equivalents at beginning of year      5,151      7,866    17,842
------------------------------------------------------------------------------
Cash and cash equivalents at end of year         $  1,143   $  5,151   $ 7,866
==============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid for mortgage and other interest,
     net of amounts capitalized                  $ 32,798   $ 13,586   $13,519
==============================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


                                     23











































NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted, except share and per share amounts)

1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION The Company is in the
business of owning, acquiring, managing, leasing, developing and redeveloping
super-regional and regional malls located throughout the United States.
Substantially all of the Company's assets and interests in investment
properties (the "Properties") are held by, and substantially all of its
operations are conducted through Urban Shopping Centers, L.P. (the "Operating
Partnership"). On November 13, 1997, in connection with the Company's
acquisitions of Fox Valley Center and Hawthorn Center, the Company issued
$100,000 in cumulative convertible redeemable preferred stock ("Preferred
Stock") with a liquidation preference of $33.34 per share.  Quarterly dividends
on the Preferred Stock are equal to the greater of (i) $0.50 per share or (ii)
the quarterly dividend then payable on the shares of common stock into which
the Preferred Stock is convertible. The Preferred Stock is  convertible into
common stock, at the option of the holder, at a conversion price of $33.34 per
share (subject to antidilution adjustments) at anytime after August 1998. After
six years the Preferred Stock may be redeemed, at the option of the Company,
for cash at a redemption price of $33.34 per share. In December 1996, the
Company completed a public offering of 3,225,000 common shares at $25.50 per
share. Net proceeds from the sale of these shares, after underwriter's
discount, was $80,625. These proceeds were used in part for the acquisition of
Old Orchard Center. In addition, in connection with the acquisition, the
Company issued $28,000 of preferred units in the Operating Partnership with a
liquidation preference of $27.50 per unit. The preferred units have a
distribution rate of 7%, a redemption price of $27.50 per unit and a conversion
price of $27.50 per unit to common units which in turn are convertible to
common stock. After seven years the preferred units may be redeemed at the
option of the Company for cash or may be converted at the option of the holder
into common units.
     As of December 31, 1997, the Company, which is the sole general partner of
the Operating Partnership, owns approximately 66.8% of the common units
("Units") in the Operating Partnership; JMB Realty Corporation ("JMB Realty")
and certain of its affiliates ("JMB Partners") and certain other parties own
limited partnership interests in the Operating Partnership representing
approximately 33.2% of the Units and also own $28,000 of preferred units. Each
Unit may be exchanged for one share of common stock. In general, for financial
reporting purposes, the net profits and losses of the Operating Partnership are
allocated to the general and limited partners in accordance with their
percentage ownership. The Company operates as a real estate investment trust
("REIT") for Federal income tax purposes.
     Upon the issuance of common stock, unit voting common stock, or Units in
the Operating Partnership, the excess book value is reallocated proportionately
between minority interest and stockholders' equity.

BASIS OF PRESENTATION The accompanying consolidated financial statements
include the accounts of the Company, the Operating Partnership and all
controlled affiliates. The effect of all significant intercompany balances and
transactions have been eliminated in the consolidated presentation.
     The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Company's interests in
Water Tower Joint Venture ("Water Tower Place"), Coral-CS/LTD Associates
("Coral Square Mall"), West Dade County Associates ("Miami International
Mall"), S.F. Shopping Centre Associates, L.P. ("San Francisco Shopping
Centre"), Copley Place Associates, LLC ("Copley Place"), Valencia Town Center
Associates, L.P. ("Valencia Town Center"), Citrus Park Venture ("Citrus Park")
and Urban Retail Properties Co. (the "Management Company").


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT PROPERTIES Investment properties are stated at cost less accumulated
depreciation. Depreciation is recorded using the straight-line  method, based on
estimated useful lives of 3-40 years.
     Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated over
their estimated useful lives.
     Development costs, including interest and real estate taxes incurred in
connection with construction or expansion of certain investment properties, are
capitalized as a cost of the investment property and depreciated over the
estimated useful life of the related asset. During 1997, 1996 and 1995, the
Company incurred interest of $35,640, $17,643, and $15,720, respectively, and
capitalized interest of $1,764, $3,397, and $1,219, respectively.
     The Company adopted the provisions of SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
on January 1, 1996. This Statement requires that long-lived assets and

                                     24



certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company evaluates its investment properties periodically
to assess whether any impairment indications are present, including recurring
operating deficits and significant adverse changes in legal factors or business
climate that affect the recovery of recorded asset value. If any investment
property is considered impaired, a loss is provided to reduce the carrying
value of the property to its estimated fair value.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash and cash equivalents
(which aggregated $1,143 and $5,151 at December 31, 1997 and 1996,
respectively) include a treasury money market fund which invests principally in
U.S. Treasury notes and bills ($207 and $2,928 at December 31, 1997 and 1996,
respectively). Other short-term investments (generally with original maturities
of one year or less) are generally held to maturity and aggregated $125 at
December 31, 1997 and 1996. Cash equivalents and other short-term investments
are recorded at cost which approximates market.

DEFERRED EXPENSES Deferred mortgage loan fees and expenses (including the cost
of interest rate swap agreements related to specific mortgage loans) are
amortized on a straight-line basis over the terms of the related mortgage notes
or the terms of the interest rate swap agreements. Deferred leasing commissions
and concessions are amortized over the terms of the related leases.
Organization costs are amortized over 60 months.

REVENUE RECOGNITION Although certain leases of the Company provide for tenant
occupancy during periods for which no rent is due and/or increases exist in
minimum lease payments over the term of the lease, the Company generally
accrues rental income for the full period of occupancy on a straight-line
basis. Accrued rents receivable relating to such leases of $9,960 and $8,791
have been included in tenant receivables in the accompanying consolidated
balance sheets at December 31, 1997 and 1996, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES Certain general and administrative expenses
are allocated among the Company, the Operating Partnership and the Management
Company pursuant to a corporate services agreement among the three parties.

