<PAGE>   1
 
   
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996
    
 
   
                                                      REGISTRATION NO. 333-13253
    
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
   
                               AMENDMENT NO. 1 TO
    
 
                                    FORM S-4
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                          PACIFIC GULF PROPERTIES INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                               <C>                            <C>
           MARYLAND                           6798                   33-0577520
(STATE OR OTHER JURISDICTION OF   (PRIMARY STANDARD INDUSTRIAL    (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)   CLASSIFICATION CODE NUMBERS)   IDENTIFICATION NO.)
</TABLE>
 
                              363 SAN MIGUEL DRIVE
                        NEWPORT BEACH, CALIFORNIA 92660
                                 (714) 721-2700
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                            ------------------------
 
                               GLENN L. CARPENTER
   CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
                          PACIFIC GULF PROPERTIES INC.
                              363 SAN MIGUEL DRIVE
                        NEWPORT BEACH, CALIFORNIA 92660
                                 (714) 721-2700
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                            ------------------------
 
                                WITH A COPY TO:
 
                              DHIYA EL-SADEN, ESQ.
                          GIBSON, DUNN & CRUTCHER LLP
                             333 SOUTH GRAND AVENUE
                       LOS ANGELES, CALIFORNIA 90071-3197
                                 (213) 229-7000
                            ------------------------
 
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
 
     If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.  [ ]
 
   
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
    
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
                          PACIFIC GULF PROPERTIES INC.
 
                             CROSS REFERENCE SHEET
 
  PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN THE PROSPECTUS
                  OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
 
   
<TABLE>
<CAPTION>
                ITEM IN FORM S-4                              CAPTION IN PROSPECTUS
                ----------------                              ---------------------
<S>  <C>                                          <C>
1.   Forepart of the Registration Statement and
     Outside Front Cover Page of Prospectus.....  Facing Page; Cross-Reference Sheet; Outside
                                                  Front Cover Page of Prospectus
2.   Inside Front and Outside Back Cover Pages
     of Prospectus..............................  Available Information; Table of Contents;
                                                  Inside Front Cover Pages of Prospectus
3.   Risk Factors, Ratio of Earnings to Fixed
     Charges and Other Information..............  Prospectus Summary; Risk Factors; The
                                                  Exchange Offer
4.   Terms of the Transaction...................  Prospectus Summary; Risk Factors; The
                                                  Exchange Offer; Incorporation of Certain
                                                  Documents by Reference; Miscellaneous
5.   Pro Forma Financial Information............  Pro Forma Financial Information
6.   Material Contacts with the Company Being
     Acquired...................................  Not Applicable
7.   Additional Information Required for
     Reoffering by Persons and Parties Deemed to
     be Underwriters............................  Not Applicable
8.   Interests of Named Experts and Counsel.....  Legal Matters
9.   Disclosure of Commission Position on
     Indemnification for Securities Act
     Liabilities................................  Not Applicable
10.  Information with Respect to S-3
     Registrants................................  Prospectus Cover Page; Available Information;
                                                  Prospectus Summary; Incorporation of Certain
                                                  Documents by Reference; Risk Factors; Recent
                                                  Developments; Business and Properties;
                                                  Policies with Respect to Certain Activities;
                                                  Description of Capital Stock; Management;
                                                  Market and Trading Information
11.  Incorporation of Certain Information by
     Reference..................................  Incorporation of Certain Documents by
                                                  Reference
12.  Information with Respect to S-2 or S-3
     Registrants................................  Not Applicable
13.  Incorporation of Certain Information by
     Reference..................................  Not Applicable
14.  Information with Respect to Registrants
     Other than S-3 or S-2 Registrants..........  Not Applicable
15.  Information with Respect to S-3
     Companies..................................  Not Applicable
16.  Information with Respect to S-2 or S-3
     Companies..................................  Not Applicable
17.  Information with Respect to Companies other
     than S-3 or S-2 Companies..................  Not Applicable
18.  Information if Proxies, Consents or
     Authorizations are to be Solicited.........  Not Applicable
19.  Information if Proxies, Consents or
     Authorizations are not to be Solicited or
     in an Exchange Offer.......................  Management; Incorporation of Certain
                                                  Documents by Reference; Business and
                                                  Properties; Policies with Respect to Certain
                                                  Activities; Description of Capital Stock;
                                                  Management
</TABLE>
    
<PAGE>   3
 
                          PACIFIC GULF PROPERTIES INC.
                               OFFER TO EXCHANGE
                          UP TO ALL OF ITS OUTSTANDING
              8.375% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001
                   ($56,506,000 PRINCIPAL AMOUNT OUTSTANDING)
   
      FOR NOT GREATER THAN 58 NOR LESS THAN 54 SHARES OF ITS COMMON STOCK
    
 
   
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER
10, 1996 (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION DATE"). DEBENTURES
TENDERED FOR EXCHANGE MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
    
 
   
    Pacific Gulf Properties Inc., a Maryland corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal"), to exchange not greater than 58 nor less than 54 shares of its
Common Stock, $.01 par value per share (the "Common Stock"), the exact number of
shares to be specified by such tendering Debenture holders, for each $1,000 in
principal amount of its 8.375% Convertible Subordinated Debentures Due 2001 (the
"Debentures"). An aggregate principal amount of $56,506,000 of Debentures is
outstanding. See "The Exchange Offer."
    
