EXHIBIT 13.1
------------

1998 ANNUAL REPORT TO SHAREHOLDERS


URBAN SHOPPING CENTERS, INC. is a self-administered real estate investment
trust (REIT) in the business of owning, acquiring, managing, leasing,
developing and redeveloping regional and super-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 nineteen retail properties comprised of more than 17 million
square feet of space and also has under development an approximate 1.1
million square foot regional mall near Sacramento, California and an
approximate 350,000 square foot community center in Tampa, Florida. The
company opened Brandon TownCenter in Tampa, Florida in 1995, Wolfchase
Galleria in Memphis, Tennessee in 1997 and Citrus Park Town Center in
Tampa, Florida on March 3, 1999. The company's portfolio, excluding recent
acquisitions and development, produced sales per square foot of $377 in
1998, 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 22 states and the District of
Columbia.


<PAGE>


                              TABLE OF CONTENTS


Letter to Shareholders..........................................  1
Business Concepts...............................................  4
Property Locations.............................................. 12
Financial Highlights............................................ 13
Management's Discussion......................................... 14
Financial Statements............................................ 22
Notes to Financial Statements................................... 26
Independent Auditors' Report.................................... 36
Selected Financial Data......................................... 37
Quarterly Financial Summary..................................... 37
Board of Directors/Officers..................................... 38
Shareholder Information......................................... 38



<PAGE>


   |Diluted Funds Available for Distribution
   |Per Common Share
   |
98 |                                      $2.98
97 |                         $2.67
96 |                  $2.45
95 |          $2.22
94 |   $2.01
   ---------------------------------------------------
   $1.50  1.75    2.00    2.25    2.50    2.75    3.00


   |Sales Per Square Foot (1)
98 |                                      $377
97 |                          $361
96 |            $351
95 |
   ----------------------------------------------------
   $ 335    $320    330    340    350   360   370   380


   |Dividend Per Share
   |
98 |                                          $2.10
97 |                            $2.03
96 |                        $1.98
95 |              $1.94
94 |     $1.88 (2)
   ------------------------------------------------
   $1.80  1.85  1.90   1.95  2.00    2.05      2.10

(1)  Sales per square foot calculated in accordance with the official
Council of Shopping Centers (ICSC) definition. Prior to 1995, sales per
square foot were not calculated using ICSC definition. 

(2)  Annualized.







<PAGE>


We continue to work hard together to improve the performance of our
company. We own some of the finest retail properties in the country. Our
recent developments and acquisitions have only helped to improve our
already excellent portfolio. In the following pages, some of Urban Shopping
Centers, Inc.'s executives share their thoughts on the company's philosophy
and the regional mall business.

HOW WE DO
WHAT WE DO.

TO OUR SHAREHOLDERS:
1998 was a frustrating year for shareholders of many REIT stocks as the
National Association of Real Estate Investment Trust (NAREIT) Index was
down more than 18% on a total return basis. At the same time, according to
NAREIT, Urban Shopping Centers, Inc.'s stock provided a total return to
shareholders of approximately 3.3%. While we were not happy with our
stock's absolute performance, the strong relative performance speaks to the
quality and stability of our assets and earnings. As for Urban's portfolio,
our properties continue to perform very well. Citrus Park Town Center was
successfully developed and opened in Tampa, Florida, on March 3, 1999. We
have another regional mall, Galleria at Roseville, currently under
development near Sacramento, California. We also completed another
strategic acquisition during 1998, Woodland Hills Mall in Tulsa, Oklahoma.
We remain committed to our strategy of owning and operating high-quality
regional malls.

     In this report, we would like to take the opportunity to review our
1998 results, discuss our company's future challenges and opportunities and
provide you with additional insight into our company and how we operate.

HIGHLIGHTS OF 1998

EXISTING PORTFOLIO During 1998, our core properties generated internal net
operating income growth of approximately 5%. This number is consistent with
the internal growth we have posted over the last five years and is due, in
large part, to the high quality of our malls. Urban's portfolio remains one
of the best leased and most productive in our industry.

DEVELOPMENT Our company has developed a reputation as one of the nation's
premier developers in the regional mall industry because of our successes
at Brandon Town Center (Tampa, Florida) and Wolfchase Galleria (Memphis,
Tennessee). These properties are illustrative of our growth strategy: to
develop shopping malls that dominate their trade areas.

     The newest product of our expertise, Citrus Park Town Center, opened
on time and on budget on March 3, 1999. Citrus Park Town Center is a 1.1
million square foot regional mall anchored by Burdines, Dillard's, JCPenney
and Sears. The center features approximately 120 specialty shops and
restaurants, an approximate 90,000 square foot theater complex and a unique
"Main Street" interior design theme. The mall was virtually 100 percent
leased at opening and is expected to become the shopping destination for
the middle and upper income consumer in northwest Tampa. Our expectation is
that Citrus Park Town Center will be as productive as both Brandon
TownCenter and Wolfchase Galleria.

     In November, we also completed an extensive $13 million renovation of
our Fox Valley Center in Aurora, Illinois. Our work included a renovated
food court, the replacement of all flooring and new lighting, landscaping
and furnishings. This new state-of-the-art shopping environment has already
improved mall traffic and sales and has also attracted new tenants to the
center. As you may recall, we acquired Fox Valley Center in December 1997.

     Development remains an important part of our growth story. As further
described below, we have additional regional mall developments planned.

ACQUISITIONS In 1998, we continued our strategy of selectively acquiring
assets that match the characteristics of our existing portfolio. Throughout
the year, we analyzed numerous opportunities. In most cases, we were unable
to identify assets which met both our quality and pricing criteria. We
believe our selectivity will benefit us in the future.

     There was one asset that met our criteria in 1998. In December we
acquired a 50% interest in Woodland Hills Mall, located in Tulsa, Oklahoma,
with J.P. Morgan Investment Management Inc. acquiring the remaining
interest as our investment partner.

     Woodland Hills Mall is a 1.1 million square foot regional mall
anchored by Dillard's, Foley's, JCPenney and Sears. The mall opened in 1976
and was renovated in 1995. It is the dominant regional mall in Tulsa.
Because we already own Penn Square Mall in Oklahoma City, we believe
Woodland Hills Mall will provide us with certain synergies since tenants
and suppliers will recognize we now own two of the most dominant regional
malls in Oklahoma.

THIRD-PARTY BUSINESS Our property management, leasing and development
affiliate, Urban Retail Properties Co., is one of the country's largest
retail property managers. In addition to managing the majority of Urban
Shopping Centers' own portfolio, Urban Retail Properties Co. provides
management, leasing, development and consulting services to various
institutional and entrepreneurial owners who want to benefit from its
retail relationships and expertise. Third-party management business remains
an important part of our strategy and we are continuing to pursue new
management opportunities.

     We also continue to maintain our presence overseas. Urban Retail
Properties Co.'s international affiliate, Urban Retail International LLC,
continues work on assignments in Taiwan and is also considering various
other projects with foreign owners who are attempting to develop retail
projects around the world.

1998 FINANCIAL OVERVIEW

In 1998, Diluted Funds Available for Distribution (FAD) per common share
grew 11.7%. This increase continues our record of growing FAD on a strong,
consistent basis. Since we became public in 1993, our diluted FAD per
common share has increased 10.35% on a compound annual basis.

PROPERTY RESULTS

Mall tenant sales for the year increased 4.8% to $1.7 billion compared to
$1.6 billion in 1997 including the actual 1997 full year results for 1997
acquisitions. Sales per square foot were $377 in 1998, compared to $361 in
1997.

Sales per square foot figures exclude Woodland Hills Mall and Wolfchase
Galleria. The total mall Gross Leasable Area occupied was 93.3% at
December 31, 1998. At year-end our regional mall portfolio was 94.1%
leased.

DIVIDENDS, PAYOUT RATIO AND FINANCIAL STRATEGY The Board of Directors
increased the quarterly dividend in 1998 to 52.50 cents per share. At the
Board's meeting in February 1999, your Directors were again pleased to
approve another dividend increase to 56 cents per share per quarter or
$2.24 per share annually. As we have previously stated, as long as we
continue to find attractive ways to reinvest our capital, one of our
ongoing goals is to increase the company's dividend annually - thus
increasing our yield for each shareholder while lowering our payout ratio.
This strategy increases our overall financial flexibility and enables us to
take advantage of growth opportunities when they arise. While we expect
this trend to continue in the short term, we are approaching the legal
requirement governing a REIT's distribution of taxable income and will
therefore be forced to increase the annual dividend more in line
with our annual increase in earnings.

     With 1998 diluted FAD per common share of $2.98, our dividend of $2.10
per common share paid in 1998 represented a payout ratio of 70%, compared
to 76% in 1997.


<PAGE>


CAPITAL STRUCTURE

An important part of our overall strategy is to maintain a capital
structure that allows us to achieve these objectives - minimize cost of
capital, provide flexibility and capacity for growth and manage maturity
and interest rate risk.

[PICTURE APPEARS HERE]

MATTHEW S. DOMINSKI is the President and Chief Executive Officer of Urban
Shopping Centers, Inc. From 1991 to 1993, Mr. Dominski was the Chairman of
JMB Retail Properties Company, where he was responsible for all retail
development, management and leasing activities within affiliated entities
of JMB Realty. From 1987 to 1993, Mr. Dominski was Executive Vice President
of JMB Realty and from 1988 to 1993, an Executive Vice President of
JMB/Urban Development Co. Mr. Dominski joined JMB Realty in 1979.

     During 1998, we worked towards achieving our financial goals in the
following ways:

- Maintained our debt to total market capitalization at year-end at
  approximately 51%. This is consistent with our historical performance.

- Continued our trend of a strong interest coverage ratio. This ratio stood
  at 2.3:1 at year-end.

- Staggered the maturity dates of the more than $250 million of debt
  financing completed in 1998 thus minimizing our debt rollover risk. 
  At year-end our debt had a weighted average maturity of 7.4 years.

- Minimized our exposure to interest rate risk by fixing the interest 
  rate on $170 million of debt. At year-end, our debt had a weighted
  average cost of 6.87%.

     In order to finance our growth and maintain our historical financial
ratios, we completed a $25 million private placement of cumulative
convertible redeemable preferred stock to Security Capital Preferred Growth
Incorporated, an affiliate of Security Capital Group Incorporated. This
adds to the $100 million of cumulative convertible redeemable preferred
stock issued to Security Capital in 1997. Security Capital is well
respected in the real estate industry, and we were happy to have them
increase their investment in Urban. We also issued approximately 144,000
operating partnership units to a private investor.

OUTLOOK FOR 1999

Our shareholders, retailers and suppliers can expect that we will continue
to focus on the strength of our asset base and the implementation of our
proven growth strategy. We will seek to continue our development activity
on a consistent basis and to make acquisitions selectively. Most
importantly, we will attempt to do those things from a development and
acquisition standpoint that fit with our current portfolio in terms of
quality of assets and which meet our risk/return requirements.

     With Citrus Park successfully opened and contributing to shareholder
value, our development pipeline will primarily focus on Galleria at
Roseville located northeast of Sacramento, California. Galleria at
Roseville already has four committed anchor stores with JCPenney, Macy's,
Nordstrom and Sears. The development schedule currently calls for Galleria
at Roseville to open in fall 2000. The 1.1 million square foot mall will be
located in one of the most demographically desirable parts of California. A
number of other national retailers, who are tenants at other Urban
properties, have already expressed interest in opening stores at Galleria
at Roseville.



<PAGE>


     We believe there may be opportunities to buy additional assets in
1999. We will continue to pursue properties that offer a strategic fit with
our overall portfolio and are priced at a level which provides attractive
long-term returns.

     Finally, we will continue to focus on managing our portfolio for
significant internal growth. We will continue to monitor every space at our
properties to optimize productivity. We will use our expertise to enhance
merchandising mix, expand tenant sales and re-tenant aggressively to
maintain the strong asset value of our portfolio.

     To accomplish these goals in the coming year, we will need the same
type of commitment to excellence that we received from the employees of
Urban Shopping Centers in 1998. We remain grateful for their continuing
efforts and expertise, which have helped establish Urban Shopping Centers
as one of the industry's most respected "brand names" in the development,
redevelopment, leasing and operation of regional malls.

     We, together with all of our employees, would like to thank 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


[PICTURE APPEARS HERE]

Adam S. Metz is an Executive Vice President, Chief Financial Officer,
Treasurer, and Director of Acquisitions of Urban Shopping Centers, Inc. He
has held these positions since 1993. Prior to 1993, he was a Vice President
in the Capital Markets group of JMB Realty, which he joined in 1987.