DERIVATIVES The Company uses interest rate swap agreements as part of its
interest rate risk management strategy. These off-balance sheet derivatives
are classified as synthetic alterations. The criteria that must be satisfied by
synthetic alteration accounting are as follows: (i) the liability to be
converted has exposure to interest rate risk and (ii) the derivative is
designated and effective as a synthetic alteration of the liability.
     Accrual accounting is applied for these derivatives treated as synthetic
alterations, and income and expense are recorded as adjustments of interest
expense. Fees, if any, related to these off-balance sheet investment products
are amortized on the interest method over the life of the derivative. If the
balance of the liability falls below that of the derivative, the excess portion
of the derivative is marked to market and the resulting gain or loss included
in income, as applicable. If a derivative is terminated independent of the
underlying debt, the gain or loss is deferred and amortized over the remaining
life of the derivative.
     Derivatives that do not satisfy the criteria above would be carried at
market value with changes in market value to be recognized as current income or
expense.
     The carrying value of the Company's interest rate swap agreements
(included in deferred expenses and other assets in the accompanying
consolidated balance sheets) is $2,378 and $1,253 as of December 31, 1997 and
1996, respectively. The fair value of the Company's interest rate swap
agreements is estimated at approximately $256 and $5,698 as of December 31,
1997 and 1996, respectively. The fair value is estimated based upon
management's good faith estimate.

FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosure about Fair Value
of Financial Instruments," requires disclosure about the fair values of
financial instruments, whether or not recognized in the consolidated balance
sheets. Management believes that the carrying amount of mortgage notes payable
at December 31, 1997 and 1996, approximates the SFAS 107 value.  Management
believes its guarantees on certain indebtedness will not require payments.
Other financial instruments are described under "Derivatives" above, or are
either carried at amounts which approximate the SFAS 107 value or are not
considered significant.


                                     25



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)



INCOME TAXES No provision has been made for Federal income taxes for the
Company in the accompanying consolidated financial statements because the
Company has operated as a REIT. Under the applicable provisions of the Internal
Revenue Code (the "Code"), a REIT will generally not be subject to Federal
income tax on that portion of its REIT taxable income it currently distributes
to its shareholders so long as it distributes at least 95% of its taxable
income to its shareholders and complies with certain other requirements.








PER SHARE DATA The table below presents the dividend allocation for tax
purposes.

<TABLE>
<CAPTION>
                                                1997         1996         1995
------------------------------------------------------------------------------
<S>                                            <C>          <C>            <C>
Dividends declared and paid per share          $2.03        $1.98        $1.94
Ordinary income                                   68%          78%          64% 
Return of capital                                 25%          11%          10%
Long-term capital gain                            5%           11%          26%
Unrecaptured section 1250 gain                    2%           --           --
</TABLE>


     For each year, 1995 through 1997, the Units, preferred units, Preferred
Stock, stock options and incentive units are either antidilutive or do not have
a significant effect on the computation of earnings per share.

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

3. ACQUISITIONS FOX VALLEY CENTER AND HAWTHORN CENTER On November 14, 1997, the
Company acquired all of the ownership interests in partnerships owning Fox
Valley Center, Hawthorn Center and four peripheral outlet properties. The
aggregate purchase price for all six properties was approximately $260,000. A
portion of the acquisitions was financed by two non-recourse, fixed rate
secured loans aggregating approximately $163,000. The balance of the
acquisitions was funded through the Company's issuance on November 13, 1997 of
$100,000 of Preferred Stock.

COPLEY PLACE On August 1, 1997, the Company acquired a one-third equity
interest in Copley Place from JMB Realty in a transaction valued at $42,333
paid through the issuance of 1,282,828 Units in the Operating Partnership. In
connection with the transaction, JMB Realty also purchased 53,451 shares of
unit voting common stock from the Company for $1,764 in cash. The remaining
interest in Copley Place is owned by an unaffiliated third party.  Concurrent
with this transaction, Copley Place secured financing in the amount of $195,000
which bears interest at a fixed rate of 7.44% and matures on August 1, 2007.

CITRUS PARK VENTURE Prior to August 1, 1997, the Company and the Management
Company each owned a 50% economic interest in Citrus Park Venture, which owns a
163 acre land parcel which is the site of the Company's current regional mall
development project, Citrus Park Town Center, in Tampa, Florida.  On August 1,
1997, the Company acquired rights to the remaining 50% economic interest in
Citrus Park Venture from an affiliate of JMB Realty in exchange for 243,513
Units in the Operating Partnership and 10,146 shares of unit voting common
stock, valued at $8,212 in aggregate. Such affiliate of JMB Realty owns 100% of
the common stock of the Management Company which entitles it to 95% of the land
sale proceeds. Also on August 1, 1997, the Company exercised its option and
purchased 68 acres of land adjacent to the site for the regional mall from an
affiliate of JMB Realty in exchange for 177,316 shares of common stock valued
at $5,741. This land was transferred, through sale and contribution, to Citrus
Park Venture. This land will be used for the development of a community center,
Citrus Park Plaza, and for other commercial uses.

ROSEVILLE, CALIFORNIA On June 24, 1997, the Company acquired approximately 95
acres of land in Roseville, California for $2,500 in cash plus the assumption
of outstanding obligations of $888.

SAN FRANCISCO SHOPPING CENTRE On June 17, 1997, the Company made an investment
in a partnership of approximately $31,400 in cash resulting in a preferred 50%
ownership interest in San Francisco Shopping Centre. The transaction is
structured so that the Company has the option, after approximately eight years,
to make an additional investment in the partnership resulting in the Company
owning substantially all of the interests in San Francisco Shopping Centre.

                                     26



Concurrent with the investment, a new loan of $73,600 was secured, of which
$61,350 was funded at closing with the balance of $12,250 to be funded in
January 2000. The loan bears effective interest including fees at LIBOR + .62%
and matures on July 1, 2002; however, it may be extended for three one-year
periods. On July 14, 1997, the partnership entered into an eight year interest
rate swap agreement thereby fixing the interest rate at an all-in rate of
6.90%. In October 1997, $7,819 was paid down on the outstanding balance of
$61,350.

OLD ORCHARD CENTER On December 18, 1996, the Company acquired Old Orchard
Center for $78,577 in cash, prior to prorations, and the issuance of $28,000 in
preferred units in the Operating Partnership, subject to $159,804 of existing
indebtedness. In connection with the issuance of the preferred units, the
Company issued $1,135 in unit voting common stock. The cash portion of the
acquisition price was funded from the proceeds of the Company's public offering
completed in December 1996.

4. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS The accompanying consolidated
financial statements include investments in certain partnerships in which the
Company does not own a controlling interest. These investments are reported
using the equity method. To the extent the Company's investment basis differs
from its share of the capital of an unconsolidated partnership, such difference
is amortized over the depreciable lives of the unconsolidated partnership's
investment assets. Investments in unconsolidated partnerships consist of the
following:




















<TABLE>
<CAPTION>

                                                                     Ownership
Name                          Property                                Interest
------------------------------------------------------------------------------
<S>                           <C>                                      <C>
Water Tower Joint Venture     Water Tower Place, Chicago, IL           55% (a)
------------------------------------------------------------------------------
Coral-CS/LTD Associates       Coral Square Mall, Coral Springs, FL     50%
------------------------------------------------------------------------------
West Dade County Assoc.       Miami International Mall, Miami, FL      40% (b)
------------------------------------------------------------------------------
S.F. Shopping Centre          San Francisco Shopping Centre,
Associates, L.P.              San Francisco, CA                        50% (c)
------------------------------------------------------------------------------
Copley Place Assoc., LLC      Copley Place, Boston, MA                 33% (d)
------------------------------------------------------------------------------
Valencia Town Center          Valencia Town Center,
Associates, L.P.              Valencia, CA                             25% (e)
------------------------------------------------------------------------------
Citrus Park Venture           Tampa, FL                                50% (f)
==============================================================================
</TABLE>

(a) The Company owns a 55% interest in a retail property (Water Tower Place)
through its investment in Water Tower Joint Venture ("WTJV"). All major
decisions concerning the retail property require the approval of both partners
of WTJV and thus the Company does not control the partnership.

(b) Effective April 1, 1996, JMB/Miami International Associates (an
unconsolidated partnership) distributed its interest in West Dade County
Associates ("West Dade") to its partners (the Operating Partnership and two
affiliates of JMB Realty). Effective April 1, 1996, the Operating Partnership
purchased an approximate 18% interest in West Dade from one of the JMB Realty
affiliates for $9,431 in cash and the assumption of the seller's pro rata share
of all liabilities of West Dade. The remaining interests owned by the JMB
Realty affiliates were sold to the outside partner in West Dade for $5,375 in
cash and the assumption of the sellers' pro rata share of all liabilities of
West Dade. Subsequent to these transactions, the Operating Partnership owns a
40% interest in West Dade and the outside partner owns the remaining 60%
interest.

(c) On June 17, 1997, the Company made an investment in S.F. Shopping Centre
Associates, L.P. for approximately $31,400 in cash resulting in a preferred 50%
ownership interest in the partnership.

(d) On August 1, 1997, the Company acquired a one-third equity interest in
Copley Place Associates, LLC from JMB Realty in a transaction valued at
$42,333.

(e) The outside partner has a right to all cash distributions until it has
received a return on and of its contributions to the partnership (as set forth
in the partnership agreement).

(f) On June 23, 1995, the Company acquired a 50% interest in Citrus Park
Venture (a development parcel). Prior to August 1, 1997, the Company and the
Management Company each owned a 50% economic interest in Citrus Park Venture.
On August 1, 1997, the Company acquired the rights to the remaining 50%
economic interest in Citrus Park Venture from an affiliate of JMB Realty in a
transaction valued at $8,212. In addition, a bond offering of $26,700 to fund
the roadwork surrounding the property was completed by the Citrus Park
Community Development District (the "CDD") during the fourth quarter of 1996.
The Company assisted the CDD in obtaining the financing for the roadwork by
guaranteeing the irrevocable letter of credit which supports the bonds.























































     Summarized financial information for the unconsolidated partnerships is
presented below.

<TABLE>
<CAPTION>

                                                                   December 31
------------------------------------------------------------------------------
                                                         1997             1996
------------------------------------------------------------------------------
<S>                                                  <C>            <C>
Assets:
   Investment properties, net                        $  738,757     $  292,829
   Other assets                                          43,381         29,190
------------------------------------------------------------------------------
                                                        782,138        322,019
Less liabilities:
   Mortgage notes payable                               562,251        310,800
   Other liabilities                                     29,617         16,484
------------------------------------------------------------------------------
      Total capital (deficit)                           190,270         (5,265)
Less outside partners' capital                          111,135         15,532
------------------------------------------------------------------------------
      Total investments in
      unconsolidated partnerships                    $   79,135     $  (20,797)
==============================================================================
</TABLE>

      Total investments in unconsolidated partnerships are presented in the
accompanying consolidated balance sheets as follows:

<TABLE>
<S>                                                  <C>            <C>
Assets - Investments in
      unconsolidated partnerships                    $  118,800     $   15,233
Liabilities - Investments in
      unconsolidated partnerships                        39,665         36,030
------------------------------------------------------------------------------
                                                     $   79,135     $  (20,797)
==============================================================================
</TABLE>



















<TABLE>
<CAPTION>
                                                       Years ended December 31
------------------------------------------------------------------------------
                                                1997       1996       1995
------------------------------------------------------------------------------
<S>                                             <C>        <C>        <C>
Revenues:
   Shopping centers                             $115,583   $ 79,361   $ 75,866
   Interest income                                   609        385        501
Expenses:
   Shopping centers                              (52,831)   (35,839)   (33,799)
   Mortgage and other
      interest and ground rent                   (32,673)   (25,375)   (25,595)
   Depreciation and
      amortization                               (16,331)   (11,107)   (11,468)
   Write-off of assets                                --         --       (138)
------------------------------------------------------------------------------
      Income before extraordinary item            14,357      7,425      5,367
Extraordinary item                                  (228)        --         --
------------------------------------------------------------------------------
      Net income                                $ 14,129   $  7,425   $  5,367
==============================================================================

Company's share of:
   Mortgage and other
      interest and ground rent                  $(15,280)  $(10,810)  $(10,400)
   Depreciation and
      amortization                                (6,957)    (4,519)    (4,381)
   Write-off of assets                                --         --        (76)
   Income before extraordinary item                6,227      3,000      1,297
==============================================================================
</TABLE>


                                     27
























NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)


5. INVESTMENT IN THE MANAGEMENT COMPANY Generally, the Company's preferred
stock investment in the Management Company entitles it to 95% of the
distributions, profits and losses from the management, leasing and development
business (as defined) and 5% of the net distributions, profits and losses from
the land parcels (as defined). The Company's consolidated financial statements
present its investment in the Management Company under the equity method of
accounting.
     Summarized financial information for the Management Company is presented
below.