 
   
    The Company will determine a single exchange rate (not greater than 58 nor
less than 54 shares of Common Stock for each $1,000 principal amount of
Debentures) that it will exchange for Debentures validly tendered pursuant to
the Exchange Offer and not withdrawn (the "Designated Exchange Rate"), taking
into consideration the number of Debentures so tendered and the exchange rates
specified by the tendering Debenture holders. The Company will select the lowest
Designated Exchange Rate that will enable it to exchange a minimum of
$37,672,550 in aggregate principal amount of Debentures (or such lesser number
of Debentures as are validly tendered and not withdrawn at exchange rates not
greater than 58 shares nor less than 54 shares of Common Stock for each $1,000
principal amount of Debentures) pursuant to the Exchange Offer. The Company will
accept for exchange all Debentures validly tendered at exchange rates at or
below the Designated Exchange Rate and not withdrawn on or prior to the
Expiration Date (as defined below), upon the terms and subject to the conditions
of the Exchange Offer. The Designated Exchange Rate will be applied to each
exchange of Debentures effected, regardless of the exchange rate specified by
the holder of such Debentures.
    
 
   
    All Debentures tendered without a specified exchange rate will be deemed to
be tendered at an exchange rate of 54 shares of Common Stock for each $1,000
principal amount of Debentures. All Debentures tendered at exchange rates in
excess of the Designated Exchange Rate will be returned. Debenture holders must
complete the section of the Letter of Transmittal relating to the exchange rate
at which they are tendering Debentures in order to validly tender Debentures.
Holders of Debentures who wish to assure their participation in the Exchange
Offer regardless of the ultimate Designated Exchange Rate may do so by tendering
Debentures without specifying an exchange rate; if the Exchange Offer is
successfully consummated, such Debentures validly tendered will be exchanged at
the Designated Exchange Rate. Any holder of Debentures wishing to tender all or
any portion of his or her Debentures should either follow the procedures set
forth under "The Exchange Offer-Procedure for Tender" or request his or her
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for him or her. Tenders of Debentures may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
    
 
    Promptly following the consummation of the Exchange Offer, the Company will
pay in cash interest that has accrued from August 15, 1996 to the date of the
consummation of the Exchange Offer in respect of Debentures that are tendered
and exchanged pursuant to the Exchange Offer.
 
    The Exchange Offer is conditioned on the receipt by the Company, on or prior
to the Expiration Date, of the tender of at least $37,672,550 in aggregate
principal amount of outstanding Debentures, representing at least 66.67% of the
principal amount of all outstanding Debentures; however, the Company may waive
this condition. See "The Exchange Offer-Conditions." The Company also reserves
the unilateral right to withdraw the Exchange Offer at any time, whether or not
tenders have been received. See "The Exchange Offer."
   
SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREIN FOR A DISCUSSION OF CERTAIN RISKS
     THAT SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
    
                         ------------------------------
 
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
                         ------------------------------
 
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
    EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
       SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
       COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
         PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
           OFFENSE.
                         ------------------------------
 
   
                THE DATE OF THIS PROSPECTUS IS NOVEMBER 8, 1996
    
<PAGE>   4
 
                             AVAILABLE INFORMATION
 
   
     The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the shares of Common Stock to be
issued in the Exchange Offer. This Prospectus, which constitutes a part of the
Registration Statement, omits certain information contained in the Registration
Statement and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the shares of Common Stock offered hereby. Pursuant to Rule 13e-4 of the General
Rules and Regulations under the Exchange Act of 1934, as amended (the "Exchange
Act"), the Company will file with the Commission an Issuer Tender Offer
Statement on Schedule 13E-4 (the "Schedule 13E-4"), together with exhibits,
furnishing certain additional information with respect to the Exchange Offer.
The Company is subject to the reporting requirements of the Exchange Act and in
accordance therewith files reports and other information with the Commission.
The Registration Statement, the Schedule 13E-4 and such reports and information
can be inspected without charge at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Suite 1400, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates. The
Company's Common Stock is traded on the New York Stock Exchange ("NYSE") and its
Debentures are listed on the American Stock Exchange, Inc. ("AMEX"). Reports,
proxy statements and other information concerning the Company may be obtained at
the offices of AMEX, 86 Trinity Place, New York, New York 10006-1881 or at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
    
 
                                        2
<PAGE>   5
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     There are incorporated herein by reference the following documents
heretofore filed by the Company under the Exchange Act with the Commission.
 
     (1) The Company's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1995, dated March 21, 1996;
 
     (2) The Company's Annual Report on Form 10-K/A for the fiscal year ended
         December 31, 1995, dated May 7, 1996, amending the Company's Annual
         Report on Form 10-K, dated March 21, 1996;
 
     (3) The Company's Annual Report on Form 10-K/A for the fiscal year December
         31, 1995, dated May 20, 1996, amending the Company's Annual Report on
         Form 10-K/A, dated May 7, 1996.
 
     (4) The Company's Quarterly Report on Form 10-Q for the quarter ended March
         31, 1996, dated May 1, 1996;
 
     (5) The Company's Quarterly Report on Form 10-Q/A for the quarter ended
         March 31, 1996, dated May 7, 1996, amending the Company's Quarterly
         Report on Form 10-Q, dated May 1, 1996;
 
     (6) The Company's Current Report on Form 8-K/A, dated May 7, 1996, amending
         the Company's Current Report on Form 8-K/A, dated October 27, 1995;
 
     (7) The Company's Current Report on Form 8-K/A, dated May 7, 1996, amending
         the Company's Current Report on Form 8-K, dated November 28, 1995;
 
     (8) The Company's Current Report on Form 8-K, dated May 7, 1996;
 
     (9) The Company's Current Report on Form 8-K/A, dated May 20, 1996,
         amending the Company's Current Report on Form 8-K/A, dated May 7, 1996,
         amending the Company's Current Report on Form 8-K/A, dated October 27,
         1995;
 
    (10) The Company's Current Report on Form 8-K/A, dated May 20, 1996,
         amending the Company's Current Report on Form 8-K, dated May 7, 1996;
 
    (11) The Company's Current Report on Form 8-K, dated June 12, 1996.