Since becoming a public company in 1993, Urban Shopping Centers
successfully opened Brandon TownCenter in 1995, Wolfchase Galleria in 1997
and Citrus Park Town Center in March 1999. Urban's current development
pipeline includes Galleria at Roseville near Sacramento, California, on
schedule for opening in fall 2000.

DEVELOPMENT

DEVELOPMENT OF NEW PROPERTIES IS AN IMPORTANT PART OF URBAN SHOPPING
CENTERS' GROWTH STRATEGY. WHAT ARE THE MOST CRUCIAL THINGS URBAN'S
MANAGEMENT LOOKS FOR WHEN PLANNING A NEW MALL DEVELOPMENT? JIM CZECH: From
our perspective the most important things that drive our successfully
developed properties are demographics and department stores. Without strong
demographics, which help to dictate our locations, and without department
stores that are an attractive fit for those demographics, we will not have
the same opportunity for success that we have had in the past.



<PAGE>


HOW DO YOU MANAGE RISK ASSOCIATED WITH DEVELOPMENT PROJECTS? Development
has been an important part of Urban's strategy since we became public in
1993. Our goal has been to develop a new property every 11U2 to 2 years.
With only one project under development at a time, we are able to manage
our exposure to potential risks associated with the leasing market. We also
believe that the experience of our development team helps us manage the
challenges associated with development. Our senior development managers
have an average in excess of 20 years of development and redevelopment
experience. They have all worked on a wide variety of projects, ranging
from new developments such as Citrus Park and Wolfchase Galleria to
redevelopment projects such as Fox Valley Center. 

WHAT DO YOU DO DURING THE DEVELOPMENT PROCESS TO MAXIMIZE THE EVENTUAL
ASSET VALUE OF A NEW PROPERTY? Once you get past the hurdles of location,
demographics and department stores, I think our greatest challenge is to
come up with a property that is unique. We always try to differentiate our
properties so that when people come there they can say, "I've been to
whatever the competing mall is, but this is different." 

CITRUS PARK TOWN CENTER IN TAMPA IS URBAN'S NEWEST MALL DEVELOPMENT. WHAT
IS DIFFERENT ABOUT THE SHOPPING ENVIRONMENT AT CITRUS PARK THAT WILL ENTICE
SHOPPERS? At Citrus Park we have developed a "small town" concept. We have
brick-lined streets, there are different street names throughout the mall
and we have outdoor seating at restaurants. Most importantly, tenants have
been allowed to express themselves more with their store design than in a
typical mall. We want it to look like a downtown where retailers are
typically less restricted with store signage and frontage than a mall.

ISN'T URBAN ALSO DEVELOPING ANOTHER PROPERTY ADJACENT TO CITRUS PARK? Our
mall developments create a "retail node." There is value to the surrounding
land because our mall attracts large numbers of shoppers to the area. We
have also purchased some of the land surrounding Citrus Park. Our strategy
is to capture some of that added value created by Citrus Park by building a
350,000 sq. ft. power center across the street.

[PICTURE APPEARS HERE]

JAMES L. CZECH is an Executive Vice President of Urban Shopping Centers,
Inc.; President - Development, Urban Retail Properties Co.; and President,
Urban Retail International LLC. Mr. Czech joined an affiliate of JMB Realty
through a corporate acquisition in 1983.

Urban Shopping Centers practices a "hands on" approach to asset management.
Senior management continuously reviews the performance of each owned
property on a tenant-by-tenant basis. This allows management to understand
all issues relating to each property.

ASSET MANAGEMENT

URBAN SHOPPING CENTERS IS VERY FOCUSED ON THE ASSET MANAGEMENT OF ITS
PORTFOLIO. CAN YOU EXPLAIN YOUR GENERAL STRATEGY FOR ASSET MANAGEMENT?
DENNIS ZASLAVSKY: We believe thoroughness and attention to detail are
critical in our business. We review every material issue at each of our
properties every 4-6 weeks. We have an all-day meeting attended by our ceo,
cfo, coo and the heads of our management, leasing, development and
marketing groups. At these meetings, we closely monitor what is occurring,
space by space, at each of our properties to be sure we're doing everything
necessary to have the best tenants and most productive assets possible.

WHAT MAKES URBAN'S APPROACH UNIQUE? Our top management visits our
properties on a regular basis. We emphasize a hands-on approach and
recognize the need to have a complete understanding of each of our assets.
We have a very cooperative process and are known to have some of the best
people in the regional mall business. Many people have input as we
formulate and execute our strategies.



<PAGE>


WHAT ARE SOME EXAMPLES OF RECENT CHANGE THAT HAPPENED BECAUSE OF YOUR
IN-DEPTH REVIEW OF URBAN'S PORTFOLIO? Penn Square Mall in Oklahoma City is
a good example. We had a major lease expiration year there during 1998. Our
leasing group downsized some less productive tenants, expanded more
successful tenants and brought new tenants into Oklahoma City. We were able
to significantly increase the productivity of our tenants and our revenue
from the center because of the changes we implemented. Another recent
example is Old Orchard Center in suburban Chicago. At Old Orchard, we moved
Eddie Bauer into an expanded space, brought in their home furnishings
concept and greatly enhanced the occupancy of our newly developed wing of
the center. 

DOES YOUR MANAGEMENT OF SO MANY URBAN PROPERTIES POSE ANY SPECIAL ASSET
MANAGEMENT CHALLENGES? Our presence in many mixed-use downtown projects
including Copley Place in Boston, Water Tower Place in Chicago and San
Francisco Shopping Centre requires us to become experts with a number of
unique assets. We have to understand the office and hotel issues of
mixed-use properties and the challenges of urban parking. We must be
familiar with the particular challenges of vertical retailing and the role
tourism markets can play in our urban properties. 

IN CONNECTION WITH YOUR ASSET MANAGEMENT ROLE, YOU WORK ON ACQUISITIONS.
WHO ELSE AT URBAN PARTICIPATES IN ACQUISITIONS? We do not have specific
acquisition personnel. The professionals who will manage, lease, develop
and market the property upon completion of an acquisition are the same
people who participate in the acquisition process. We believe this makes
for better acquisitions and also ensures better performance once we are
operating the property.

[PICTURE APPEARS HERE]

DENNIS M. ZASLAVSKY is an Executive Vice President and the Chief Operating
Officer of Urban Shopping Centers, Inc. Mr. Zaslavsky directly oversees
Urban Shopping Centers, Inc.'s portfolio of properties. Prior to joining
Urban, Mr. Zaslavsky was a Vice President of JMB Realty, which he joined in
1991.

Urban Shopping Centers has established strong leasing relationships with
many of the country's best known retailers. With specialty retail stores,
unique restaurants, and entertainment concepts, Urban is able to make their
properties "destinations," not merely shopping malls.

LEASING

LEASING HAS BEEN ONE OF URBAN SHOPPING CENTERS' CONSISTENT STRENGTHS AS A
PUBLICLY-TRADED REIT. WHAT ARE YOUR CRITERIA WHEN LEASING SPACE FOR AN
URBAN PROPERTY? ROSS GLICKMAN: We realize we must understand the
demographics of each center. This translates into understanding the needs
of the consumers who visit the properties. Our leasing strategies also
require us to introduce new concepts into our markets, offer the only
location of certain retailers in a market and expand successful tenants
from one part of the country to another. It is really a question of
creating a merchandise mix that caters to the demographic profile
of the market, but remains fresh and exciting.

HOW DOES URBAN'S APPROACH TO LEASING DIFFER FROM YOUR COMPETITORS? We
differentiate ourselves in a number of ways. First, the high quality of our
properties is very appealing to retailers. Our centers are very productive
with sales per square foot of $377 and occupancy of approximately 93.3%.
Second, we have established a strong reputation because of the successful
lease-up of our three most recent developments. We have shown that we
understand our markets as well as the retailers' needs, concerns and goals.
With each new success, national retailers trust our judgment more and
understand that we're trying to put them in a position where they can be
productive. It boils down to the relationship we have with our counterparts
on the retailing side and the credibility we have developed as the owner
and operator of so many successful properties. 



<PAGE>


IS EACH URBAN PROPERTY SEPARATE IN TERMS OF THE RETAIL NICHE YOU ARE TRYING
TO CREATE OR IS THERE A GOOD GENERIC MIX YOU LIKE TO HAVE AT EVERY
PROPERTY? There is a mix relative to categories that you like to
accomplish, such as home furnishings, apparel or jewelry. We do not have a
set formula that dissects a property's space into exact percentages by
category. We work to understand the market's needs and determine who are
the best retailers for that market.

YOU ALSO HAVE RESPONSIBILITY FOR URBAN'S MARKETING DEPARTMENT. WHAT
FUNCTIONS DO THEY PERFORM? Our marketing professionals and leasing
professionals work closely together to create the proper environment for
our properties. The marketing department acts as a marketing agency for
each property, directing marketing programs and incorporating exclusive
programming and alliances where appropriate. The department directs
advertising agencies, holiday decor design, customer service, public
relations and tourism. They create programming tailored to the tenant mix
and designed to maximize traffic and sales, increase the customer base and
maximize the frequency of visits and length of time shoppers spend at the
property.

[PICTURE APPEARS HERE]

ROSS B. GLICKMAN is President - Leasing, Urban Retail Properties Co. From
1991 to 1993, Mr. Glickman served as an Executive Vice President and the
National Director of Leasing for JMB Retail Properties Company.

The malls owned and managed by Urban Shopping Centers benefit from the
company's property management expertise. The management staff is involved
in every aspect of property operations from obtaining favorable pricing for
goods and services, to overseeing exterior signage, landscaping, security
and capital improvements.

PROPERTY MANAGEMENT

URBAN HAS A VERY DEFINITE PHILOSOPHY ABOUT PROPERTY MANAGEMENT. CAN YOU
EXPLAIN THAT PHILOSOPHY FOR US? JOE SHRADER: Urban's goal is to make each
property, both owned and managed, a first class destination for shoppers.
Our property management philosophy is to support that goal in every way we
can. We want to make sure that every thing we do in a physical sense -
roofs, exteriors, parking lots, lighting, landscaping, etc. meets the
highest standard.

BESIDES URBAN, WHO ELSE UTILIZES YOUR PROPERTY MANAGEMENT CAPABILITIES? We
are one of the nation's largest retail property managers. We manage more
than 50 million square feet of space in 22 states and the District of
Columbia. We manage properties for a wide variety of third-party clients
including pension funds, financial institutions and entrepreneurial owners.
Our clients recognize the benefits associated with the size of our
management portfolio. These clients benefit from our strong tenant
relationships, development and redevelopment expertise and the economies of
scale we enjoy when negotiating for goods and services.

DOES OPENING A NEW PROPERTY, LIKE CITRUS PARK, OFFER YOU A DIFFERENT SET OF
CHALLENGES? Each new property requires us to line up a new group of
contractors to provide security, cleaning, trash removal, landscaping and
more. Because we opened Brandon TownCenter in the Tampa market just a few
years ago, we were able to assemble a start-up team internally at Citrus
Park that already had valuable experience in the market. Because of our
national relationships with various vendors, together with our willingness
to work with local vendors, we have the proven ability to operate
efficiently in virtually any city in the country.

HOW DOES YOUR MANAGEMENT STAFF ENSURE THAT ALL YOUR OWNED AND MANAGED
PROPERTIES ARE CONTRIBUTING FULLY TO THE GOAL OF BEING A "FIRST CLASS"
OPERATION? We have a general operations manual that sets corporate
standards for each of our malls. Then we have our whole portfolio divided
into six operating regions, each with a regional manager. They visit each
property frequently and do a total operations review with the property
manager. Visiting each property regularly ensures that standards are met.


<PAGE>


HOW ARE TECHNOLOGICAL ADVANCEMENTS AFFECTING YOUR PROPERTY MANAGEMENT
EFFORTS? New technologies offer us new management tools. We continue to use
the latest technology to be as effective as possible at each property in
areas such as accounting, climate control and security. These technological
advancements provide a level of information tracking at our properties that
we use as a management tool. For example, at most properties in our
portfolio, we track traffic numbers by time of day and location within the
mall. This not only helps control our security and cleaning expenses, but
also lets us track the success of current promotions at attracting
additional shoppers to the mall.

[PICTURE APPEARS HERE]

JOSEPH M. SHRADER is President - Property Management, Urban Retail
Properties Co. From 1991 to 1993, Mr. Shrader was a Senior Executive Vice
President of JMB Retail Properties Company where he directed property
management activities across the country. From 1978 to 1991, Mr. Shrader
served as Director of Retail Operations for JMB Properties Company.