<TABLE>
<CAPTION>
                                                                  December 31
------------------------------------------------------------------------------
                                                            1997          1996
------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Assets:
   Investments in land parcels (a)                      $ 27,451      $ 38,391
   Cash, cash equivalents
      and short-term investments                           1,805         5,443
   Receivables and deferred expenses                      16,097        11,346
------------------------------------------------------------------------------
                                                        $ 45,353      $ 55,180
==============================================================================

Liabilities:
   Notes payable (b)                                    $ 70,000      $ 70,000
   Accounts payable and other liabilities                  5,652         5,095
------------------------------------------------------------------------------
                                                          75,652        75,095
Owners' deficit                                          (30,299)      (19,915)
------------------------------------------------------------------------------
                                                        $ 45,353      $ 55,180
==============================================================================
</TABLE>




















<TABLE>
<CAPTION>
                                                       Years ended December 31
------------------------------------------------------------------------------
                                                    1997       1996       1995
------------------------------------------------------------------------------
<S>                                             <C>        <C>        <C>
Revenues                                        $ 36,891   $ 38,501   $ 38,139
Expenses:
   Management, leasing
      and development services                    31,134     30,346     28,929
   Mortgage and
      other interest                               5,692      5,457      5,045
   Land parcels                                      396        427        214
   Depreciation and
      amortization                                   559        433        410
   Write-down of assets (c)                        8,812         --      9,580
------------------------------------------------------------------------------
                                                  46,593     36,663     44,178
------------------------------------------------------------------------------
      Operating income (loss)                     (9,702)     1,838     (6,039)
Income tax benefit (provision)                       561       (840)       252
Gain on sale of land                                  --         --      1,074
------------------------------------------------------------------------------
      Net income (loss)                         $ (9,141)  $    998   $ (4,713)
==============================================================================
</TABLE>

(a) Includes 50% of the outstanding mortgage loan of an affiliated joint
venture. The mortgage loan, with a 50% face value of $25,750, was acquired for
$19,312 resulting in a discount of $6,438. The loan bears interest at a
variable rate based on market interest rates (as defined) and is secured by the
affiliated joint venture's interest in a land parcel located in Chicago, IL.
Interest is recorded for financial reporting purposes when received.
Accordingly, accretion of the discount has also not been recorded.

(b) Includes $51,000 of indebtedness secured by the Management Company's
interest in certain management contracts and a guarantee by Penn Square Mall
Limited Partnership (a consolidated venture) which is secured by Penn Square
Mall. The $51,000 bears interest at 7.54% per annum and matures on August 1,
2001. Also includes $9,000 of indebtedness owed to affiliates of JMB Realty
which bore no interest through the original maturity of May 20, 1996, at which
time it was extended to September 1, 2001, at an interest rate of 7.0%. The
effective interest rate on the aggregate $60,000 of indebtedness is 7.46%
through September 1, 2001. The Management Company also is indebted under a
$10,000 note payable to the Company. Such note bears interest at 12% per annum
and matures on September 1, 2001.

(c) Write-downs in 1997 and 1995, represent reduction of the carrying values in
an outstanding mortgage loan and two retail development land parcels due to the
uncertainty of realizing the carrying values upon repayment and future sale or
development, respectively.

     The Management Company provides management, leasing and development
services to certain of the Company's consolidated and unconsolidated investment
properties, to affiliated entities and to third parties. In 1997 and 1996,
management, leasing and development revenues of $7,116 and $9,787,
respectively, resulted from services provided to affiliated entities. In
addition, the Management Company received reimbursements (at cost) of payroll
and other operating expenses from affiliated entities for activities performed
on their behalf. Such reimbursements were $16,499, $14,527 and $2,525 during
1997, 1996 and 1995, respectively.
     The Management Company entered into an administrative services agreement
with JMB Service Bureau Co. ("Service Co."), an affiliate of JMB Partners, to
provide accounting, marketing, data processing and computer, human resources
and other support services. The compensation for such services was calculated
as the lesser of actual cost or $4,000 per annum. The agreement was not renewed
at December 31, 1995. Commencing January 1, 1996, the Management Company began
employing its own personnel to perform the services previously provided under
the administrative service agreement. Additionally, rent expense, including
building expenses, paid by the Management Company to affiliates of JMB Realty
in 1997, 1996 and 1995 was $762, $822 and $812, respectively.
     The Company has options to purchase certain development parcels from the
Management Company at the lower of fair market value or 110% of allocable costs
(all terms as defined) until October 2000. In addition, the sale or development
of any development parcels by the Management Company is subject to a right of
first offer in favor of the Company on the same conditions as described above.



                                     28







































6. MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
                                                         1997            1996
-----------------------------------------------------------------------------
<S>                                                 <C>              <C>
Non-recourse mortgage loans payable,
secured by Old Orchard Center (a);
bearing interest at 6.98%; payable
in principal and interest through
December 11, 2009 (maturity)                        $ 168,000        $ 159,804
------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Oakbrook Center (b); bearing
interest at 6.1375% (through an interest
rate swap agreement); payable interest
only through October 29, 2004 (maturity)              140,000          140,000
------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by MainPlace; bearing interest at
5.4066% (through an interest rate swap
agreement); payable interest only through
October 19, 1998 (maturity)                            80,000           80,000
------------------------------------------------------------------------------
Line of credit, secured by Brandon
TownCenter, The Plaza at Brandon
TownCenter, Bed Bath and Beyond outparcel
at Brandon TownCenter, New York Square,
Service Merchandise Plaza and Bed Bath and
Beyond outparcel at Wolfchase Galleria (c);
currently bearing interest at 0.85% over LIBOR
(6.8305% at December 31, 1997); payable
interest only through April 30, 2000 (maturity)        35,800           28,100
------------------------------------------------------------------------------
Construction loan payable, secured by
Wolfchase Galleria (d); bearing interest
at 1.375% over LIBOR; payable interest
only through May 29, 1998 (maturity)                       --           31,982
------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Wolfchase Galleria (d); bearing
interest at 7.80%; payable in principal and
interest through June 30, 2007 (maturity)              79,716               --
------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Fox Valley Center; bearing interest
at 6.75%; payable interest only through
November 10, 2006 (maturity)                           85,528               --
------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Hawthorn Center; bearing interest
at 6.75%; payable interest only through
November 10, 2008 (maturity)                           77,864               --
------------------------------------------------------------------------------
                                                    $ 666,908        $ 439,886
==============================================================================
</TABLE>


(a) On December 11, 1997, the Company refinanced its outstanding indebtedness
secured by Old Orchard Center. In connection with the refinancing, the Company
incurred prepayment penalties of $5,404, net of minority interest, which is
reflected as an extraordinary item in the accompanying consolidated statement
of operations for the year ended December 31, 1997.

(b) On November 3, 1997, the Company refinanced its outstanding indebtedness
secured by Oakbrook Center. In connection with the refinancing, the Company
sold its interest rate swap agreements and wrote-off the unamortized balance of
deferred financing costs for a net loss of $26, net of minority interest, which
is reflected as an extraordinary item in the accompanying consolidated
statement of operations for the year ended December 31, 1997. 