   
    (12) The Company's Quarterly Report on Form 10-Q for the quarter ended June
         30, 1996, dated August 13, 1996;
    
 
   
    (13) The Company's Current Report on Form 8-K, dated November 7, 1996; and
    
 
   
    (14) The description of the Company's Common Stock and the 8.375%
         Convertible Subordinated Debentures Due 2001 contained in its
         Registration Statement on Form 8-A/A filed with the Commission, on
         January 25, 1994 (file no. 1-12546).
    
 
   
     All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the consummation of the Exchange Offer made hereby shall be deemed to be
incorporated by reference into this Prospectus, and to be a part hereof from the
date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained in this Prospectus or any other subsequently filed document
that is also incorporated by reference herein modifies or supersedes that
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
    
 
     The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a Prospectus is delivered, upon written
or oral request of that person, a copy of any document incorporated herein by
reference (other than exhibits to those documents unless the exhibits are
specifically incorporated by reference into the documents that this Prospectus
incorporates by reference). Written or oral requests should be directed to
Shareholder Relations, Pacific Gulf Properties Inc., 363 San Miguel Drive,
Newport Beach, California 92660; telephone (714) 721-2700.
 
                                        3
<PAGE>   6
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        -----
<S>                                                                                     <C>
Available Information.................................................................      2
Incorporation by Reference............................................................      3
Prospectus Summary....................................................................      5
Risk Factors..........................................................................     12
Recent Developments...................................................................     16
The Exchange Offer....................................................................     16
Description of Capital Stock..........................................................     22
Business and Properties...............................................................     23
Policies With Respect to Certain Activities...........................................     27
Pro Forma Financial Information.......................................................     29
Management............................................................................     29
Market and Trading Information........................................................     29
Certain Federal Income Tax Considerations.............................................     30
Miscellaneous.........................................................................     40
Legal Matters.........................................................................     40
</TABLE>
    
 
                                        4
<PAGE>   7
 
                               PROSPECTUS SUMMARY
 
     The following is a summary of certain information included in the
Prospectus or in documents referred to herein. This summary is not intended to
be complete and is qualified in its entirety by reference to the more detailed
information found elsewhere in this Prospectus, all of which should be reviewed
carefully.
 
                                  THE COMPANY
 
   
     The Company, a self-administered and self-managed equity real estate
investment trust ("REIT"), owns, operates, manages, leases, acquires and
rehabilitates multifamily and industrial properties. The Company's properties
are located in California and the Pacific Northwest, with the largest
concentration in Southern California. The Company focuses on this geographic
region due to management's extensive experience in these markets and
management's belief that these markets present potential for long-term economic
growth. The Company currently owns a portfolio of 21 multifamily properties,
containing 3,945 apartment units (the "Multifamily Properties"), and 22
industrial properties, containing an aggregate of 4,900,000 leasable square feet
(the "Industrial Properties," and collectively with the Multifamily Properties,
the "Properties").
    
 
     Management believes that focusing on two property types allows the Company
greater opportunities and flexibility than would be available by investing in
only one property type. Apartments have shorter term leases than industrial
properties and, hence, apartment rental income reacts more quickly to changes in
economic conditions. Lease income on industrial properties reacts more slowly to
changes in the economy due to longer term leases on such properties. The values
of these two property types and the opportunities they present for growth are
affected by the timing of these rental adjustments. This distinction, along with
other market factors that impact the demand for multifamily and industrial
properties differently, provides the Company with greater options in
implementing its investment, disposition and property management strategies.
 
     The Company's objective is to increase shareholder value by improving net
operating income of existing properties and through acquisitions. Management
closely monitors rental operations and administrative expenses, utilizes new
technologies, periodically conducts contract reviews, and seeks opportunities to
maximize economies of scale in order to control costs, reduce tenant turnover
and assure that the Company is competitive in all aspects of its operations. The
Company also seeks to increase shareholder value through the acquisition of
properties that provide attractive initial returns and opportunities to increase
net operating income. Additionally, the Company seeks well-located properties in
strong markets where values have suffered due to poor management or maintenance
and that can be acquired at less than replacement cost. See "Risk Factors."
 
     Mr. Glenn L. Carpenter, the Company's Chairman and Chief Executive Officer,
and his five member senior management team have an average of 17 years real
estate experience within the Company's markets. The Company employs
approximately 155 persons, of whom 125 are on-site or property related.
 
     The Company's executive offices are located at 363 San Miguel Drive,
Newport Beach, California 92660 and its telephone number is (714) 721-2700.
 
   
                               THE EXCHANGE OFFER
    
 
   
The Exchange Offer.........  The Company is offering upon the terms and subject
                               to the conditions set forth herein and in the
                               accompanying letter of transmittal (the "Letter
                               of Transmittal"), to exchange not greater than 58
                               and not less than 54 shares of its Common Stock
                               for each $1,000 in principal amount of the
                               outstanding Debentures (the "Exchange Offer").
                               The Company will determine a single exchange rate
                               (not greater than 58 nor less than 54 shares of
                               Common Stock for each $1,000 principal amount of
                               Debentures) that it will exchange for Debentures
                               validly tendered pursuant to the Exchange Offer
                               and not withdrawn (the "Designated Exchange
                               Rate"), taking into consideration the number of
                               Debentures so tendered and the exchange rates
                               specified by the tendering Debenture holders. The
                               Company will select the lowest Designated
                               Exchange Rate that will enable it to exchange a
                               minimum of $37,672,550 in aggregate principal
                               amount of Debentures (or such lesser number of
    