PROPERTY LOCATIONS

                               [MAP APPEARS HERE]


<PAGE>


<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                1,712,000                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     Galleria at Roseville*                   Roseville, California           1,100,000                100%
------------------------------------------------------------------------------------------------------------
8     Woodland Hills Mall                      Tulsa, Oklahoma                 1,093,000                 50%
------------------------------------------------------------------------------------------------------------
9     Wolfchase Galleria                       Memphis, Tennessee              1,087,000                100%
------------------------------------------------------------------------------------------------------------
10    Penn Square Mall                         Oklahoma City, Oklahoma         1,075,000                100%
------------------------------------------------------------------------------------------------------------
11    Brandon TownCenter                       Tampa, Florida                    980,000                100%
------------------------------------------------------------------------------------------------------------
12    Miami International Mall                 Miami, Florida                    973,000                 40%
------------------------------------------------------------------------------------------------------------
13    Coral Square Mall                        Coral Springs, Florida            941,000                 50%
------------------------------------------------------------------------------------------------------------
14    Water Tower Place                        Chicago, Illinois                 727,000                 55%
------------------------------------------------------------------------------------------------------------
15    Valencia Town Center                     Valencia, California              675,000                 25%
------------------------------------------------------------------------------------------------------------
16    San Francisco Shopping Centre            San Francisco, California         495,000                 50%
------------------------------------------------------------------------------------------------------------
17    Copley Place                             Boston, Massachusetts             369,000                 33%
------------------------------------------------------------------------------------------------------------
18    The Plaza at Citrus Park Town Center *   Tampa, Florida                    350,000                100%
------------------------------------------------------------------------------------------------------------
19    The Plaza at Brandon TownCenter          Tampa, Florida                    243,000                100%



<PAGE>


------------------------------------------------------------------------------------------------------------
20    Service Merchandise Plaza                Columbus, Ohio                    165,000                100%
------------------------------------------------------------------------------------------------------------
21    New York Square                          Aurora, Illinois                  116,000                100%
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<FN>
* Under construction

This color indicates this state contains properties OWNED by Urban Shopping Centers, Inc. This color indicates
this state contains properties MANAGED by Urban Retail Properties Co.

</TABLE>


<PAGE>


<TABLE>
<CAPTION>


                                                            Financial Highlights

($000's omitted, except share, per square foot and ratio amounts)                    Years ended December 31
-------------------------------------------------------------------------------------------------------------
                                                                    1998            1997            1996
-------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>               <C> 
Total tenant sales (1)(2)                                      $ 2,534,264     $ 1,926,202       $ 1,323,126
Mall tenant sales (1)(2)(3)                                    $ 1,810,894     $ 1,435,921       $   944,965
Sales per square foot (1)(3)(4)(5)                             $       377     $       361       $       351
Property revenues (6)                                          $   268,761     $   205,027       $   130,774
Interest expense coverage ratio (7)                                   2.31            2.35              2.87
Income before extraordinary items                              $    22,948     $    22,093       $    19,969
Funds from operations (FFO) (8)                                $    55,659     $    48,559       $    35,419
Funds available for distribution (FAD) (8)                     $    55,879     $    47,689       $    34,582
Average number of common and unit voting common
     shares outstanding                                         17,744,072      17,440,454        14,066,243
Common and unit voting common shares outstanding
     at end of period                                           17,788,128      17,667,343        17,081,336
Debt to total market capitalization (9)                               50.8%           47.6%             46.3%
Occupancy (10)                                                        93.3%           91.6%             91.2%%
Leased (10)                                                           94.1%           92.8%             92.9%
=============================================================================================================

The chart below shows the calculation of funds from operations for the years 1996 through 1998:
                                                                    1998            1997            1996
-------------------------------------------------------------------------------------------------------------

Income before extraordinary items and minority interest        $    42,847     $    35,464       $    30,702
Plus depreciation and amortization                                  39,512          31,435            19,232
Plus Company's share of depreciation and amortization from
     unconsolidated partnerships and Urban Retail Properties Co.     9,177           6,502             4,129
Less preferred unit distributions and preferred stock dividends     (8,319)         (2,771)              (75)
-------------------------------------------------------------------------------------------------------------
Total funds from operations                                    $    83,217     $    70,630       $    53,988
-------------------------------------------------------------------------------------------------------------
Company's share of funds from operations (11)                  $    55,659     $    48,559       $    35,419
=============================================================================================================



<PAGE>


The chart below shows the calculation of funds available for distribution for the years 1996 through 1998:
                                                                    1998            1997            1996
-------------------------------------------------------------------------------------------------------------

Total funds from operations                                    $    83,217     $    70,630       $    53,988
Plus non-cash effect of Oakbrook Center straight-line ground
     rent and related interest                                       3,293           3,332             3,173
Less adjustment to reflect actual cash received from
     Urban Retail Properties Co.                                      (639)           (105)             (619)
Plus write-off of assets (12)                                          186             581               308
Less straight-line rent adjustments (13)                            (1,720)         (1,401)             (767)
Less other gains (12)                                                 (791)         (3,673)           (3,372)
-------------------------------------------------------------------------------------------------------------
Total funds available for distribution                         $    83,546     $    69,364       $    52,711
-------------------------------------------------------------------------------------------------------------
Company's share of funds available for distribution (11)       $    55,879     $    47,689       $    34,582
=============================================================================================================

<FN>

(1)   Only for those tenants who report sales.
(2)   1998 excludes Woodland Hills Mall, which was acquired on December 21, 1998, and Wolfchase Galleria. 1997
includes all regional malls (including 1997 acquisitions from acquired date forward). 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)   1998 excludes Woodland Hills Mall, which was acquired on December 21, 1998, and Wolfchase Galleria. 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 (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 $323/4, $347/8 and $29 per share as of December 31, 1998, 1997 and 1996,
respectively.
(10)  Occupancy and leased percentage of the regional malls as of December 31 of each year. 1998 excludes Woodland
Hills Mall, which was acquired on December 21, 1998. 1996 excludes Old Orchard Center, which was acquired on
December 18, 1996.
(11)  Based upon a weighted average of 26,529,664, 25,367,282, and 21,440,480 common shares and units outstanding
for 1998, 1997 and 1996, 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.

</TABLE>


<PAGE>


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 produced a 17.2% increase in
1998 funds available for distribution to $55.9 million from 1997 funds
available for distribution of $47.7 million. The 1997 funds available for
distribution increased 37.9% from 1996 funds available for distribution of
$34.6 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.

                    TOTAL TENANT SALES AND MALL TENANT SALES

                                     [GRAPH]


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 below and
shown in the graph above.

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 1998, mall tenants contributed approximately 91% of the
Company's total regional mall shopping center revenues. The above graph
illustrates total tenant sales and mall tenant sales at the Company's
regional malls for 1994 through 1998.

        Excluding the 1998 acquisition of Woodland Hills Mall and the 1997
development of Wolfchase Galleria, aggregate annual sales volume at the
regional malls for those mall shops and anchors that report sales has
increased 3.6% to $2.42 billion in 1998 from $2.33 billion in 1997,
including the actual 1997 full year results for 1997 acquisitions. On the
same basis, mall tenant sales (excluding anchors and movie theaters)
increased 4.8% for the same period.

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 the 1998 acquisition of Woodland
Hills Mall and the 1997 development of Wolfchase Galleria, sales per square
foot at the regional malls increased 4.5% to $377 in 1998 as compared to
$361 in 1997. 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 gross leasable
area ("GLA") occupancy rate at the regional malls for 1994 through 1998.
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 the 1998 acquisition of Woodland Hills Mall, occupancy
was 93.3% at December 31, 1998 compared to 91.6% at December 31, 1997. The
mall GLA was 94.1% leased at December 31, 1998 compared to 92.8% at
December 31, 1997.


<PAGE>


                   OCCUPANCY AND LEASED RATES AT DECEMBER 31

                                    [GRAPH]

IN PLACE RENTS The average in place rents for the Company's regional malls
excluding Woodland Hills Mall, which was acquired on December 21, 1998,
increased 2.8% to $31.37 per square foot at December 31, 1998 from $30.52
per square foot at December 31, 1997. The December 31, 1997 average in
place rents increased 3.3% from $29.55 per square foot at December 31,
1996.

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. The increase in
occupancy costs reflects the Company's leasing efforts and increased
emphasis on expense recoveries.




<PAGE>


<TABLE>
<CAPTION>
Years ended December 31         1998(1)       1997(2)       1996       1995       1994
--------------------------------------------------------------------------------------
<S>                         <C>           <C>           <C>        <C>        <C>     
Mall tenant sales (3)       $  1,811      $  1,253      $    945   $    915   $    820
Percent of sales:
   Minimum rents                 8.5%          8.6%          8.3%       8.2%       8.1%
   Percentage rents               .5%           .4%           .4%        .4%        .5%
   Expense recoveries (4)        3.4%          3.4%          3.0%       2.8%       3.1%
--------------------------------------------------------------------------------------
In-line tenant
   occupancy costs (5)          12.4%         12.4%         11.7%      11.4%      11.7%
======================================================================================

<FN>

(1) 1998 excludes Woodland Hills Mall, which was acquired on December 21, 1998.
(2) 1997 excludes San Francisco Shopping Centre, Copley Place, Fox Valley Center
    and Hawthorn Center, all acquired in 1997.
(3) In millions. Excludes sales from anchor tenants and movie theaters.
(4) Represents principally real estate tax and common area maintenance charges.
(5) Total mall tenant occupancy costs divided by total mall tenant sales
    (excluding anchor tenants and movie theaters).

</TABLE>


<PAGE>


RESULTS OF OPERATIONS

1998 COMPARED TO 1997

Shopping center revenues increased $45.2 million to $197.6 million in 1998
from $152.4 million in 1997. Minimum rents, percentage rents and recoveries
from tenants increased as a result of (i) the acquisitions of Fox Valley
Center and Hawthorn Center on November 14, 1997 and (ii) Wolfchase Galleria
having been open for a full year in 1998 as compared to ten months in 1997.
Minimum rents, percentage rents and recoveries from tenants increased as a
result of increases in average occupancy, rents, sales and real estate
taxes in 1998 as compared to 1997. Other revenues increased at MainPlace
and Old Orchard Center primarily as a result of lease termination fees
received in 1998.

        Shopping center expenses, including depreciation and amortization,
increased $28.0 million to $114.0 million in 1998 from $86.0 million in
1997. This increase was primarily attributable to (i) the acquisitions of
Fox Valley Center and Hawthorn Center on November 14, 1997, (ii) Wolfchase
Galleria having been open for a full year in 1998 as compared to ten months
in 1997, (iii) increases at Old Orchard Center and Oakbrook Center as a
result of increased real estate taxes and (iv) an increase in management
fees as a result of the January 1, 1998 termination of management contracts
with the Operating Partnership for certain of the Company's consolidated
properties, which fees were eliminated in consolidation. New management
contracts were entered into with the Management Company, which is not
consolidated.

        Mortgage and other interest expense increased $9.9 million to $43.8
million in 1998 from $33.9 in 1997. This increase was primarily
attributable to (i) the acquisitions of Fox Valley Center and Hawthorn
Center on November 14, 1997, (ii) Wolfchase Galleria having been open for a
full year in 1998 as compared to ten months in 1997 and (iii) an increase
at MainPlace as a result of the new swap agreement on May 1, 1998. These
increases were partially offset by a decrease at Old Orchard Center as a
result of the refinancing of its indebtedness on December 11, 1997.

        General and administrative expense increased $1.5 million to $4.8
million in 1998 from $3.3 million in 1997. This increase was primarily the
result of additional compensation expense related to the Company's 1996
Incentive Unit Program and reimbursement to the Management Company for
certain employees.

        Income from unconsolidated partnerships increased $4.6 million to
$10.8 million in 1998 from $6.2 million in 1997. This increase was
primarily attributable to (i) the investment in a partnership resulting in
a 50% preferred ownership interest in San Francisco Shopping Centre on
June 17, 1997, (ii) the purchase of a one-third equity interest in Copley
Place on August 1, 1997, (iii) the gain on sale of land at Miami
International Mall on June 18, 1998 and November 2, 1998 and (iv) an
increase in minimum rents, recoveries from tenants and other shopping
center revenues at Miami International Mall.

        Income from the Management Company increased $0.7 million to $0.3
million in 1998 from a $0.4 million loss in 1997. This increase was
primarily attributable to (i) an increase in management fees as a result of
the management contracts for certain of the Company's consolidated
properties being terminated with the Operating Partnership on January 1,
1998 and new management contracts being entered into with the Management
Company, (ii) a decrease in mortgage interest as a result of the
restructuring of the Management Company's indebtedness, (iii) a fee
received in December 1998 for acquisition and development feasibility
consulting services performed by the Management Company for an affiliated
entity and (iv) an increase in time recoveries as a result of the
development of Citrus Park Town Center. These increases were partially
offset by the increase in compensation expense as a result of the 1996
Incentive Unit Program and an increase in depreciation expense as a result
of the purchase of computer hardware and software during 1997.