(c) On July 26, 1995, the Company signed an agreement with a group of lenders
for the establishment of a $90,000 secured, revolving line of credit ("Line").
The Line is an obligation of the Operating Partnership and is guaranteed by the
Company. The Line has an initial three year term and, subject to lenders'
approval, may be extended for an additional one or two year period. In July
1995, the Company repaid, with the initial proceeds from the Line, the $12,000
then outstanding balance on the Brandon TownCenter construction loan. As a
result of this repayment, the Company wrote-off the unamortized balance of
deferred financing costs related to the construction loan of $1,014, net of
minority interest, which is reflected as an extraordinary item in the
accompanying consolidated statement of operations for the year ended December
31, 1995.

(d) On May 29, 1996, the Company executed a loan agreement with a lender to
finance $65,000 of the remaining construction costs at Wolfchase Galleria. On
June 30, 1997, the Company refinanced its outstanding indebtedness secured by
Wolfchase Galleria. In connection with the funding on the new loan, the Company
repaid the $41,824 then outstanding balance on the construction loan. In
addition, the Company wrote-off the unamortized balance of deferred financing
costs of $203, net of minority interest, which is reflected as an extraordinary
item in the accompanying consolidated statement of operations for the year
ended December 31, 1997.

     Maturities of long-term debt for the five years 1998 through 2002 are
$82,431, $2,613, $38,608, $3,018 and $3,243, respectively.
     On November 6, 1996, the Company entered into an agreement with a lender
for a one year, $5,000 unsecured revolving line of credit. On January 30,
1998, this revolving line of credit was increased to $7,500 and the maturity
date was extended to January 29, 1999. No amounts were outstanding as of
December 31, 1997.
     As of December 31, 1997, interest rate swap agreements in the aggregate
amount of $313,500 are in place to hedge exposure to interest rates on the
Company's floating rate indebtedness. These interest rate swap agreements have
fixed interest rates ranging from 4.86% to 6.29% and have maturities ranging
from October 19, 1998 to October 29, 2004. The Company is exposed to credit
loss in the event of non-performance by the third parties to the interest rate
swap agreements (which $240,000 are AAA, $15,000 are AA+, $20,000 are AA,
$10,000 are AA- and $28,500 are A rated by Standard and Poor's Ratings Group).

7. LEASES AS PROPERTY LESSOR At December 31, 1997, the Company's principal
consolidated assets are eleven operating shopping center properties. Management
has determined that all leases relating to these properties are properly
classified as operating leases; therefore, rental income is reported when
earned. Leases with tenants range in term from one to 47 years and generally
provide for fixed minimum rents and reimbursement of operating costs. In
addition, leases with shopping center tenants provide for additional rent based
upon percentages of tenant sales volumes.
     Minimum lease payments to be received in the years 1998 to 2002, and
thereafter, under the above lease agreements are $112,124, $108,481, $105,054,
$99,794, $94,272 and $374,041, respectively.

AS PROPERTY LESSEE Oak Brook Urban Venture (a consolidated venture) is subject
to a ground lease that expires in December 2040 but may be extended through
December 2089. The Oakbrook ground lease produced land sale-leaseback proceeds
of $75,000. Ground rent on the Oakbrook ground lease is 5% annually ($3,750),



                                     29



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)


although to the extent net cash flow is not  sufficient to service the annual
ground rent, such amount is deferred subject to a minimum annual payment of
$1,400, escalating to $1,800 in the year 2000. In each of the years 1997, 1996
and 1995, Oak Brook Urban Venture reported rent expense of $3,750 of which
payment of $2,350 was deferred in 1997 and 1996 and $2,550 was deferred in
1995. Interest has been accrued and deferred of $982, $823, and $668 for 1997,
1996 and 1995, respectively, on the deferred balance.  The total deferred
interest and ground lease rent obligation included in the accompanying
consolidated balance sheet at December 31, 1997 is $21,691.  Payments of
amounts in excess of the minimum annual payment is contingent upon availability
of defined cash flow in future periods. The Oakbrook ground lease is
subordinate in right of payment to all existing mortgage loans and partnership
advances (including advances owed to the Company), except for the minimum
annual payment, which is senior to the partnership advances. Upon sale of the
property, the ground lessor is entitled to a 10% cumulative return on its
invested capital to the extent sale proceeds are available to satisfy such
return. The ground lessor has the option, commencing in year 2010 (2007 under
certain circumstances) to put the property to the Company for cash or, at the
Company's option, Units or shares of common stock, at a price based, in
general, upon rent for the twelve calendar month period preceding the exercise
of the put.
     A substantial portion of Penn Square Mall is on land subject to a ground
lease expiring in 2060. The lease currently provides for minimum rent equal to
the greater of: (a) annual rents of $607, subject to adjustment based on the
Consumer Price Index every fifth lease year with the next adjustment in 2001,
or (b) 3/8% of the gross annual retail sales, plus 4 5/8% of the gross annual
rents from non-retail tenants of Penn Square Mall. In 1997, 1996 and 1995, Penn
Square Mall recorded rent expense of $939, $670 and $654, respectively.

8. TRANSACTIONS WITH AFFILIATES (NOT DISCLOSED ELSEWHERE) Costs and expenses
for services provided by the Management Company and the Operating Partnership
to the Company's investment properties, including the Company's share of
unconsolidated investment properties, were as follows:








<TABLE>
<CAPTION>
                                                       Years ended December 31
------------------------------------------------------------------------------
                                                          1997    1996    1995
------------------------------------------------------------------------------
<S>                                                    <C>     <C>     <C>
Property management and
   leasing services (a)                                 $4,579  $2,780  $2,549
Development services                                     1,365   1,212   1,074
------------------------------------------------------------------------------
                                                        $5,944  $3,992  $3,623
==============================================================================
</TABLE>

(a) In 1995, the management agreements for the following properties were
terminated by their owners: New York Square (July 1995), Brandon TownCenter,
The Plaza at Brandon TownCenter, MainPlace and Penn Square Mall (all October
1995), and Service Merchandise Plaza (formerly The Plaza at Sawmill Place)
(November 1995). New management agreements were put in place with the Operating
Partnership on substantially the same terms. Management services of $1,656 and
$1,415 for the years ended December 31, 1997 and 1996, respectively, provided
by the Operating Partnership to these consolidated investment properties and
included above (including Old Orchard Center and Wolfchase Galleria), have been
eliminated in consolidation. Subsequent to December 31, 1997, certain of these
contracts were transferred to the Management Company.