 
                                        5
<PAGE>   8
 
   
                               Debentures as are validly tendered and not
                               withdrawn at exchange rates not greater than 58
                               nor less than 54 shares of Common Stock for each
                               $1,000 principal amount of Debentures) pursuant
                               to the Exchange Offer. The Company will accept
                               for exchange all Debentures validly tendered at
                               exchange rates at or below the Designated
                               Exchange Rate and not withdrawn on or prior to
                               the Expiration Date, upon the terms and subject
                               to the conditions of the Exchange Offer. The
                               Designated Exchange Rate will be applied to each
                               exchange of Debentures effected, regardless of
                               the exchange rate specified by the holder of such
                               Debentures. All Debentures tendered without a
                               specified exchange rate will be deemed to be
                               tendered at an exchange rate of 54 shares of
                               Common Stock for each $1,000 principal amount of
                               Debentures. All Debentures tendered at exchange
                               rates in excess of the Designated Exchange Rate
                               will be returned. Holders of Debentures who wish
                               to assure their participation in the Exchange
                               Offer regardless of the ultimate Designated
                               Exchange Rate may do so by tendering Debentures
                               without specifying an exchange rate; if the
                               Exchange Offer is successfully consummated, such
                               Debentures validly tendered will be exchanged at
                               the Designated Exchange Rate. As of the date of
                               this Prospectus, $56,506,000 in aggregate
                               principal amount of the Debentures is
                               outstanding. As of November 6, 1996, there were
                               twenty-two registered holders of the Debentures,
                               including Cede & Co., Inc., which held
                               $55,708,000 in aggregate principal amount of
                               Debentures for its participants. See "The
                               Exchange Offer -- Terms of the Exchange Offer."
    
 
Purpose and Effects........  The Exchange Offer will improve the Company's
                               capitalization by increasing its outstanding
                               equity base and reducing its indebtedness. The
                               Company believes that the issuance of additional
                               shares of Common Stock will improve the trading
                               and liquidity of the Common Stock which may
                               enhance its attractiveness to institutional and
                               other investors. Additionally, a reduction in the
                               Company's indebtedness will improve the Company's
                               interest coverage ratio and may lower its
                               long-term capital costs. The Company believes
                               that improving its capitalization will provide it
                               with enhanced access to the capital markets and
                               expand its opportunities for future growth.
 
   
                             Debenture holders participating in the Exchange
                               Offer will receive more shares of Common Stock
                               per $1,000 in principal amount of Debentures than
                               they would otherwise receive upon conversion
                               outside of the Exchange Offer. Therefore,
                               participating Debenture holders have an
                               opportunity to share in any long-term
                               appreciation in the value of the Company's Common
                               Stock to a greater extent than non-participating
                               holders. In addition, the dividend income to be
                               received by participating Debenture holders on
                               the shares of Common Stock issued to them in the
                               Exchange Offer will (assuming the Company's
                               recently announced quarterly dividend of $.41 per
                               share remains in effect) exceed the interest
                               income they would have received on tendered
                               Debentures.
    
 
Economic Impact on
Tendering Debenture
  Holders..................  Regardless of the Designated Exchange Rate selected
                               by the Company, if the Exchange Offer is
                               consummated, holders of Debentures who tender
                               their Debentures will receive more shares of
                               Common Stock than they would receive if they
                               converted such Debentures outside the Exchange
                               Offer. Depending on the trading price of the
                               Debentures and the Common Stock, tendering
                               holders could receive additional economic value.
                               See "The Exchange Offer -- Potential Benefits to
                               Tendering Debenture Holders."
 
                                        6
<PAGE>   9
 
   
Expiration Date............  5:00 p.m., New York City time, on December 10, 1996
                               as the same may be extended. See "The Exchange
                               Offer -- Expiration Date; Extensions;
                               Amendments."
    
 
Conditions of the Exchange
  Offer....................  The Exchange Offer is conditioned upon the receipt
                               by the Company, on or prior to the Expiration
                               Date, of the tender of at least $37,672,550 in
                               aggregate principal amount of outstanding
                               Debentures, representing at least 66.67% of the
                               principal amount of all outstanding Debentures;
                               however, the Company may waive this condition.
                               The Company also reserves the right to terminate
                               the Exchange Offer at any time prior to the
                               consummation of the Exchange Offer. See "The
                               Exchange Offer -- Conditions of the Exchange
                               Offer."
 
Accrued Interest on the
  Debentures...............  Promptly following the consummation of the Exchange
                               Offer, the Company will pay in cash interest that
                               has accrued from August 15, 1996 to the date of
                               the consummation of the Exchange Offer in respect
                               of Debentures that are tendered and exchanged
                               pursuant to the Exchange Offer.
 
   
Procedures for Tendering
  Debentures...............  Holders of Debentures wishing to accept the
                               Exchange Offer must complete and sign the Letter
                               of Transmittal in accordance with the
                               instructions contained therein and forward or
                               hand deliver the Letter of Transmittal, the
                               Debentures and any other documents required by
                               the Letter of Transmittal to the Exchange Agent
                               at one of the addresses set forth herein. See
                               "The Exchange Offer -- Procedures for Tendering
                               Debentures."
    