<PAGE>


        Other gains of $0.5 million in 1998 represent the gain on sale of
an outparcel of land at Wolfchase Galleria. 

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.

        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.


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL CONDITION

Net cash flows from operating activities increased $11.1 million in 1998
from 1997. This increase was primarily attributable to an increase in
rental operations discussed above. 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 discussed above.

        Net cash flows used in investing activities decreased $97.6 million
in 1998 from 1997. This decrease 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 interest
in San Francisco Shopping Centre in June 1997, (iii) the acquisition of
land in Roseville, California in June 1997 and (iv) an increase in cash
distributions from San Francisco Shopping Centre, Copley Place and Coral
Square Mall in 1998. These decreases were partially offset by (i) the
acquisition of a 50% equity interest in Woodland Hills Mall on December 21,
1998, (ii) an increase in cash contributions to Citrus Park Venture Limited
Partnership ("Citrus Park") during 1998 and (iii) proceeds from the sale of
the Burdines store at Brandon TownCenter in September 1997. 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) an increase in cash
contributions to San Francisco Shopping Centre, Citrus Park and Miami
International Mall during 1997. 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 February
1997. 

        Net cash flows from financing activities decreased $105.6 million
in 1998 from 1997. This decrease was primarily attributable to a decrease
in proceeds from the issuance of preferred stock and an increase in cash
distributions to limited partners of the Operating Partnership and 
dividends paid to shareholders. These decreases were partially offset by
additional fundings from the Company's lines of credit. 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 an
increase in cash distributions to limited partners of the Operating
Partnership and dividends paid to shareholders. 

        At December 31, 1998, the Company and its consolidated ventures had
cash, cash equivalents and short-term investments of $0.4 million.

        Beginning with the dividend declared and paid in the first quarter
of 1999, the Company increased its quarterly dividend to $0.560 per share,
up 6.7% from $0.525 per share previously.

CAPITALIZATION

At December 31, 1998, the Company's debt (including the Company's share of
debt of unconsolidated partnerships and the Management Company) totaled
$1.06 billion of which $963.4 million is fixed rate debt and $95.8 million
is floating rate debt.

        On December 21, 1998, the Company acquired a 50% equity interest in
Woodland Hills Mall, LLC (the "LLC"). Concurrent with the acquisition, the
LLC secured financing for $90.0 million which bears interest at a fixed
rate of 7.00% and matures on January 1, 2009.



<PAGE>


        On December 1, 1998, the Company assumed $31.0 million of the
Management Company's $51.0 million of indebtedness. The indebtedness is
secured by the Management Company's interest in certain management
contracts and a guarantee by Penn Square Mall Limited Partnership. The
$31.0 million bears interest at 7.54% and matures on August 1, 2001.
Subsequent to year-end, the Company secured $75.0 million in financing for
Penn Square Mall. The loan bears interest at a fixed rate of 7.025% and
matures on March 1, 2009. In addition, the Management Company obtained a
$20.0 million loan. The loan bears interest at a floating rate of LIBOR +
1.20% and matures on February 25, 2004. Furthermore, Penn Square Mall and
the Management Company prepaid their respective December 31, 1998
outstanding indebtedness.

        On October 19, 1998, the Company completed an extension on the
$80.0 million MainPlace indebtedness. The indebtedness is now scheduled to
mature on September 30, 1999. On May 1, 1998, the Company entered into an
interest rate swap agreement for the MainPlace indebtedness thereby fixing
the all-in interest rate at 6.25% through maturity.

        On August 7, 1998, the Company executed a construction loan with a
lender in the amount of $86.1 million to finance the remaining construction
costs at Citrus Park Town Center. The loan was initially funded in August
1998 and matures on August 7, 2000; however, it may be extended for three
one-year periods. At December 31, 1998, the floating interest rate on the
loan was LIBOR + 1.20% (6.41%). Subsequent to year-end, the interest rate
was reduced to LIBOR + 1.05%. As of December 31, 1998, $45.3 million was
outstanding.

        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 (the "Line"), which on November 25, 1998 was increased to $107.5
million. The Line is currently subject to a floating interest rate of LIBOR
+ 0.85% (6.39% at December 31, 1998). As of December 31, 1998, $56.8
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 on January 30, 1998, was amended to increase the line to $7.5 million
and extend the maturity to January 29, 1999. Subsequent to year-end, this
line was further amended to increase the line to $10.0 million, extend the
maturity to January 28, 2000 and change the interest rate to the Reference
Rate -1.5625%. At December 31, 1998, this line of credit bore interest at
the Reference Rate -2.00% (5.75%). As of December 31, 1998, $3.8 million
was outstanding. 

        During the first quarter of 1998, the Company entered into an
interest rate swap agreement on $10.0 million of its floating rate
indebtedness thereby fixing the all-in rate at 6.64% through the expected
maturity date. 

        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 excluding deferred interest) decreased to 2.31 at December 31,
1998 as compared to 2.35 at December 31, 1997. At December 31, 1998, 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 51% as illustrated by the
table at the end of Management's Discussion and Analysis of Financial
Condition and Results of Operations. 



<PAGE>


        On December 29, 1998, the Company issued $25.0 million in
cumulative convertible redeemable preferred stock ("Preferred Stock") with
a liquidation preference of $32.32 per share. Quarterly dividends on the
Preferred Stock are equal to the greater of (i) $0.525 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 $32.32 per share (subject to antidilution adjustments) at anytime
after September 1999. After six years, the Preferred Stock may be redeemed,
at the option of the Company, for cash at a redemption price of $32.32 per
share. The net proceeds of the issue, after deducting transaction costs,
were used in connection with the acquisition of a 50% equity interest in
Woodland Hills Mall. As of December 31, 1998, the Company had $342.8
million of preferred stock, depository shares, common stock, stock warrants
and rights registered and available under two shelf registrations. 

        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 expense on outstanding
indebtedness and recurring capital expenditures and all dividends to the
shareholders necessary to satisfy the real estate investment trust ("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 common stock, unit voting common stock and/or
units). 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

In November 1998, the Company completed a renovation of Fox Valley Center
at a cost of approximately $13.0 million. In November 1997, the Company
entered into a put option agreement with an unaffiliated third party for
the purchase of a regional mall. This put option expired on December 31,
1998.

        The Company's newest super-regional mall, Citrus Park Town Center
in Tampa, Florida, opened virtually 100% leased on March 3, 1999. The
anchor tenants are Burdines, Dillard's, JCPenney and Sears. Citrus Park
Town Center also contains more than 120 specialty shops and restaurants and
an approximate 90,000 square foot state-of-the-art movie theatre in a total
retailing package designed to make Citrus Park Town Center a destination
mall. In addition, an approximate 350,000 square foot community center
opposite the regional mall, The Plaza at Citrus Park, is scheduled to open
in phases beginning in the fall of 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 by
guaranteeing the irrevocable letter of credit which supports the bonds.

        The Company's latest development project is the 1.1 million square
foot Galleria at Roseville near Sacramento, California. Galleria at
Roseville already has four committed anchor tenants with JCPenney, Macy's,
Nordstrom and Sears. The development schedule calls for Galleria at
Roseville to open in the fall of 2000. The official groundbreaking for the
center took place in September 1998.



<PAGE>


ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133") was issued by the FASB in June 1998. The effective date of this
statement for the Company is January 1, 2000. Statement 133 standardizes
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Under the standard, entities will
be required to carry all derivative instruments in the balance sheet at
fair value. The accounting for changes in fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. The Company uses interest rate swap agreements
and treasury locks as part of its interest rate risk management strategy.
These derivatives are used to hedge cash flow exposure and under Statement
133 the effective portion of the gain or loss on the derivative instrument
will be reported initially as a component of other comprehensive income
(outside earnings) and subsequently reclassified into earnings when the
hedged transaction affects earnings. Any amounts excluded from the
assessment of hedge effectiveness as well as the ineffective portion of the
gain or loss will be reported in earnings immediately.

        The Company does not anticipate early adoption of Statement 133;
however, it is estimated that adoption of Statement 133 will result in the
Company recording a derivative instrument liability of $12.6 million and a
transition adjustment loss of $12.6 million in other comprehensive income
at January 1, 2000.

        The Company expects that the adoption of Statement 133 will
increase the volatility of reported earnings and other comprehensive
income. In general, the amount of volatility will vary with the level of
derivative activities during any period.

YEAR 2000 The Company uses a significant number of information technology
("IT") and non-IT computer systems in its operations. The IT systems
include the Company's corporate operating and accounting systems, central
lease entry and property management systems, desktop and communications
systems and other corporate systems. The non-IT systems include embedded
microprocessors that control building systems, such as lighting, security,
fire, elevators, heating, ventilation and air conditioning systems.

        In 1997, the Company began to address the year 2000 problem (that
is, the fact that some systems may fail or produce inaccurate results using
dates in or around the year 2000). The Company has replaced all of its
mission-critical IT systems, including its central lease entry and property
management software, key communications and desktop software and the
related computer hardware. The Company believes, based on statements by
vendors and on its own testing, that all of the replacements for
mission-critical IT systems are year 2000 ready. The Company also is
continuing to replace other IT systems which are not mission critical with
year 2000 ready systems to the extent that it is cost-effective to do so.

        The Company's property management staff has conducted an inventory
and assessment of the non-IT systems at its properties and is seeking
confirmation from the relevant vendors that these non-IT systems are year
2000 ready. The Company has begun, and is continuing, to replace critical
non-IT systems that the Company believes may not be year 2000 ready, and
the Company expects that its properties will be year 2000 ready by July
1999. However, the Company does not have the technical capacity to test all
of the non-IT systems at its properties. 

        The Company relies on a variety of outside suppliers to provide
critical services to its properties. Of particular concern are the local
utility providers. Electric utilities, for example, use numerous embedded
systems in producing, measuring, controlling and dispensing electricity.
Without electricity, most of the systems at any property will not function
and the property may be unable to operate. The Company does not control
these outside suppliers and for some suppliers, such as the utilities,
there may be no feasible alternative supplier available. The failure of a


<PAGE>


utility or other supplier could have a material adverse effect on the
operations of the affected property, and a widespread failure of utilities
or other suppliers could have a material adverse effect on the Company.

        The Company has developed and will continue to refine contingency
plans to address the risk created by the year 2000 problem. These plans
generally include having property management personnel on-site at the
properties during the year change to handle year 2000 problems as they
arise by using the methods that the Company's property management staff
customarily uses to address failures of systems and suppliers. The
contingency plans also include procuring alternative suppliers, when
available, where the Company is able to conclude, on the basis of its
inventory and assessment, that an existing supplier will not be year 2000
ready.

        The Company's historical costs for remediation have not been
material and the Company does not anticipate that its future remediation
will be material. Although the cost of replacing the Company's IT
mission-critical systems was substantial, those replacements were made to
improve operational efficiency and were not accelerated due to the year
2000 problem. The Company has not delayed any material projects as a result
of the year 2000 problem.

        The foregoing discussion is equally applicable to the Management
Company, except that at third party-owned properties managed by the
Management Company both the historical and any necessary future remediation
costs are the obligation of the property owner and the replacement of any
non-IT system located upon such properties are at the discretion of the
property owner.

FINANCIAL MARKET RISK DISCLOSURE

The Company is exposed to interest rate changes primarily as a result of
its indebtedness. The Company's interest rate risk management objective is
to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve its objective, the Company
may enter into derivative financial instruments such as interest rate
swaps, caps and treasury locks in order to mitigate its interest rate risk
on a related financial instrument. Because of the Company's objectives
discussed above, the Company limits its exposure to increases in interest
rates; however, the Company also does not benefit fully from decreases in
interest rates. Furthermore, as interest rates increase and decrease, the
implicit value of the derivative instrument rises and falls, respectively.
This rise and fall in the implicit value of an interest rate swap agreement
does not impact the fixed payment agreed to under the swap agreement. The
Company does not enter into derivative or interest rate transactions for
speculative purposes.

        The Company manages its exposure to changes in floating interest
rates by limiting exposure to floating rate changes in any one year. The
Company manages liquidity risk by staggering the maturities of its
indebtedness. The Company increases its financial flexibility through the
use of variable rate debt and derivatives versus fixed rate debt. The
Company manages its exposure to counterparties by diversifying its exposure
to counterparties and entering into swap agreements and treasury locks only
with certain parties which have a specified credit rating.

        The Company's interest rate risk is monitored using a variety of
techniques. Fixed rate debt matures and bears average interest rates as
follows:

      2000 - $26,650 at 7.40%; 2001 - $50,000 at 7.54%; 2003 - $18,611 at
6.91%; and thereafter - $517,859 at 7.09%. Variable rate debt matures and
bears average interest rates (based on the December 31, 1998 LIBOR rate) as
follows:1999 - $173,500 at 6.26%; 2000 - $105,823 at 6.38%; 2002 - $26,766
at 5.83%; and thereafter - $140,000 at 5.43%.