     The Company has purchase options, until October 2000, with respect to
interests in certain improved retail properties in which JMB Partners has an
interest. In addition, these interests may not be sold by JMB Partners without
first offering such interests to the Company at the lower of the option price
or the then fair market value of such property. The Company also has options,
until October 2000, to purchase certain retail development land parcels from
JMB Partners at the lower of fair market value or 110% of allocable cost (all
terms as defined). In addition, the sale or development of any development
parcels by JMB Partners is subject to a right of first offer in favor of the
Company at the same option price.
     On May 25, 1995, the Company exercised its options to acquire interests in
167 acres of land in Memphis for the development of Wolfchase Galleria. The
aggregate acquisition value of such parcels was $11,443. A 137 acre parcel from
JMB Partners and a 50% interest in a 30 acre parcel from the Management Company
were acquired. The Company acquired the remaining 50% interest in the 30 acre
parcel from an unaffiliated third party. The aggregate consideration was paid
in cash of $8,604 and through the issuance of 134,400 Units. 
     On June 23, 1995, the Company sold, to an unaffiliated third party, its
option to purchase from JMB Partners a 25% interest in Northpoint Mall in
Atlanta in exchange for $664 and a 50% interest in Citrus Park Venture (a 163
acre development parcel). For financial reporting purposes, the $664 is
reflected as other gains in the accompanying consolidated statement of
operations for the year ended December 31, 1995.
     On August 17, 1995, the Company sold, to an unaffiliated third party, its
option to purchase Woodbury (a development parcel) in Minneapolis from the
Management Company for $3,874. For financial reporting purposes, the $3,874,
net of selling expenses of $42, is reflected as other gains in the accompanying
consolidated statement of operations for the year ended December 31, 1995. The
unaffiliated third party exercised its option and purchased Woodbury from the
Management Company for $1,853 net of selling expenses.

                                     30




9. OPTIONS AND EMPLOYEE BENEFIT PLANS OPTION PLAN In 1993, the Company adopted
a stock option plan (the "Option Plan") which provides for the granting of
options to directors, officers and key employees of the Company and the
Management Company to purchase a specified number of shares of common stock or
Units ("Options"). Under the Option Plan, the total number of shares of common
stock available to be issued upon exchange of Units issued under the Option
Plan is equal to 1,500,000. The Options are granted at the market value on the
day of the grant.
     At December 31, 1997, there were 288,901 additional shares available for
grant under the Option Plan. The per share weighted-average fair value of
Options granted during 1996 and 1995 was $0.85 and $1.35, respectively, on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1996-expected dividend yield of 9.00%, risk-free
interest rate of 5.31%, expected life of 6 years and expected volatility rate
of 16.6%; 1995-expected dividend yield of 8.50%, risk-free interest rate of
7.56%, expected life of 6 years and expected volatility rate of 15.3%. The
Options granted in 1996 and 1995 have a contractual term of ten years. No
significant options were granted in 1997.
     On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and net
income per share disclosures for employee option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 in accounting for its Option Plan and, accordingly, no
compensation cost has been recognized for its Options in the consolidated
financial statements. Disclosure of pro forma effects are required only for
options granted in 1995 and thereafter. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No. 123 is not
reflected because compensation cost is reflected over the Options vesting
period of three years and compensation cost for Options granted prior to
January 1, 1995 is not considered. Had the Company determined compensation cost
based upon the fair value at the grant date for these Options under SFASNo.
123, the effects on the Company's net income and net income per share would not
have been material.





















     Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>

                                                                     Weighted- 
                                                                       Average
                                         Number         Number        Exercise
                                      of Shares       of Units           Price
------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>
Balances at December 31, 1994            42,675        746,992        $23.4934
   Granted                               14,200        297,800         20.7590
   Exercised                                 --             --              --
   Canceled                                  --        (52,667)        23.2389
   Expired                                   --             --              --
------------------------------------------------------------------------------
Balances at December 31, 1995            56,875        992,125         22.6929
   Granted                               12,260        161,240         20.4071
   Exercised                                 --        (71,653)        23.1303
   Canceled                                  --        (18,834)        21.9181
   Expired                                   --             --              --
------------------------------------------------------------------------------
Balances at December 31, 1996            69,135      1,062,878         22.3277
   Granted                                7,500             --         30.1250
   Exercised                                 --       (211,838)        22.9130
   Canceled                                  --            (67)        20.7500
   Expired                                   --             --              --
------------------------------------------------------------------------------
Balances at December 31, 1997            76,635        850,973        $22.2572
==============================================================================
</TABLE>


     At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding Options was $20.3125-$30.1250 and
6.64 years, respectively.
     At December 31, 1997 and 1996, the number of Options exercisable was
714,772 and 769,178 respectively, and the weighted-average exercise price of
these Options was $22.6754 and $23.1493, respectively.

1996 INCENTIVE UNIT PROGRAM On May 6, 1997, the Shareholders approved the
Company's 1996 Incentive Unit Program (the "Program") which provides for the
award of up to 525,000 Incentive Units to officers and key employees of the
Company and the Management Company. Incentive Units may be earned 25% in each
of the calendar years 1996 through 1999 subject to the Company achieving annual
and cumulative performance targets in its funds available for distribution for
each year. The determination of whether the performance target for any year has
been achieved is to be made not later than March 31 of the following year (the
"Determination Date"). Awards are subject to vesting over a three-year period
commencing on the first day of the calendar year subsequent to the year in
which the Incentive Units were earned, provided that the participant remains in
the employ of the Company or its affiliates on each such vesting date. Awards
for 525,000 Incentive Units were granted in 1996. In each of years 1997 and


                                     31



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)


1996, participants under the Program earned awards of 131,250 Incentive Units.
The Company recognizes deferred compensation expense for earned awards as of
each year's Determination Date. Such amounts are amortized to expense over the
related vesting periods.  Compensation expense to this plan for 1997 was
$1,260, which is inclusive of the Company's share of the Management Company.

SAVINGS AND RETIREMENT PLAN The Company and the Management Company participate
in the JMB Realty Corporation Employee Savings Plan and the Core Retirement
Award Program. In 1997, 1996 and 1995, the Company and the Management Company
contributed in aggregate $96, $107 and $88, respectively, to the JMB Realty
Corporation Employee Savings Plan, and $511, $515 and $380, respectively, to
the Core Retirement Award Program.

10. CONTINGENCIES LITIGATION The Company and its unconsolidated partnership
investments and the Management Company are parties to a variety of legal
proceedings arising in the ordinary course of their business. It is
management's opinion that the ultimate resolution of these matters will not
have a material adverse impact on the financial condition, results of
operations or liquidity of the Company.


INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND SHAREHOLDERS
URBAN SHOPPING CENTERS, INC.:
We have audited the accompanying consolidated balance sheets of Urban Shopping
Centers, Inc. and consolidated partnerships (the Company) as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.


/s/ KPMG Peat Marwick LLP
-------------------------

February 6, 1998
Chicago, Illinois

                                     32

                                                       SELECTED FINANCIAL DATA
                                                                   (Unaudited)

<TABLE>
<CAPTION>

($000's omitted, except per share amounts)           Years ended December 31
----------------------------------------------------------------------------
                                1997      1996      1995      1994      1993
----------------------------------------------------------------------------
<S>                       <C>         <C>       <C>       <C>       <C>
OPERATING DATA: (1)
Total revenues            $  153,980  $ 97,044  $ 91,627  $ 75,783  $ 96,881
Income before other
   gains (losses),
   minority interest and
   extraordinary items        31,791    27,330    24,099    24,350     4,077
Income before extraordinary
   items                      22,904    19,969    18,644    17,978     2,751
============================================================================
Basic income per common and
   unit voting common share
   before extraordinary items   1.27      1.42      1.35      1.31      0.18(2)
Diluted income per common and
   unit voting common share
   before extraordinary items   1.27      1.42      1.35      1.30      0.18(2)
=============================================================================
</TABLE>

<TABLE>
<CAPTION>

($000's omitted)                                                   December 31
------------------------------------------------------------------------------
                          1997        1996        1995        1994        1993
------------------------------------------------------------------------------
<S>                 <C>         <C>         <C>         <C>         <C>
BALANCE SHEET
DATA: (1)
Total assets        $1,280,976  $  904,076  $  598,507  $  586,638  $  543,153
Mortgage notes
   payable and land
   sale-leaseback
   proceeds            741,908     514,886     326,000     305,745     265,000
Stockholders' equity   309,656     194,663     134,509     142,558     149,591
==============================================================================
</TABLE>

(1) This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
table above presents selected operating data for 1993 on the historical basis
and includes investment properties which were distributed to JMB Partners prior
to the closing of the Company's initial public offering. Included in income
before extraordinary items, are (i) a $1,821 gain on sale of an outparcel at
Wolfchase Galleria in 1997, (ii) a $1,852 gain on sale of the Burdines store at
Brandon TownCenter in 1997, (iii) a $3,372 gain on sale of four outparcels at
Wolfchase Galleria in 1996, (iv) a $4,496 gain on sale of two Company purchase
options in 1995 and (v) a $2,989 gain on sale of outparcels at the Brandon
project in 1994.

(2) Represents income per common and unit voting common share for the period
commencing with the Company's initial public offering on October 14, 1993
through December 31, 1993.


                                                   QUARTERLY FINANCIAL SUMMARY
                                                                   (Unaudited)


<TABLE>
<CAPTION>

($000's omitted, except per share amounts)
                                                             1997 Quarters
----------------------------------------------------------------------------
                                 First      Second         Third      Fourth
----------------------------------------------------------------------------
<S>                            <C>         <C>           <C>         <C>
Total revenues                 $33,718     $37,356       $37,864     $45,042
Income before
  extraordinary
  items                          3,822       6,722(2)      5,390(4)    6,971
Net income                       3,734(1)    6,515(2)(3)   5,393(4)    1,544(5)
============================================================================
Basic income per common and
     unit voting common share     0.22        0.38          0.31        0.04
Diluted income per common and
     unit voting common share     0.22        0.37          0.31        0.04
============================================================================
Dividends declared and paid     0.5075      0.5075        0.5075      0.5075 
============================================================================

Common stock price:
     High                      $34 1/2     $31 15/16     $32 1/4     $35 1/8   
     Low                        28 1/2      27 7/8        30 1/16     30 1/8     
============================================================================























($000's omitted, except per share amounts)
                                                               1996 Quarters
----------------------------------------------------------------------------
                                 First      Second         Third      Fourth     
----------------------------------------------------------------------------
<S>                            <C>         <C>           <C>         <C>
Total revenues                 $23,183     $22,899       $24,482     $26,480
Income before
  extraordinary
  items                          3,127       4,468(6)      4,636(7)    7,738(8)
Net income                       3,127       4,468(6)      4,636(7)    7,738(8)
============================================================================
Basic income per common and
     unit voting common share     0.23        0.33          0.34        0.51
Diluted income per common and                           
     unit voting common share     0.23        0.33          0.34        0.51
============================================================================
Dividends declared and paid     0.4950      0.4950        0.4950      0.4950
============================================================================

Common stock price:
     High                      $22 3/8     $24 1/4       $25 3/8     $29
     Low                        20 1/8      22 1/8        22 7/8      24 1/4
============================================================================

</TABLE>

(1) Includes the Company's share of extraordinary item, net of minority
interest, of $88 relative to the write-off of unamortized loan costs at Water
Tower Place.

(2) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $1,287.

(3) Includes the Company's share of extraordinary item, net of minority
interest, of $207 relative to the write-off of unamortized construction loan
costs at Wolfchase Galleria.

(4) Includes the Company's share of gain on sale of the Burdines store at
Brandon TownCenter, net of minority interest, of $1,264.

(5) Includes the Company's share of extraordinary items, net of minority
interest, of $5,254 and $25, respectively, related to the prepayment penalties
incurred in connection with the refinancing of the Old Orchard Center
indebtedness and the net loss relative to the write-off of unamortized loan
costs, partially offset by the gain on sale of interest rate swaps as a result
of the Oakbrook Center refinancing.

(6) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $471.

(7) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $398.

(8) Includes the Company's share of gains on sale of two outparcels at
Wolfchase Galleria, net of minority interest, of $1,823.



                                      33



URBAN SHOPPING CENTERS, INC.