 
Guaranteed Delivery
  Procedures...............  Holders of Debentures who wish to tender their
                               Debentures and (i) whose Debentures are not
                               immediately available or (ii) who cannot deliver
                               their Debentures or any other documents required
                               by the Letter of Transmittal or any other related
                               document to the Exchange Agent prior to the
                               Expiration Date (or complete the procedure for
                               book-entry transfer on a timely basis), may
                               tender their Debentures according to the
                               guaranteed delivery procedures set forth in the
                               Letter of Transmittal. See "The Exchange
                               Offer -- Guaranteed Delivery Procedures."
 
   
Acceptance of Debentures
and Delivery of Shares of
  Common Stock.............  Upon effectiveness of the Registration Statement of
                               which this Prospectus constitutes a part and
                               consummation of the Exchange Offer, the Company
                               will, subject to the terms and conditions of the
                               Exchange Offer, accept all Debentures that are
                               properly tendered in the Exchange Offer prior to
                               5:00 p.m., New York City time, on the Expiration
                               Date. The shares of Common Stock issued pursuant
                               to the Exchange Offer will be delivered promptly
                               after acceptance of the Debentures. See "The
                               Exchange Offer -- Acceptance of Debentures for
                               Exchange; Delivery of Shares of Common Stock."
    
 
Withdrawal Rights..........  Tenders of Debentures may be withdrawn at any time
                               prior to 5:00 p.m., New York City time, on the
                               Expiration Date. See "The Exchange
                               Offer -- Withdrawal Rights."
 
   
Federal Income Tax
  Consequences.............  It is expected that tendering Debenture holders
                               will not recognize gain or loss for federal
                               income tax purposes upon exchange of their
                               Debentures pursuant to the Exchange Offer, except
                               as discussed under
    
 
                                        7
<PAGE>   10
 
   
                               "Certain Federal Income Tax Considerations." For
                               a discussion of the federal income tax
                               consequences of the exchange of the Debentures,
                               please see "Certain Federal Income Tax
                               Considerations."
    
 
   
Market Price and Trading...  As of November 6, 1996, the Common Stock, which
                               currently is traded on the NYSE, closed at $20.00
                               per share and the Debentures, which currently are
                               traded on the AMEX, closed at $1,040 per $1,000
                               principal amount Debenture.
    
 
The Exchange Agent.........  Harris Trust Company of California is the exchange
                               agent (in such capacity, the "Exchange Agent").
                               The address and telephone number of the Exchange
                               Agent are set forth in "The Exchange Offer -- The
                               Exchange Agent; Assistance" and the back cover of
                               this Prospectus.
 
The Information Agent......  D.F. King & Co., Inc. is the Information Agent. The
                               address and telephone number of the Information
                               Agent are set forth in "The Exchange Offer -- The
                               Information Agent."
 
   
Questions..................  Any questions regarding the Exchange Offer,
                               including the procedure for tendering Debentures
                               in the Exchange Offer, should be directed to the
                               Information Agent at (800) 207-2014.
    
 
Regulatory Compliance......  The Exchange Offer is subject to certain federal
                               and state regulations. The Company has complied,
                               and intends to continue to comply, with such
                               requirements in all material respects.
 
Fees and Expenses..........  All expenses incident to the Company's consummation
                               of the Exchange Offer will be borne by the
                               Company. The Company will also pay certain
                               transfer taxes applicable to the Exchange Offer.
                               See "The Exchange Offer -- Fees and Expenses."
 
Brokerage Commissions......  None.
 
Transfer Taxes.............  None, if the shares of Common Stock issued pursuant
                               to the Exchange Offer are issued to the
                               registered holders of the Debentures so
                               exchanged.
 
No Rights of Dissenting
  Holders..................  Holders of Debentures who do not tender their
                               Debentures pursuant to the Exchange Offer will
                               have no appraisal rights under applicable state
                               law or otherwise.
 
                                        8
<PAGE>   11
 
                         SUMMARY FINANCIAL INFORMATION
 
     The following table sets forth summary historical and pro forma financial
and operating data of the Company (including the operations of its predecessor
prior to 1994, the multifamily and industrial operations acquired from Santa
Anita Realty Enterprises, Inc., the "Predecessor"). The following summary
information should be read in conjunction with the consolidated and combined
financial statements and the related footnotes incorporated by reference and the
pro forma condensed consolidated financial information of the Company included
elsewhere in this Prospectus.
 
     For the year ended December 31, 1995, the pro forma operating information
is presented as if the following transactions occurred as of the beginning of
the period (i) the purchases and dispositions of certain multifamily and
industrial properties during 1995 and the purchase of an industrial property in
1996 as more fully described in the pro forma condensed consolidated financial
statements (ii) the purchases of nine industrial properties acquired during 1996
utilizing proceeds from the Company's May 1996 common stock offering (the
"Acquisition Properties"), eight of which were acquired by June 30, 1996 (iii)
the completion of the May 1996 common stock offering and the establishment of a
line of credit for the purchase of the nine Acquisition Properties and (iv) the
completion of the Exchange Offer for the exchange of the Debentures into shares
of Common Stock as more fully described in this Prospectus.
 
     For the six months ended June 30, 1996, the pro forma operating information
is presented as if the following transactions occurred as of the beginning of
the period as more fully described in the pro forma condensed consolidated
financial statements (i) the purchase of an industrial property in 1996 as more
fully described in the pro forma consolidated financial statements (ii) the
purchase of the Acquisition Properties (iii) the completion of the May 1996
common stock offering and the establishment of a line of credit for the purchase
of the nine Acquisition Properties and (iv) the completion of the Exchange Offer
for the exchange of the Debentures into shares of Common Stock as more fully
described in this Prospectus.
 
     Pro forma balance sheet information is presented as if the purchase of the
remaining Acquisition Property and the exchange of the Debentures pursuant to
the Exchange Offer described in this Prospectus had occurred as of June 30,
1996.
 