<PAGE>


        The Company utilizes principally variable-to-fixed interest rate
swaps to mitigate its interest rate risk on the above variable rate debt.
Notional amounts of outstanding interest rate swaps have the following
maturities and provide for the following average fixed payment rates to
hedge the indicated underlying variable rates: 2000 - $20,000 at 6.67% and
6.81%; 2002 - $63,500 at 6.70% and 7.37%; 2003 - $10,000 at 6.67% and
7.41%; and thereafter - $256,766 at 5.61% and 6.26%.

        The above average balances include the Company's share of
unconsolidated partnerships debt and swaps. The fair value of fixed and
variable rate debt approximates its carrying value at December 31, 1998.
The fair value of interest rate swap agreements was ($12,187) at
December 31, 1998.

        As the above information incorporates only those exposures that
exist as of December 31, 1998, it does not consider those exposure or
positions, which could arise after that date. Moreover, because firm
commitments are not presented, the information represented therein has
limited predictive value. As a result, the Company's ultimate realized gain
or loss with respect to interest rate fluctuations will depend on the
exposures that arise during the period, the Company's hedging strategies at
the time and interest rates.

FORWARD-LOOKING STATEMENTS

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 programs 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.




<PAGE>


<TABLE>
                                           Debt to Total Market Capitalization


<CAPTION>
                                                                                                    Pro Rata
                                                                                                    Share of
                                                       Annual      100% Balance                     Mortgage
($000's omitted, except share           Maturity     Interest       of Mortgage     Ownership          Notes
and per share amounts)                      Date         Rate     Notes Payable      Interest        Payable
------------------------------------------------------------------------------------------------------------
<S>                                  <C>                <C>            <C>             <C>          <C>         
Consolidated entities:
     Old Orchard Center                Dec. 2009        6.98%          $166,287        100.0%     $  166,287 
     Oakbrook Center                   Oct. 2004        6.14%           140,000        100.0%        140,000  
     MainPlace                        Sept. 1999        6.25%            80,000        100.0%         80,000  
     Wolfchase Galleria               June  2007        7.80%            78,999        100.0%         78,999  
     Fox Valley Center                 Nov. 2006        6.75%            85,528        100.0%         85,528  
     Hawthorn Center                   Nov. 2008        6.75%            77,864        100.0%         77,864  
     Penn Square Mall(1)               Aug. 2001        7.54%            31,000        100.0%         31,000  
     Citrus Park Town Center           Aug. 2000(2)       (2)            45,273        100.0%         45,273  
     Operating Partnership             Apr. 2000(3)       (3)            56,800        100.0%         56,800  
     Operating Partnership             Jan. 2000(4)       (4)             3,750        100.0%          3,750  
------------------------------------------------------------------------------------------------------------
                                                                        765,501                      765,501
Unconsolidated entities: (5)
     Water Tower Place                 Feb. 2000(6)       (6)           170,000         55.0%         93,500 
     Coral Square Mall                 Dec. 2000        7.40%            53,300         50.0%         26,650 
     Miami International Mall          Dec. 2003        6.91%            46,528         40.0%         18,611 
     San Francisco Shopping Centre    July  2003(7)     6.90%            53,531         50.0%         26,766 
     Copley Place                      Aug. 2007        7.44%           192,543         33.3%         64,181 
     Woodland Hills Mall               Jan. 2009        7.00%            90,000         50.0%         45,000 
     Management Company (8)            Aug. 2001        7.54%            20,000         95.0%         19,000 
------------------------------------------------------------------------------------------------------------
                                                                        625,902                      293,708
------------------------------------------------------------------------------------------------------------
Company debt                                                                                      $1,059,209
============================================================================================================
Convertible preferred units (convertible into 1,018,182 common units)                             $   28,000

Convertible preferred stock (convertible into 3,772,915 shares of common stock)                   $  125,000


Market value of equity interests as of December 31, 1998, based upon 26,713,034
     common shares/units at $32 3/4 per share                                                     $  874,852
============================================================================================================
Total market capitalization                                                                       $2,087,061
============================================================================================================
Company debt to total market capitalization                                                               51%
============================================================================================================
<FN>

(1)   Subsequent to year-end, the Company secured $75,000 in financing. The new loan bears interest at a fixed
rate of 7.025% and matures on March 1, 2009. Proceeds from the financing were used to repay the outstanding
$31,000 and pay down the Company's line of credit.

(2)   This construction loan matures on August 7, 2000; however, it may be extended for three one-year periods. At
December 31, 1998, this loan bore interest at LIBOR + 1.20% (6.41%). Subsequent to year-end, the rate was reduced
to LIBOR + 1.05%.

(3)   This 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 LIBOR + 0.85% (6.39% at December 31, 1998).

(4)   At December 31, 1998, this line of credit bore interest at the Reference Rate -2.00% (5.75%). Subsequent to
year-end, this line of credit was extended to January 28, 2000 and the interest rate changed to the Reference Rate
-1.5625%.

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

(6)   Subsequent to year-end, the Company extended this loan maturity to February 1, 2000. It may be further
extended for one additional year. Of this total $170.0 million, $160.0 million bears interest at LIBOR + 1.125%
and $10.0 million bears interest at LIBOR + 1.500% (6.67% and 7.05%, respectively, at
December 31, 1998).

(7)   Subsequent to year-end, the Company extended this loan maturity to July 1, 2003; however, it may be further
extended for two one-year periods.

(8)   Subsequent to year-end, the Management Company refinanced its $20,000 of indebtness. The new loan bears
interest at a floating rate of LIBOR + 1.20% and matures on February 25, 2004.

</TABLE>


<PAGE>


<TABLE>

                                             Consolidated Balance Sheets

<CAPTION>
($000's omitted, except share and per share amounts)                                            December 31
-----------------------------------------------------------------------------------------------------------
                                                                                       1998            1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>        
ASSETS
Investment properties:
     Land, including peripheral land parcels                                    $   157,045    $   152,913
     Buildings and improvements                                                   1,095,431      1,072,673
     Equipment, furniture and fixtures                                                4,065          3,297
     Construction in progress                                                       101,188          6,025
---------------------------------------------------------------------------------------------------------- 
                                                                                  1,357,729      1,234,908
     Accumulated depreciation                                                      (163,845)      (125,594)
---------------------------------------------------------------------------------------------------------- 
         Investment properties, net of accumulated depreciation                   1,193,884      1,109,314

Investments in unconsolidated partnerships                                          135,052        118,800
Investment in the Management Company                                                 48,552         15,058
Cash, cash equivalents and short-term investments                                       422          1,268
Receivables:
     Tenant, net of allowance for doubtful accounts of $3,836 and
         $3,092 in 1998 and 1997, respectively                                       16,143         14,031
     Other                                                                            2,835          7,065
Deferred expenses and other assets                                                   14,522         15,440
----------------------------------------------------------------------------------------------------------
                                                                                $ 1,411,410    $ 1,280,976
==========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Mortgage notes payable                                                     $   765,501    $   666,908
     Land sale-leaseback proceeds                                                    75,000         75,000
     Deferred lease accrual                                                          20,733         18,593
     Accounts payable and other liabilities                                          51,270         38,538
     Investments in unconsolidated partnerships                                      42,893         39,665
     Commitments and contingencies
----------------------------------------------------------------------------------------------------------
         Total liabilities                                                          955,397        838,704



<PAGE>


($000's omitted, except share and per share amounts)                                            December 31
-----------------------------------------------------------------------------------------------------------
                                                                                       1998            1997
-----------------------------------------------------------------------------------------------------------

Minority interest                                                                   129,739        132,616
Stockholders' equity:
     Preferred stock, $.01 par value, authorized 5,000,000 shares, issued and
         outstanding 3,772,915 shares in 1998 and 2,999,400
         shares in 1997 (liquidation preference of $125,000)                             38             30  
     Common stock, $.01 par value, authorized 140,000,000 shares,
         issued and outstanding 17,380,193 shares in 1998 and
         17,259,408 shares in 1997                                                      174            173
     Unit voting common stock, $.01 par value, authorized 5,000,000
         shares, issued and outstanding 407,935 shares in 1998 and 1997                   4              4
     Additional paid-in capital                                                     489,880        459,738
     Retained earnings (deficit)                                                   (163,822)      (150,289)
----------------------------------------------------------------------------------------------------------
         Total stockholders' equity                                                 326,274        309,656
----------------------------------------------------------------------------------------------------------
                                                                                $ 1,411,410    $ 1,280,976
==========================================================================================================

<FN>

See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>


<TABLE>

                                           Consolidated Statements of Operations


<CAPTION>
($000's omitted, except share and per share amounts)                                      Years ended December 31
-----------------------------------------------------------------------------------------------------------------
                                                                             1998            1997            1996
-----------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>             <C>         
Revenues:
     Shopping center revenues:
         Minimum rents                                               $    118,290    $     94,812    $     60,944
         Percentage rents                                                   7,322           5,575           4,056
         Recoveries from tenants                                           65,108          47,493          27,659
         Other                                                              6,866           4,480           2,521
-----------------------------------------------------------------------------------------------------------------
                                                                          197,586         152,360          95,180
     Interest income                                                        1,103           1,620           1,864
-----------------------------------------------------------------------------------------------------------------
                                                                          198,689         153,980          97,044
-----------------------------------------------------------------------------------------------------------------
Expenses:
     Shopping center expenses                                              72,538          52,138          30,924
     Mortgage and other interest                                           43,751          33,876          14,246
     Ground rent                                                            4,596           4,689           4,420
     Depreciation and amortization                                         41,463          33,866          21,236
     General and administrative                                             4,829           3,269           2,650
     Write-off of assets                                                      186             140             308
-----------------------------------------------------------------------------------------------------------------
                                                                          167,363         127,978          73,784
-----------------------------------------------------------------------------------------------------------------

         Operating income                                                  31,326          26,002          23,260
Income from unconsolidated partnerships                                    10,778           6,227           3,000
Income (loss) from the Management Company                                     264            (438)          1,070
-----------------------------------------------------------------------------------------------------------------
         Income before other gains,
              minority interest and extraordinary items                    42,368          31,791          27,330
Other gains                                                                   479           3,673           3,372
Minority interest                                                         (13,540)        (12,560)        (10,733)
-----------------------------------------------------------------------------------------------------------------

         Income before extraordinary items                                 29,307          22,904          19,969
Extraordinary items (net of minority interest)                               --            (5,719)           --
-----------------------------------------------------------------------------------------------------------------



<PAGE>


($000's omitted, except share and per share amounts)                                      Years ended December 31
-----------------------------------------------------------------------------------------------------------------
                                                                             1998            1997            1996
-----------------------------------------------------------------------------------------------------------------
         Net income                                                        29,307          17,185          19,969
Dividends on preferred stock                                               (6,359)           (811)           --
-----------------------------------------------------------------------------------------------------------------
         Income applicable to common and unit voting stock           $     22,948    $     16,374    $     19,969
=================================================================================================================

Basic income per common and unit voting common share:
     Before extraordinary items                                      $       1.29    $       1.27    $       1.42
     Extraordinary items                                                     --              (.33)           --
-----------------------------------------------------------------------------------------------------------------
         Net income                                                  $       1.29    $       0.94    $       1.42
=================================================================================================================

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

Weighted-average common and unit voting common shares outstanding:
         Basic                                                         17,744,072      17,440,454      14,066,243
         Diluted                                                       18,013,943      17,730,053      14,136,277
=================================================================================================================
Dividends declared and paid per common and unit voting
     common share                                                    $       2.10    $       2.03    $       1.98
=================================================================================================================

<FN>

See accompanying notes to consolidated financial statements.

</TABLE>


<PAGE>


<TABLE>
                                   Consolidated Statements of Stockholders' Equity

<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, 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(1)     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
-----------------------------------------------------------------------------------------------------------------



<PAGE>


Balances at December 31, 
  1997                       2,999,400       30       17,667,343      177       459,738      (150,289)    309,656
Shares issued in connection 
 with:
   Private placement(2)        773,515        8          --         --          24,594            --        24,602
   Stock option plan            85,573        1           1,876            --          1,877
   Incentive unit plan          35,212       --           1,222            --          1,222
Net income                          --       --              --        29,307         29,307
Dividends declared and paid         --       --              --       (42,840)       (42,840)
Reallocation of minority interest   --       --           2,450            --          2,450
-----------------------------------------------------------------------------------------------------------------
Balances at December 31, 
  1998                       3,772,915     $ 38  17,788,128      $ 178       $ 489,880   $  (163,822)     $326,274
=================================================================================================================
<FN>

(1)   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.