BOARD OF DIRECTORS

NEIL G. BLUHM (3)
Co-Chairman of the Board of Directors

JUDD D. MALKIN (2)
Co-Chairman of the Board of Directors

JAMES B. DIGNEY (1)
Senior Vice President
Metropolitan Life Insurance Company

SUSAN GETZENDANNER (2)
Partner - Skadden, Arps, Slate,
Meagher & Flom (Illinois)

JOHN E. NEAL (2)
Former President of
Kemper Funds

PHILLIP B. ROONEY (3)
Vice Chairman
The ServiceMaster Company

JOHN G. SCHREIBER (1)
President - Schreiber Investments and
Partner - Blackstone Real Estate Advisors

HENRY T. SEGERSTROM (1,2)
Managing Partner - C.J. Segerstrom & Sons


OFFICERS

MATTHEW S. DOMINSKI
President and Chief Executive Officer

ADAM S. METZ
Executive Vice President, Chief Financial
Officer, Treasurer and Director of Acquisitions

JAMES L. CZECH
Executive Vice President;
President-Development, Urban Retail
Properties Co.; and President, Urban
Retail International LLC

DENNIS M. ZASLAVSKY
Executive Vice President
and Chief Operating Officer

MICHAEL G. HILBORN
Senior Vice President,
General Counsel and Secretary

MICHAEL A. GOLDBERG
Senior Vice President

(1) Audit Committee Member
(2) Executive Compensation Committee Member
(3) Nominating Committee Member Officers


SHAREHOLDER INFORMATION

ANNUAL MEETING The 1998 Annual Meeting of Shareholders will be held at 10:00
a.m. local time on Wednesday, May 6, 1998 at:
American National Bank
1 North LaSalle Street
Chicago, Illinois.

SHARE INFORMATION In 1997, shares of Urban Shopping Centers traded at a high of
$35 1/8 and a low of $27 7/8. The stock closed at $34.75 on February 10, 1998.
     Urban Shopping Centers is listed on The New York Stock Exchange and The
Chicago Stock Exchange (Symbol: URB). As of February 20, 1998, there were
17,728,263 shares outstanding held by 551 shareholders of record.

DIVIDEND Urban Shopping Centers most recently declared a quarterly cash
dividend of 52.50 cents per share on February 10, 1998. The dividend equates to
an annual dividend of $2.10. The dividend was paid on March 5, 1998 to
shareholders of record on February 20,1998.
     Of the total dividends paid in 1997, 68.04% was ordinary income, 5.14% was
long-term capital gain, 1.89% was unrecaptured section 1250 gain and 24.93% was
return of capital for tax purposes.

TRANSFER AGENT
First Chicago Trust Company of New York
P. O. Box 2500
Jersey City, New Jersey 07303
Phone: (800) 446-2617

DIVIDEND REINVESTMENT PLAN Registered shareholders are eligible to reinvest
their dividends through the company's authorized DirectSERVICE Program with all
applicable brokerage commissions and transaction fees paid by Urban Shopping
Centers. The DirectSERVICE Program also allows both existing and new
shareholders to purchase shares through voluntary cash payments.  For
information on this program, please contact:
First Chicago Trust Company
at 1-800-446-2617 (for registered shareholders)
or 1-800-992-4566 (for non-registered shareholders).

FOR ADDITIONAL INFORMATION
Urban Shopping Centers, Inc.
c/o Investor Relations
900 North Michigan Avenue
Suite 1500
Chicago, Illinois 60611
Phone: (312) 915-2000
Facsimile: (312) 915-2001


                                      34



                                                   URBAN RETAIL PROPERTIES CO.

MANAGEMENT

Joseph M. Shrader
President

Charles J. Gill
Executive Vice President and Regional Manager

David S. Kattar
Executive Vice President and Regional Manager

Robert D. Oliver
Executive Vice President and Regional Manager

Timothy W. Olson
Executive Vice President and Regional Manager

Robert W. Powell, Jr.
Executive Vice President and Regional Manager

Mary L. Schlachter
Executive Vice President and Regional Manager

Palmer W. Cameron
Senior Vice President and Director of Technical Services



MARKETING

Cynthia S. Bohde
Senior Vice President

Lisa A. Bell
Vice President

Evan C. Geroux, Jr.
Vice President

Constance Hollenberg
Vice President

J. Charlene Slack
Vice President



LEASING

Ross B. Glickman
President

John F. Bergh
Senior Vice President

Susan Cadieux-Smith
Senior Vice President

Fred M. Heichman
Senior Vice President

R. Webber Hudson
Senior Vice President

Lisa Lasota-Poole
Senior Vice President

Max S. Reiswerg
Senior Vice President

Steven B. Warsaw
Senior Vice President

Lisa J. Balis
Vice President

Arnold D. Blake
Vice President

Pamela S. Bordner
Vice President

Danna L. Diamond
Vice President

Paul E. Geddis
Vice President

Steve A. Greenwood
Vice President

Judith J. Jacobs
Vice President

Nancy L. Jones
Vice President

Michael A. Law
Vice President

Doyle P. Liesenfelt
Vice President

Jeanne A. Morrison
Vice President

J. Michael Nagy
Vice President

Kimberly A. Pohlen
Vice President

Daniel J. Pollard
Vice President

Martin J. Porter
Vice President

Wendy J. Silverman
Vice President

Stewart T. Waller
Vice President

Lynn S. Warren
Vice President

Andrea Weisberg
Vice President

Steven M. Weiss
Vice President

Mark A. Williamson
Vice President



TENANT COORDINATION

Martha J. Spatz
Senior Vice President

Peter V. Irie
Vice President

Christopher M. West
Vice President


DEVELOPMENT

Michael S. Levin
Executive Vice President

Oscar Reid
Executive Vice President

Rohan S. Andrew
Senior Vice President

Ronald R. Brunswig
Senior Vice President

James J. Farrell
Senior Vice President

Mark A. Flom
Senior Vice President

Richard J. Kobe
Senior Vice President

Robert W. Lenke
Senior Vice President

W. Wayne Litzau
Senior Vice President

Charles C. Porter
Senior Vice President

Jan C. Porter
Senior Vice President

Adrian A. Hogg
Vice President

Thomas D. Howes
Vice President

Michael T. Laing
Vice President

John C. Parapetti
Vice President

Victor H. Pildes
Vice President


ADMINISTRATION

Avrum R. Miller
Executive Vice President

Len W. Tobiaski
Executive Vice President/Controller

Mark Brown
Vice President/Chief Information Officer

Sherry K. Cooper
Vice President

Patrick R. Dunne
Vice President

Thomas R. Field
Vice President

John R. Houren
Vice President

Joseph S. McCarthy, Jr.
Vice President

Paul J. Olimpio
Vice President

Karen Ruthman
Vice President

Charles E. Schulze
Vice President

Kathy A. Senten
Vice President

Mindy W. Sherman
Vice President

Gail M. Silver
Vice President

Harold J. Wagner
Vice President



LEASE ADMINISTRATION

La Bonney Taylor
Vice President









                                                    Urban Shopping Centers, Inc.
[LOGO]                                              900 North Michigan Avenue
                                                    Suite 1500
                                                    Chicago,  Illinois 60611