     The pro forma financial information is not necessarily indicative of what
the actual financial position and results of operations would have been as of
the dates or for the periods indicated, nor does purport to represent the
financial position and results of operations for any future period.
 
                                        9
<PAGE>   12
 
   
<TABLE>
<CAPTION>
                                        YEARS ENDED DECEMBER 31,                                  SIX MONTHS ENDED JUNE 30,
                -------------------------------------------------------------------------    ------------------------------------
                          PREDECESSOR                              COMPANY                                 COMPANY
                --------------------------------    -------------------------------------    ------------------------------------
                                         HISTORICAL                             PRO FORMA          HISTORICAL          PRO FORMA
                ------------------------------------------------------------    ---------    ----------------------    ----------
                  1991        1992        1993       1994(1)         1995        1995(2)       1995         1996        1996(2)
                --------    --------    --------    ---------      ---------    ---------    ---------    ---------    ----------
                                                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>             <C>         <C>         <C>         <C>            <C>          <C>          <C>          <C>          <C>
OPERATING DATA
Rental
 income........ $  8,392    $ 11,653    $ 16,152    $  26,144      $  37,091    $ 51,144     $  16,837    $  22,700    $  26,112
Rental property
 expenses......    3,124       4,845       7,506       10,376         12,782      18,055         5,884        7,771        8,652
                --------    --------    --------    ---------      ---------    ---------    ---------    ---------    ----------
Net rental
 property
 earnings......    5,268       6,808       8,646       15,768         24,309      33,085        10,953       14,929       17,460
Income (loss)
 before gain on
 sale of
 properties and
 extraordinary
 item..........   (1,207)     (1,620)    (12,036)       2,158          1,739       8,828         1,073          945        4,986
Net income
 (loss)........   (1,207)     (1,620)    (12,036)        (832)         8,403      15,492         1,073          945        4,986
Net income
 (loss) per
 common
 share.........       --          --          --         (.07)(3)       1.74        1.47           .22          .18          .47
Weighted
 average common
 shares........       --          --          --    4,273,337(3)   4,830,723    10,543,652   4,804,392    5,263,212   10,577,907
BALANCE SHEET
 DATA
Real estate,
 net of
 accumulated
depreciation... $ 70,281    $ 95,914    $ 97,698    $ 193,457      $ 278,692     337,824     $ 199,110    $ 330,432    $ 336,874
Total assets...   73,944     100,186      99,984      202,519        288,591     334,801       208,610      350,922      346,233
Senior debt....   52,824      78,613      88,740       69,480        149,847     180,464        78,274      176,758      176,758
Convertible
 subordinated
 debentures....       --          --          --       55,526         55,659          --        55,589       55,659           --
Total equity...   22,112      23,200       9,501       70,860         71,980     154,953        68,435      104,682      157,650
PROPERTY DATA
 (END OF
 PERIOD)
Total apartment
 properties....        5           9          10           13             21          21            13           21           21
Total apartment
 units.........    1,290       2,398       2,654        3,292          3,945       3,945         3,292        3,945        3,945
Apartment units
 occupied......      95%         93%         92%          93%            92%         92%           92%          95%          95%
Total
 industrial
 properties....        3           3           3            9             10          20             9           19           20
Industrial
 leasable area
 (sq. ft.).....  185,000     185,000     185,000    2,426,000      2,902,000   4,443,000     2,426,000    4,146,000    4,443,000
Industrial
 leasable area
 leased........      89%         97%         95%          97%            96%         92%           97%          95%          94%
SUPPLEMENTAL
 DATA
Funds From
Operations -- New
 Definition(4)... $  480    $    662    $  1,572    $   5,879      $   7,820    $ 16,633     $   3,861    $   4,750    $   9,175
Cash flow
 information:
Operating......     (367)       (348)      1,307        3,950          7,138          --         2,429        6,134           --
Investing......  (18,084)    (27,660)    (15,323)     (99,504)       (84,480)         --        (8,378)     (55,412)          --
Financing......   18,398      28,318      13,798       98,649         76,674          --         5,054       59,546           --
</TABLE>
    
 
---------------
(1) Includes the combined historical operations of the Company (from February 18
    through December 31, 1994) and the Predecessor's multifamily and industrial
    operations (prior to February 18, 1994).
 
(2) See notes to pro forma condensed consolidated financial statements included
    elsewhere in this Prospectus Supplement.
 
(3) Per share data for 1994 was based on the weighted average common shares
    outstanding for the period February 18, 1994 (the closing date of the
    Company's initial public offering) through December 31, 1994 and the
    Company's net loss for that period.
 
(4) Funds From Operations ("FFO") is defined by the National Association of Real
    Estate Investment Trusts ("NAREIT") to mean net income, computed in
    accordance with generally accepted accounting principles ("GAAP"), excluding
    gains (or losses) from debt restructuring and sales of property, plus
    depreciation and amortization, and after adjustments for unconsolidated
    partnerships and joint ventures. Management generally considers Funds From
    Operations to be a useful measure of the operating performance of an equity
    REIT because, together with net income and cash flows, FFO provides
    investors with an additional basis to evaluate the ability of a REIT to
    incur and service debt and to fund acquisitions and other capital
    expenditures. FFO does not represent cash flow from operations as defined by
    generally accepted accounting principles, should not be considered as an
    alternative to net income as an indicator of the Company's operating
    performance and is not indicative of cash available to fund all cash flow
    needs. FFO does not measure whether cash flow is sufficient to fund all of
    the Company's cash needs including principal amortization, capital
    improvements and distributions to stockholders. FFO also does not represent
    cash flows generated from operating, investing or financing activities as
    defined by GAAP. Further, FFO as disclosed by other REITs may not be
    comparable to the Company's calculation of FFO. On March 3, 1995, NAREIT
    modified the calculation of FFO to, among other things, eliminate
    amortization of deferred financing costs and depreciation of non-real estate
    assets as items added back to net income when computing FFO. See "Selected
    Financial and Operating Data".
 