(2)   On December 29, 1998, in connection with the Company's acquisition of a 50%
equity interest in Woodland Hills Mall, the Company issued $25,000 in Preferred
Stock with a liquidation preference of $32.32 per share. Quarterly dividends on
the Preferred Stock are equal to the greater of (i) $0.525 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 $32.32 per share
(subject to antidilution adjustments) at anytime after September 1999. After six
years, the Preferred Stock may be redeemed, at the option of the Company, for
cash at a redemption price of $32.32 per share.


See accompanying notes to consolidated financial statements.

</TABLE>


<PAGE>


<TABLE>

                                        Consolidated Statements of Cash Flows


<CAPTION>
($000's omitted)                                                         Years ended December 31
--------------------------------------------------------------------------------------------------------------
                                                                         1998         1997         1996
--------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                               $  29,307    $  17,185    $  19,969
Adjustments to reconcile net income
    to net cash provided by operating activities:
     Depreciation and amortization                                          41,463       33,866       21,236
     Write-off of assets                                                       186          140          308
     Provision (recovery) for losses on accounts receivable                  1,402          972         (225)
     Income from unconsolidated partnerships                               (10,778)      (6,227)      (3,000)
     Loss (income) from the Management Company,
         net of distributions                                                 (264)         438         --
     Minority interest                                                      13,540       12,560       10,733
     Other gains                                                              (479)      (3,673)      (3,372)
     Extraordinary items                                                      --          5,719         --
     Changes in other assets and liabilities                                 3,378        5,693        7,091
----------------------------------------------------------------------------------------------------------------
         Net cash provided by operating activities                          77,755       66,673       52,740
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment properties, net of change in related payables      (50,607)     (43,794)     (48,011)
Acquisition of investment properties and development parcels                  --       (101,382)     (76,639)
Acquisition of partnership interests                                       (34,924)     (31,400)      (9,431)
Proceeds from sale of investment property, net of selling costs               --         16,933         --
Proceeds from sale of options and land parcels, net of selling costs           490        2,296        4,679
Cash contributions to unconsolidated partnerships and
     the Management Company                                                (25,743)     (28,022)      (2,253)
Cash distributions from unconsolidated partnerships and
     the Management Company                                                 31,824        9,071        5,563
Net sales and maturities of short-term investments                              (3)        --            161
Other                                                                          192         (109)          (5)
----------------------------------------------------------------------------------------------------------------
         Net cash used in investing activities                             (78,771)    (176,407)    (125,936)
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt, net of issuance costs                      160,566      487,601       87,982
Proceeds from issuance of common stock, unit voting
     common stock and preferred stock                                       27,513      105,751       83,229
Repayment of debt                                                         (124,655)    (433,864)     (58,900)
Cash distributions to partners                                             (20,417)     (18,291)     (14,606)
Dividends paid                                                             (42,840)     (35,471)     (27,224)
----------------------------------------------------------------------------------------------------------------

         Net cash provided by financing activities                             167      105,726       70,481
----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                     (849)      (4,008)      (2,715)
Cash and cash equivalents at beginning of year                               1,143        5,151        7,866
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                     $ 294    $   1,143    $   5,151
================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid for mortgage and other interest, net of
         amounts capitalized                                             $  42,363    $  32,798    $  13,586
================================================================================================================

<FN>

See accompanying notes to consolidated financial statements.

</TABLE>


<PAGE>


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 regional and super-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").

     As of December 31, 1998, the Company, which is the sole general
partner of the Operating Partnership, owns approximately 67% 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% of the Units and also own $28,000 of
preferred units (included in minority interest in the accompanying
consolidated balance sheets). The preferred units have a liquidation
preference of $27.50 per unit, 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.
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. 

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
1998, 1997 and 1996, the Company incurred interest of $47,495, $35,640 and
$17,643, respectively, and capitalized interest of $3,744, $1,764 and
$3,397, respectively.

     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.



<PAGE>


     CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash and cash
equivalents (which aggregated $294 and $1,143 at December 31, 1998 and
1997, respectively) include a treasury money market fund which invests
principally in U.S. Treasury notes and bills (none and $207 at December 31,
1998 and 1997, respectively). Other short-term investments (generally with
original maturities of one year or less) are generally held to maturity and
aggregated $128 and $125 at December 31, 1998 and 1997, respectively. 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.

     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
$11,350 and $9,960 have been included in tenant receivables in the
accompanying consolidated balance sheets at December 31, 1998 and 1997,
respectively.

     On May 21, 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue 98-9 "Accounting
for Contingent Rent in Interim Financial Periods." The Task Force
determined that a lessor should defer recognition of contingent rental
income (i.e., percentage/excess rent) in interim periods until the
specified target (i.e., breakpoint) that triggers the contingent rental
income is achieved. The Company implemented the consensus as of May 21,
1998.

     This consensus affects timing of revenue recognition for interim
financial periods and it did not have any significant effect on the
Company's net income for the full calendar year 1998.

     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.



<PAGE>


     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 $2,030 and $2,378 as of December 31, 1998
and 1997, respectively. The fair value of the Company's interest rate swap
agreements is estimated at ($10,559) and $256 as of December 31, 1998 and
1997, respectively. The fair value is estimated based upon management's
good faith estimate.

     FAIR VALUE OF FINANCIAL INSTRUMENTS Management believes that the
carrying amount of mortgage notes payable at December 31, 1998 and 1997,
approximates their fair 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 their fair value or are not considered significant.

     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, 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.



<PAGE>


                                  1998      1997     1996
---------------------------------------------------------
Dividends declared and
   paid per share                $2.10     $2.03    $1.98 
Ordinary income                     99%       68%      78%
Return of capital                   --        25%      11%
Long-term capital gain               1%        5%      11%
Unrecaptured section 1250 gain      --         2%      -- 

     The difference between basic and diluted weighted- average common and
unit voting common shares represents the dilutive effect of outstanding
stock options.

     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

     WOODLAND HILLS MALL On December 21, 1998, the Company acquired a 50%
equity interest in Woodland Hills Mall in a transaction valued at $40,620
paid through the issuance of 144,495 Units in the Operating Partnership
plus $34,924 in cash.

     The issuance of Units has not been reflected in investing and
financing activities in the accompanying consolidated statement of cash
flows. The remaining interest was acquired by an unaffiliated third party.
Concurrent with this transaction, Woodland Hills Mall secured financing in
the amount of $90,000 which bears interest at a fixed rate of 7.00% and
matures on January 1, 2009.

     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 On July 24, 1998, Citrus Park Venture, which owns
a 163-acre land parcel which is the site of Citrus Park Town Center, in
Tampa, Florida, was reorganized pursuant to Florida law as Citrus Park
Venture Limited Partnership ("Citrus Park"). Prior to November 17, 1998,
the Management Company owned a 50% economic interest in Citrus Park (and
prior to July 24, 1998, in its predecessor). On November 17, 1998, the
Management Company's interest in the partnership was liquidated through the
distribution of certain land parcels at Citrus Park thereby providing the
Company with 100% ownership of Citrus Park.



<PAGE>


     The effect of consolidating the Company's interest in Citrus Park as
of November 17, 1998, has not been reflected in the accompanying
consolidated statement of cash flows. On August 1, 1997, the Company
acquired rights to the 50% economic interest associated with the Management
Company's ownership in the partnership 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, The Plaza at Citrus Park
Town Center, and for other commercial uses.

     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. 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 + 0.62% and matures on July 1,
2003; however, it may be extended for two 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 44,424 shares of unit voting common
stock valued at $1,135. 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.
Citrus Park Venture was an unconsolidated partnership through November 16,
1998.

     Investments in unconsolidated partnerships consist of the following:




<PAGE>


<TABLE>

<CAPTION>
Name                                        Property                                  Ownership Interest
-------------------------------------------------------------------------------------------------------------
<S>                                         <C>                                       <C>   
Water Tower Joint Venture                   Water Tower Place, Chicago, IL                            55%(1)
-------------------------------------------------------------------------------------------------------------
Coral-CS/LTD Associates                     Coral Square Mall, Coral Springs, FL                      50%
-------------------------------------------------------------------------------------------------------------
West Dade County Associates                 Miami International Mall, Miami, FL                       40%
-------------------------------------------------------------------------------------------------------------
S.F. Shopping Centre Associates, L.P.       San Francisco Shopping Centre, San Francisco, CA          50%
-------------------------------------------------------------------------------------------------------------
Copley Place Associates, LLC                Copley Place, Boston, MA                                  33%
-------------------------------------------------------------------------------------------------------------
Valencia Town Center Associates, L.P        Valencia Town Center, Valencia, CA                        25%(2)
-------------------------------------------------------------------------------------------------------------
Woodland Hills Mall, LLC                    Woodland Hills Mall,  Tulsa, OK                           50%
-------------------------------------------------------------------------------------------------------------

<FN>

(1) 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 WTJV. 

(2) 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).

Summarized combined financial information for the unconsolidated partnerships
is presented below.

</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                                                                  December 31
------------------------------------------------------------------------------------------------
                                                                                 1998       1997
------------------------------------------------------------------------------------------------
<S>                                                                          <C>        <C>     
Assets:
     Investment properties, net                                              $860,634   $738,757
     Other assets                                                              46,934     43,381
------------------------------------------------------------------------------------------------
                                                                              907,568    782,138
------------------------------------------------------------------------------------------------
Less liabilities:
     Mortgage notes payable                                                   645,904    562,251
     Other liabilities                                                         30,045     29,617
------------------------------------------------------------------------------------------------
         Total capital                                                        231,619    190,270
Less outside partners' capital                                                139,460    111,135
------------------------------------------------------------------------------------------------
         Total investments in unconsolidated partnerships                    $ 92,159   $ 79,135
================================================================================================

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

Assets - Investments in unconsolidated partnerships                          $135,052   $118,800
Liabilities - Investments in unconsolidated partnerships                       42,893     39,665
------------------------------------------------------------------------------------------------
                                                                             $ 92,159   $ 79,135
================================================================================================
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                                                       Years ended December 31
----------------------------------------------------------------------------------------------
                                                                 1998        1997         1996
----------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>          <C>      
Revenues:
     Shopping centers                                       $ 161,963   $ 115,583    $  79,361
     Interest income                                            1,258         609          385
Expenses:
     Shopping centers                                          73,074      52,831       35,839
     Mortgage and other interest and ground rent               43,536      32,673       25,375
     Depreciation and amortization                             18,136      16,331       11,107
----------------------------------------------------------------------------------------------
         Income before other gains and extraordinary item      28,475      14,357        7,425
Other gains                                                     1,457        --           --
----------------------------------------------------------------------------------------------
         Income before extraordinary item                      29,932      14,357        7,425
Extraordinary item                                               --          (228)        --
----------------------------------------------------------------------------------------------
         Net income                                         $  29,932   $  14,129    $   7,425
==============================================================================================
Company's share of:
     Mortgage and other interest and ground rent            $  19,250   $  14,370    $  10,810
     Depreciation and amortization                              9,737       6,957        4,519
     Other gains                                                  583        --           --
     Income before extraordinary item                          10,778       6,227        3,000
==============================================================================================
</TABLE>


<PAGE>


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.




<PAGE>


<TABLE>
<CAPTION>
                                                                 December 31
----------------------------------------------------------------------------
                                                             1998       1997
----------------------------------------------------------------------------
<S>                                                         <C>        <C>  
Assets:
     Investments in land parcels (1)                     $ 15,171   $ 27,451
     Cash, cash equivalents and short-term investments      4,324      1,805
     Receivables and deferred expenses                     17,332     16,097
---------------------------------------------------------------------------- 
                                                         $ 36,827   $ 45,353
============================================================================
Liabilities:
     Notes payable (2)                                   $ 20,000   $ 70,000
     Accounts payable and other liabilities                 4,777      5,652
---------------------------------------------------------------------------- 
                                                           24,777     75,652
Owners' equity (deficit)                                   12,050    (30,299)
----------------------------------------------------------------------------
                                                         $ 36,827   $ 45,353
============================================================================
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                                             Years ended December 31
------------------------------------------------------------------------------------
<S>                                                         <C>        <C>  
                                                        1998        1997        1996
------------------------------------------------------------------------------------
Revenues                                            $ 41,244    $ 36,891    $ 38,501
Expenses:
     Management, leasing and development services     34,686      31,134      30,346
     Mortgage and other interest                       4,578       5,692       5,457
     Land parcels                                      2,646         396         427
     Depreciation and amortization                     1,463         559         433
     Write-down of assets (1)                           --         8,812        --
------------------------------------------------------------------------------------
                                                      43,373      46,593      36,663
         Operating income (loss)                      (2,129)     (9,702)      1,838
Income tax benefit (provision)                           629         561        (840)
Loss on sale of land                                    (271)       --          --
------------------------------------------------------------------------------------
         Net income (loss)                          $ (1,771)   $ (9,141)   $    998
====================================================================================
<FN>

(1) Included 50% of the outstanding mortgage loan of an affiliated joint venture at December 31, 1997. Write-downs
in 1997, represent reduction of the carrying value in an outstanding mortgage loan due to the uncertainty of
realizing the carrying value upon repayment. 

(2) On December 1, 1998, the notes payable of the Management Company were reduced by $50,000. The reduction was
effected by (i) the Operating Partnership's $10,000 note of the Management Company being contributed to the
Management Company and the preferred shareholder (Penn Square Mall Limited Partnership) directly assuming from the
Management Company the payment obligation of $31,000 of its $51,000 of indebtedness and (ii) the Management
Company distributing in kind to its common shareholder assets valued at $6,700 in partial payment of $9,000 notes
payable to that shareholder and that shareholder contributing the balance of those notes held by it to the
Management Company. The $20,000 note payable bears interest at 7.54% per annum and matures on August 1, 2001.

</TABLE>


<PAGE>


        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 1998
and 1997, management, leasing and development revenues of $6,412 and
$7,116, respectively, resulted from services provided to affiliated
entities. In addition, the Management Company received reimbursements (at
cost) of property level payroll and other operating expenses from
affiliated entities for activities performed on their behalf. Such
reimbursements were $18,978, $16,499 and $14,527 during 1998, 1997 and
1996, respectively. Rent expense, including building expenses, paid by the
Management Company to affiliates of JMB Realty in 1998, 1997 and 1996 was
$794, $762 and $822, respectively.

     Prior to 1998, a lawsuit was filed against the Management Company and
other JMB Realty affiliates alleging a breach of agreements made prior to
the Company's formation with respect to a vacant land parcel which was
contributed by a JMB Realty affiliate to the Management Company as part of
the Company's formation. During 1998, the case was settled. The settlement
amount of $20,000 was paid and all legal fees and other costs in connection
with the litigation totaling approximately $2,600 were, or will be,
contributed to the Management Company by a JMB Realty affiliate.

        As of December 31, 1998, the Company has an option to purchase one
remaining development parcel 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 this development
parcel by the Management Company is subject to a right of first offer in
favor of the Company on the same conditions as described above.

6. MORTGAGE NOTES PAYABLE 

     Mortgage notes payable consist of the following at December 31, 1998
and 1997:



<PAGE>


<TABLE>
<CAPTION>
                                                                                       1998       1997
------------------------------------------------------------------------------------------------------
<S>                                                                                <C>        <C>     
Non-recourse mortgage loans payable, secured by certain investment properties
(1)(2)(3); bearing interest at rates ranging from 6.14% to 7.80%; with
maturities ranging from September 1999 through December 2009. Interest rates
associated with certain of the loans have been fixed through interest rate swap
agreements                                                                         $628,678   $631,108
------------------------------------------------------------------------------------------------------
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 (4);
currently bearing interest at LIBOR + 0.85%(6.39%
at December 31, 1998); payable interest only through April 30, 2000 (maturity)       56,800     35,800
------------------------------------------------------------------------------------------------------
Unsecured line of credit (5); bearing interest at the Reference Rate -2.00%
(5.75% at December 31,1998); payable interest only through January 28, 2000
(maturity)                                                                            3,750       --
------------------------------------------------------------------------------------------------------
Construction loan payable, secured by Citrus Park Town Center (6); bearing
interest at LIBOR + 1.20%(6.41% at December 31, 1998); payable interest only
through August 7, 2001 (maturity)                                                    45,273       -- 
------------------------------------------------------------------------------------------------------
Non-recourse mortgage loan payable, secured by the Management Company's interest 
in certain management contracts and a guarantee by Penn Square Mall Limited 
Partnership (7); bearing interest at 7.54%; payable interest only through
August 1, 2001 (maturity)                                                            31,000       --
------------------------------------------------------------------------------------------------------
                                                                                   $765,501   $666,908
======================================================================================================




<PAGE>


<FN>

(1) 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.
(2) 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.
(3) On June 30, 1997, the Company refinanced its outstanding indebtedness secured by Wolfchase Galleria. In
connection with the refinancing, 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.
(4) 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 (the "Line"), which on November 25, 1998 was amended to increase the line to
$107,500. 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.
(5) On November 6, 1996, the Company entered into an agreement with a lender for a one- year $5,000 unsecured
revolving line of credit, which on January 30, 1998 was amended to increase the line to $7,500 and extend the
maturity to January 29, 1999. Subsequent to year-end, this line was further amended to increase the line to
$10,000, extend the maturity to January 28, 2000 and change the interest rate to the Reference Rate -1.5625%. 
(6) On August 8, 1998, the Company executed a loan agreement with a lender to finance $86,100 of the remaining
construction costs at Citrus Park Town Center. This loan matures on August 7, 2000; however, it may be extended
for three one-year periods.
(7) On December 1, 1998, the Company assumed payment obligation of $31,000 of the Management Company's $51,000 of
indebtedness. Such amount has not been reflected in investing and financing activities in the accompanying
consolidated statement of cash flows.

</TABLE>


<PAGE>


        Maturities of long-term debt for the five years 1999 through 2003
are $86,363, $104,881, $34,018, $3,243 and $3,485, respectively.

        As of December 31, 1998, interest rate swap agreements in the
aggregate amount of $323,500 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 5.68% to 6.29% and have
maturities ranging from December 14, 2000 to December 1, 2005. The Company
is exposed to credit loss in the event of non-performance by the third
parties to the interest rate swap agreements (which $175,000 are AA+,
$120,000 are AA- and $28,500 are A 


7. LEASES 

AS PROPERTY LESSOR At December 31, 1998, the Company's principal
consolidated assets are twelve 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 66
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 1999 to 2003,
and thereafter, under the above lease agreements are $117,956, $113,794,
$108,448, $103,465, $95,790 and $333,877 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), 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 1998, 1997 and 1996, Oak Brook Urban Venture
reported rent expense of $3,750 of which payment of $2,150 was deferred in
1998 and $2,350 was deferred in 1997 and 1996. Interest has been accrued
and deferred of $1,143, $982 and $823 for 1998, 1997 and 1996,
respectively, on the deferred balance. The total deferred interest and
ground lease rent obligation included in the accompanying consolidated
balance sheet at December 31, 1998 is $24,984. 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: (i) annual rents of $607, subject to
adjustment based on the Consumer Price Index every fifth lease year with
the next adjustment in 2001, or (ii) 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.



<PAGE>


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:




<PAGE>


<TABLE>
<CAPTION>
                                                         Years ended December 31
--------------------------------------------------------------------------------
                                                 1998          1997         1996
--------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>    
Property management and                                                         
   leasing services (1)                        $7,635        $5,770      $4,169 
Development services                            2,125         1,365       1,212 
-------------------------------------------------------------------------------
                                               $9,760        $7,135      $5,381 
===============================================================================

<FN>

(1) Management services of $1,656 and $1,415 for the years ended December 31, 1997 and 1996, respectively, provided by
the Operating Partnership to Brandon TownCenter, The Plaza at Brandon TownCenter, MainPlace, New York Square, Old
Orchard Center, Penn Square Mall, Service Merchandise Plaza and Wolfchase Galleria, and included above, have been
eliminated in consolidation. On January 1, 1998, these management contracts were terminated and new management
contracts were entered into with the Management Company.

</TABLE>


<PAGE>


        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.

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, 1998, there were 266,401 additional shares
available for grant under the Option Plan. No significant options were
granted in 1998, 1997 or 1996.

        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. Had the Company determined compensation cost based
upon the fair value at the grant date for these Options under SFAS No. 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 was as follows:

                                                           Weighted-
                                                            Average
                                    Number       Number    Exercise
                                 of Shares     of Units       Price
-------------------------------------------------------------------
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
-------------------------------------------------------------------
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
-------------------------------------------------------------------
Balances at December 31, 1997       76,635       850,973    22.2572
   Granted                          10,350        12,150    34.2292
   Exercised                       (16,000)      (69,573)   21.9273
   Canceled                           --            --         --
-------------------------------------------------------------------
Balances at December 31, 1998       70,985       793,550    22.6015
===================================================================

        At December 31, 1998, the range of exercise prices and
weighted-average remaining contractual life of outstanding Options was
$20.3125-$34.8125 and 5.72 years, respectively.

        At December 31, 1998 and 1997, the number of Options exercisable
was 786,703 and 714,772 respectively, and the weighted-average exercise
price of these Options was $22.4299 and $22.6754, 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 1998 and 1997, participants
under the Program earned awards of 130,750 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 for this plan for 1998 and
1997 was $2,946 and $1,260, respectively, which is inclusive of the
Company's share of the Management Company.

SAVINGS AND RETIREMENT PLANS The Company and the Management Company
participate in the JMB Realty Corporation Employee Savings Plan and the
Core Retirement Award Program. In 1998, 1997 and 1996, the Company and the
Management Company contributed in aggregate $98, $96 and $107,
respectively, to the JMB Realty Corporation Employee Savings Plan, and
$544, $511 and $515, respectively, to the Core Retirement Award Program. On
August 1, 1998, the Company implemented the Deferred Cash Compensation Plan
(the "Plan"). This Plan replaces the JMB Realty Corporation Employee
Savings Plan for highly compensated employees of the Company and the
Management Company. This plan is not qualified under section 401(a) of the
Internal Revenue Code of 1986. In 1998, the Company and the Management
Company contributed in the aggregate $24 to this Plan.

10. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION 

     During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company defines
each of its regional malls and community centers as an individual operating
segment and has determined that all of the regional malls and community
centers exhibit substantially identical economic characteristics and meet
the other criteria specified by SFAS No. 131 which permits the malls to be
aggregated into one reportable segment. The Management Company is viewed by
management as a separate segment and does not meet the quantitative
measures required for separate disclosure.

     The Company separately assesses and measures the operating results of
its regional malls based on net operating income ("NOI"). NOI is calculated
as shopping center revenues less shopping center expenses adjusted for
straight-line rent and non-real estate depreciation. NOI for the Company's
unconsolidated partnerships is measured at the Company's ownership share.

     The following table summarizes the revenues, NOI and assets for the
Company's reportable segment.




<PAGE>


<TABLE>
<CAPTION>
                                                                 1998           1997           1996
---------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>        
REVENUES:
Shopping center revenues                                  $   267,142    $   203,118    $   128,712
     Company's share of unconsolidated partnerships           (69,556)       (50,758)       (33,532)
     Interest income                                            1,103          1,620          1,864
---------------------------------------------------------------------------------------------------
Consolidated revenue                                      $   198,689    $   153,980    $    97,044
===================================================================================================
NOI:
Shopping center NOI                                       $   161,991    $   125,915    $    81,529
     Unconsolidated shopping center NOI                       (38,722)       (27,180)       (17,972)
     Interest income                                            1,103          1,620          1,864
     Straight-line rent adjustments                             1,369          1,136            504
     Real estate depreciation and amortization                (39,512)       (31,435)       (19,232)
     Non-shopping center expenses                             (54,903)       (44,054)       (23,433)
     Income from unconsolidated partnerships and the
         Management Company                                    11,042          5,789          4,070
---------------------------------------------------------------------------------------------------
Consolidated income before gains, minority interest and
     extraordinary items                                  $    42,368    $    31,791    $    27,330
===================================================================================================
ASSETS:
Total shopping center assets                              $ 1,362,436    $ 1,264,650    $   883,243
     Investment in Management Company                          48,552         15,058         15,557
     Cash                                                         422          1,268          5,276
---------------------------------------------------------------------------------------------------
Consolidated assets                                       $ 1,411,410    $ 1,280,976    $   904,076
===================================================================================================
<FN>

Information relative to the Company's expenditures for additions to long-lived
assets has been included in the investing activities reported in the
consolidated statements of cash flows.

</TABLE>


<PAGE>


11. 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.

12. SUBSEQUENT EVENTS 

     On January 11, 1999, Water Tower Joint Venture extended the maturity
on its $170,000 of indebtedness to February 1, 2000.
  
     On January 14, 1999, S. F. Shopping Centre Associates, L.P. extended
the maturity on its $53,531 of indebtedness to July 1, 2003. On January 29,
1999, the Company's unsecured line of credit was amended to increase the
line to $10,000, extend the maturity to January 28, 2000 and change the
interest rate to the Reference Rate -1.5625%.

     On February 25, 1999, the interest rate on the Citrus Park Town Center
construction loan was reduced to LIBOR + 1.05%.

     On February 25, 1999, the Company secured $75,000 in financing for
Penn Square Mall. The loan bears interest at a fixed rate of 7.025% and
matures on March 1, 2009.