                                       10
<PAGE>   13
 
   
RECENT RESULTS
    
 
   
     The following table sets forth recent financial and operating results of
the Company.
    
 
   
<TABLE>
<CAPTION>
                                     THREE MONTHS ENDED                 NINE MONTHS ENDED
                                        SEPTEMBER 30,                     SEPTEMBER 30,
                                -----------------------------     -----------------------------
                                    1995             1996             1995             1996
                                ------------     ------------     ------------     ------------
    <S>                         <C>              <C>              <C>              <C>
    Operating Data
      Rental Income.........    $  9,544,000     $ 13,443,000     $ 26,380,000     $ 36,142,000
      Net Income............         366,000        1,363,000        1,438,000        2,308,000
      Net Income per Common
         Share..............             .08              .19              .30              .39
    Supplemental Data
    Cash Flow Information:
      Operating.............    $  2,069,000     $  3,219,000     $  4,498,000     $  9,353,000
      Investing.............     (72,917,000)     (11,056,000)     (81,295,000)     (66,468,000)
      Financing.............      73,012,000       (2,647,000)      78,066,000       56,899,000
    Funds From
      Operations(1).........       1,939,000        3,405,000        5,798,000        8,155,000
</TABLE>
    
 
---------------
 
   
(1) See Footnote (4) above for a discussion of Funds From Operations.
    
 
   
                              RECENT DEVELOPMENTS
    
 
   
-  On October 29, 1996, the Company's Common Stock began trading on the NYSE.
   The Company believes trading on the NYSE may provide greater exposure for the
   Company and increase its ability to raise additional capital.
    
 
   
-  The Company also announced on November 4, 1996 that its third quarter net
   income was $1,363,000, an increase of 272% from $366,000 for the same period
   in 1995, and that its third quarter funds from operations were $3,405,000, an
   increase of 76% from $1,939,000 for the same period in 1995. In addition, net
   income for the nine months ended September 30, 1996 was $2,308,000, an
   increase of 61% from $1,438,000 for the same period in 1995, and funds from
   operations for the nine months ended September 30, 1996 were $8,155,000, an
   increase of 41% from $5,798,000 for the same period in 1995.
    
 
   
-  On November 6, 1996, moreover, the Company's Board of Directors voted to
   increase the quarterly dividend on the Common Stock from $.40 to $.41 per
   share for the fourth quarter of 1996, payable on January 10, 1997 to all
   shareholders of record as of January 1, 1997.
    
 
                                       11
<PAGE>   14
 
                                  RISK FACTORS
 
     Prospective investors should carefully consider the following information
in conjunction with the other information contained in this Prospectus before
tendering Debentures.
 
DEBT FINANCING; RISK OF RISING INTEREST RATES
 
     The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, that the Company will not
be able to refinance existing indebtedness on its properties, or that the terms
of such refinancing will not be as favorable as the terms of existing
indebtedness. As of June 30, 1996, the Company had outstanding approximately
$177 million of indebtedness secured by certain of its properties.
 
     If prevailing interest rates or other factors at the time of refinancing
result in higher interest rates on refinancing, the Company's interest expense
would increase, which would adversely affect the Company's cash provided by
operating activities and its ability to make distributions or payments to
holders of its securities. In addition, in the event the Company were unable to
secure refinancing of such indebtedness on acceptable terms, the Company might
be forced to dispose of properties upon disadvantageous terms, which might
result in losses to the Company and might adversely affect the Company's funds
from operations. In addition, if a property or properties are mortgaged to
secure payment of indebtedness and the Company is unable to meet mortgage
payments, the property could be foreclosed upon by or otherwise transferred to
the mortgagee with a consequent loss of income and asset value to the Company.
 
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
 
     The Company intends to actively continue to acquire industrial and
multifamily residential properties. Acquisitions of such properties entail risks
that investments will fail to perform in accordance with expectations. Estimates
of the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general real estate investment risks
associated with any new real estate investment.
 
     The Company may also pursue industrial and multi-family residential
property development projects, although it has not heretofore done so. Such
projects generally require various governmental and other approvals, the receipt
of which cannot be assured. Such development activities will entail certain
risks, including the expenditure of funds on and devotion of management's time
to projects which may not come to fruition; the risk that construction costs of
a project may exceed original estimates, possibly making the project not
economical; the risk that occupancy rates and rents at a completed project will
be less than anticipated; and the risk that expenses at a completed development
will be higher than anticipated. These risks may result in a development project
causing a reduction in funds from operations or the funds available for
distribution.
 
GENERAL REAL ESTATE INVESTMENT RISKS
 
     Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Company's properties do not generate
sufficient income to meet operating expenses, including debt service and capital
expenditures, the Company's cash flow and ability to make distributions to its
stockholders will be adversely affected. The performance of the economy in each
of the areas in which the Company's properties are located affects occupancy,
market rental rates and expenses and, consequently, has an impact on the income
from the Company's properties and their underlying values. The financial results
of major local employers may have an impact on the cash flow and value of
certain of the Company's properties.
 