     On February 25, 1999, the Management Company obtained a $20,000 loan.
The loan bears interest at a floating rate of LIBOR + 1.20% and matures on
February 25, 2004.

     On March 1, 1999, Penn Square Mall and the Management Company prepaid
their indebtedness of $31,000 and $20,000, respectively. The indebtedness
had a scheduled maturity date of August 1, 2001. The Management Company
incurred a penalty of $1,973 due to this prepayment of debt. 



<PAGE>


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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.



/s/ KPMG LLP


Chicago, Illinois
February 5, 1999, except as to note 12,
which is as of March 1, 1999






<PAGE>


<TABLE>
                                                 Selected Financial Data
                                                       (Unaudited)
<CAPTION>
($000's omitted, except per share amounts)                                               Years ended December 31
----------------------------------------------------------------------------------------------------------------
                                                         1998         1997         1996         1995        1994
-----------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>          <C>          <C>       
OPERATING DATA: (1)
Total revenues                                     $  198,689   $  153,980   $   97,044   $   91,627   $   75,783
Income before other gains,
   minority interest and extraordinary items           42,368       31,791       27,330       24,099       24,350
Income before extraordinary items                      22,948       22,093       19,969       18,644       17,978
=================================================================================================================
Basic income per common and unit voting common
   share before extraordinary items                      1.29         1.27         1.42         1.35         1.31
Diluted income per common and unit voting common
   share before extraordinary items                      1.27         1.27         1.42         1.35         1.30
Dividends declared and paid per common and unit
   voting common share                                   2.10         2.03         1.98         1.94         1.82
=================================================================================================================


($000's omitted)                                                                                       December 31
-----------------------------------------------------------------------------------------------------------------
                                                         1998         1997         1996         1995         1994
-----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA: (1)
Total assets                                       $1,411,410   $1,280,976   $  904,076   $  598,597   $  586,638
Mortgage notes payable and land
   sale-leaseback proceeds                            840,501      741,908      514,886      326,000      305,745
Stockholders' equity                                  326,274      309,656      194,663      134,509      142,558
=================================================================================================================
<FN>

(1) This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Included in income before extraordinary items, are (i) a $479 gain on sale of an outparcel
at Wolfchase Galleria in 1998, (ii) a $1,821 gain on sale of an outparcel at Wolfchase Galleria in 1997, (iii) a
$1,852 gain on sale of the Burdines store at Brandon TownCenter in 1997, (iv) a $3,372 gain on sale of four outparcels
at Wolfchase Galleria in 1996, (v) a $4,496 gain on sale of two Company purchase options in 1995 and (vi) a $2,989
gain on sale of outparcels at the Brandon project in 1994. 

</TABLE>


<PAGE>


<TABLE>
                                               Quarterly Financial Summary
                                                       (Unaudited)


($000's omitted, except per share amounts)          1998 QUARTERS                             1997 QUARTERS
----------------------------------------------------------------------------------------------------------------------
                 First      Second         Third     Fourth       First         Second            Third       Fourth
---------------------------------------------------------------------------------------------------------------------
<S>             <C>       <C>            <C>        <C>         <C>          <C>                <C>        <C>      
Total revenues  $46,908   $  47,872      $ 48,875   $  55,034   $ 33,718     $    37,356        $ 37,864    $ 45,042
Income before
 extraordinary 
 items            4,540       6,915(1)      6,683      11,169      3,822           6,722(3)        5,390(5)    6,971
Net income        4,540       6,915(1)      6,683      11,169      3,734(2)        6,515(3)(4)     5,393(5)  1,544(6)
=====================================================================================================================
Basic income 
 per common 
 and unit
 voting common 
 share             0.16        0.30          0.29        0.54       0.22           0.38            0.31        0.04
Diluted income 
 per common 
 and unit voting 
 common share      0.16        0.30          0.29        0.53       0.22           0.37            0.31         0.04
====================================================================================================================
Dividends 
 declared 
 and paid        0.5250      0.5250        0.5250      0.5250     0.5075         0.5075          0.5075       0.5075
=====================================================================================================================
Common stock 
 price:
   High          $36       $  34 1/4      $34 3/16   $ 33 7/16   $ 34 1/2     $ 31 15/16        $ 32 1/4       35 1/8
   Low            32 1/8      31 1/2       30 1/8      30 7/8      28 1/2       27 7/8            30 1/16      30 1/8
=====================================================================================================================
<FN>
(1) Includes the Company's share of gain on sale of an outparcel at Wolfchase Galleria, net of minority interest, of
$322.
(2) Includes the Company's share of extraordinary item, net of minority interest, of $88 related to the write-off of
unamortized loan costs at Water Tower Place.
(3) Includes the Company's share of gain on sale of an outparcel at Wolfchase Galleria, net of minority interest, of
$1,287.
(4) 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.
(5) Includes the Company's share of gain on sale of the Burdines store at Brandon TownCenter, net of minority
interest, of $1,264. 
(6) 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 related 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.
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
Board of Directors                                                                                      Officers      


<S>                            <C>                                              <C>
NEIL G. BLUHM(3)               JOHN E. NEAL (2)                                MATTHEW S. DOMINSKI
Co-Chairman of the             Head - Commercial Real Estate                   President and Chief Executive Officer
Board of Directors             Bank One                                        
                                                                               ADAM S. METZ                         
JUDD D. MALKIN(2)              PHILLIP B. ROONEY(3)                            Executive Vice President,            
Co-Chairman of the             Vice Chairman                                   Chief Financial Officer, Treasurer 
Board of Directors             The ServiceMaster Company                       and Director of Acquisitions
                                                                                                                      

 
JAMES B. DIGNEY(1)             JOHN G. SCHREIBER(1)                            JAMES L. CZECH                       
Senior Vice President          President - Schreiber Investments               Executive Vice President;            
Metropolitan Life              and Partner - Blackstone Real Estate Advisors   President - Development, Urban Retail
Insurance Company              Properties Co.; and President, Urban 
                                                                               Retail International LLC 
                                                                               
                                                                                                                      

           
MATTHEW S. DOMINSKI(3)         HENRY T. SEGERSTROM(1,2)                        DENNIS M. ZASLAVSKY                  
President and Chief Executive  Managing Partner - C.J. Segerstrom & Sons       Executive Vice President             
Officer, Urban Shopping                                                        and Chief Operating Officer          
Centers, Inc.                                                                            
                                                                               MICHAEL G. HILBORN                   
SUSAN GETZENDANNER(2)          Senior Vice President,               
Partner - Skadden,             (1) Audit Committee Member                      General Counsel and Secretary        

Arps, Slate,         
Meagher & Flom (Illinois)      (2) Executive Compensation Committee Member      
                               (3) Nominating Committee Member                 MICHAEL A. GOLDBERG                  
                                                                               Senior Vice President                
</TABLE>


<PAGE>


Shareholder Information


ANNUAL MEETING The 1999 Annual Meeting of Shareholders will be held at
10:00 a.m. local time on Wednesday, May 5, 1999 at: Citrus Park Town Center
8021 Citrus Park Town Center Mall Tampa, Florida

SHARE INFORMATION In 1998, shares of Urban Shopping Centers traded at a
high of $36 and a low of $30 1/8. Urban Shopping Centers is listed on The
New York Stock Exchange and The Chicago Stock Exchange (Symbol: URB). As of
February 3, 1999, there were 17,880,469 shares outstanding held by 550
shareholders of record.

DIVIDEND Urban Shopping Centers most recently declared a quarterly cash
dividend of 56 cents per share on February 9, 1999. The dividend equates to
an annual dividend of $2.24. The dividend was paid on March 5, 1999 to
shareholders of record on February 19, 1999. Of the total dividends paid in
1998, 99.14% was ordinary income, and 0.86% was long-term capital gain.

Transfer Agent 
First Chicago Trust Company,
A Division of EquiServe
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 N. Michigan Avenue, Suite 1500
Chicago, Illinois 60611
Phone: (312) 915-2000
Facsimile: (312) 915-2001




<PAGE>


<TABLE>
                                             Urban Retail Properties Co.


<CAPTION>
MANAGEMENT                                                         DEVELOPMENT                                    

 
<S>                                 <C>                          <C>                         <C>
JOSEPH M. SHRADER                   KIMBERLY A. POHLEN          MICHAEL S. LEVIN             PATRICK R. DUNNE
President                           Senior Vice President       Executive Vice President     Vice President       


                                                                                                                  

         
CHARLES J. GILL                     DANIEL J. POLLARD           OSCAR REID                   THOMAS R. FIELD      


Executive Vice President            Senior Vice President       Executive Vice President     Vice President  
and Regional Manager                                                                                              

                
                                    WENDY J. SILVERMAN          ROHAN S. ANDREW              JOHN R. HOUREN       


DAVID S. KATTAR                     Senior Vice President       Senior Vice President        Vice President       


Executive Vice President                                                                                          

                
and Regional ManageR                STEVEN M. WEISS             JAMES J. FARRELL             JOSEPH S. MCCARTHY,
JR.
                                    Senior Vice President       Senior Vice President        Vice President       


ROBERT D. OLIVER                                                                                                  

                
Executive Vice President            LISA J. BALIS               MARK A. FLOM                 PAUL J. OLIMPIO      


and Regional Manager                Vice President              Senior Vice President        Vice President       


                                                                                                                  

                
TIMOTHY W. OLSON                    ARNOLD D. BLAKE             RICHARD J. KOBE              KAREN RUTHMAN        


Executive Vice President            Vice President              Senior Vice President        Vice President       


and Regional Manager                                                                                              

                
                                    PAMELA S. BORDNER           ROBERT W. LENKE              CHARLES E. SCHULZE   


ROBERT W. POWELL, JR.               Vice President              Senior Vice President        Vice President       


Executive Vice President                                                                                          

                
and Regional Manager                DANNA L. DIAMOND            W. WAYNE LITZAU              KATHY A. SENTEN      


                                    Vice President              Senior Vice President        Vice President       


MARY L. SCHLACHTER                                                                                                

                
Executive Vice President            PAUL E. GEDDIS              CHARLES C. PORTER            MINDY W. SHERMAN     


and Regional Manager                Vice President              Senior Vice President        Vice President       


                                                                                                                  

                
PALMER W. CAMERON                   STEVE A. GREENWOOD          JAN C. PORTER                GAIL M. SILVER       


Senior Vice President and           Vice President              Senior Vice President        Vice President       


Director of Technical Services      
                                    JUDITH J. JACOBS            ADRIAN A. HOGG               HAROLD J. WAGNER     


                                    Vice President              Vice President               Vice President       


                                                                                                                  

                
LEASING                             NANCY L. JONES              THOMAS D. HOWES              
                                    Vice President              Vice President                                     
         
ROSS B. GLICKMAN                                                                             MARKETING            


President                           JEANNE A. MORRISON          ROBERT MCHALE                
                                    Vice President              Vice President               CYNTHIA S. BOHDE     


JOHN F. BERGH                                                                                               
Senior Vice President  
Executive Vice President            PAUL MOTTA                  JOHN C. PARAPETTI            
                                    Vice President              Vice President               LISA A. BELL         


SUSAN CADIEUX-SMITH                                                                          Vice President       


Executive Vice President            J. MICHAEL NAGY             VICTOR H. PILDES             
                                    Vice President              Vice President               EVAN C. GEROUX, JR.  
R. WEBBER HUDSON                                                                             Vice President       
Executive Vice President            STEWART T. WALLER                                                             


                                    Vice President                                           CONSTANCE HOLLENBERG 


MAX S. REISWERG                     CORPORATE                             Vice President     
Executive Vice President            LYNN S. WARREN                                                                

         
                                    Vice President              AVRUM R. MILLER              J. CHARLENE SLACK    


STEVEN B. WARSAW                    Executive Vice President              Vice President     
Executive Vice President            ANDREA WEISBERG                                                               

         
                                    Vice President              LEN W. TOBIASKI              
FRED M. HEICHMAN                    Executive Vice President/                                
Senior Vice President               MARK A. WILLIAMSON          Controller                   TENANT COORDINATION  


                                    Vice President                                                                

         
                                    MICHAEL T. LAING                                         MARTHA J. SPATZ    
LISA LASOTA-POOLE                   Senior Vice President                                    Senior Vice President


Senior Vice President                                                                          
                                    LEASE ADMINISTRATION        MARK BROWN                   PETER V. IRIE         

MICHAEL A. LAW                      Vice President/             Vice President     
Senior Vice President               Chief Information Officer   
                                    LA BONNEY TAYLOR                                         CHRISTOPHER M. WEST  


                                    Vice President              SHERRY K. COOPER             Vice President       

DOYLE P. LIESENFELT                 Vice President                                           
Senior Vice President                                                                                             



</TABLE>