LACK OF GEOGRAPHIC DIVERSIFICATION
 
     The Company's properties are located in California and the Pacific
Northwest, with the largest concentration in Southern California. Income from
the Company's properties may be adversely affected by the general economic
climate, local economic conditions in which the Properties are located, such as
an
 
                                       12
<PAGE>   15
 
oversupply of space or a reduction in demand for rental space, the
attractiveness of the Company's properties to tenants, competition from other
available space, the ability of the Company to provide the adequate maintenance
and insurance and increased operating expenses. There is also the risk that as
leases on the Company's properties expire, tenants will enter into new leases on
terms that are less favorable to the Company. Income and real estate values may
also be adversely affected by such factors as applicable laws (e.g., ADA and tax
laws), interest rate levels and the availability of financing. In addition, real
estate investments are relatively illiquid and, therefore, will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions.
 
AFFORDABLE HOUSING LAWS
 
     Certain of the Company's multi-family properties are, and will be in the
future, subject to federal, state and local statutes or other restrictions
requiring that a percentage of apartment homes be made available to residents
whose incomes do not exceed a certain percentage of the local median. These laws
and regulations, as well as any changes thereto making it more difficult to meet
such requirements, or a reduction in or elimination of certain financing
advantages available to those persons satisfying such requirements, could
adversely affect the Company's profitability and its ability to develop certain
communities in the future.
 
COMPETITION
 
     Numerous industrial and residential properties compete with the Company's
properties in attracting tenants to lease space. Some of these competing
properties are newer, better located or better capitalized than the Company's
properties. The number of competitive properties in a particular area could have
a material effect on the Company's ability to lease space in its properties or
at newly developed or acquired properties and on the rents charged.
 
POSSIBLE ENVIRONMENTAL LIABILITIES
 
     Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs or removal or remediation of
such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. In connection with the ownership
(direct or indirect), operation, management and development of real properties,
the Company may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and, therefore, may be potentially liable for removal or remediation costs, as
well as certain other costs, including governmental fines and injuries to
persons and property.
 
     Certain environmental laws impose liability for any release of
asbestos-containing materials ("ACMs") into the air. In addition, third parties
may seek recovery from owners or operators of real properties for personal
injury associated with exposure to ACMs released from such properties. Limited
quantities of ACMs are present in various building materials such as floor
coverings, ceiling texture material, acoustical tiles and decorative treatments
located at certain of the Company's properties. The ACMs present at such
properties are generally in good condition, and possess low probabilities for
unintentional disturbance. The Company has implemented operations and
maintenance plans for properties where ACMs are present or reasonably suspected.
It is the Company's policy that generally ACMs will be removed by the Company in
the ordinary course of renovation and construction.
 
     There may also be potential liability associated with lead-based paint
arising from lawsuits alleging personal injury and related claims. Typically,
the existence of lead paint is more of a concern in residential units than in
commercial properties. A structure built prior to 1978 may contain lead-based
paint and thus
 
                                       13
<PAGE>   16
 
may present a potential for exposure to lead. Structures built after 1978 are
not likely to contain lead-based paint. While the Company's existing multifamily
properties have not been tested for lead-based paint, the majority were
constructed after 1978 and therefore are not likely to contain lead-based paint.
 
     The Company did not search for the existence of electric transmission lines
near the Company's properties. Electric transmission lines are one of many
sources of electro-magnetic fields ("EMFs") to which people may be exposed.
Research into potential health impacts associated with exposure to EMFs has
produced inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic fields
emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the Company
understands that lawsuits have, on occasion, been filed (primarily against
electric utilities) alleging personal injuries resulting from exposure as well
as fear of adverse health effects. In addition, fear of adverse health effects
from transmission lines has been a factor considered in determining property
values in obtaining financing and in condemnation proceedings. Therefore, there
is a potential for the value of the Company's properties to be affected as a
result of proximity to a transmission line and for the Company to be exposed to
damage claims by persons exposed to EMFs.
 
     Each of the Company's properties has been subjected to a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or groundwater analysis and generally without radon testing) completed
by licensed and qualified independent environmental consultant companies. Some
of the properties have been subject to a limited subsurface investigation. These
environmental assessments have not revealed any environmental liability, nor is
the Company aware of any environmental liability, that the Company's management
believes would have a material adverse effect on the company's business, assets
or results of operations.
 
     No assurance can be given that existing environmental assessments with
respect to any of the Properties would reveal all environmental liabilities,
that any prior owner of any of the Company's properties did not create any
material environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist as to any one or more of the
Company's properties.
 
GENERAL UNINSURED LOSSES
 
     The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance for each of its properties, with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which are
either uninsurable or not economically insurable. Further, all of the Company's
properties are located in areas that are subject to earthquake activity.
Although the Company has obtained certain limited earthquake insurance policies,
should one or more of the Company's properties sustain damage as a result of an
earthquake, the Company may sustain losses due to insurance deductibles,
co-payments on insured losses or uninsured losses.
 
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
 
     Tax Liabilities Upon Failure to Qualify as a REIT.  The Company made the
election to be treated for federal income tax purposes as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). No assurance can be
given that the Company will operate in a manner enabling it to remain so
qualified. Qualification as a REIT involves the application of highly technical
and complex Code provisions which have only a limited number of judicial or
administrative interpretations, and the determination of various factual matters
and circumstances not entirely within the Company's control may impact its
ability to qualify as a REIT. In addition, no assurance can be given that new
legislation, regulations, administrative interpretations or court decisions will
not significantly change the tax laws with respect to the qualification as a
REIT or the federal income tax consequences of such qualification.
 
     If in any taxable year the Company does not qualify as a REIT, it would be
taxed as a regular corporation and distributions to the holders of the Common
Stock would not be deductible by the Company in computing its taxable income. In
addition, unless entitled to relief under certain statutory provisions, the
Company will also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. This treatment
would significantly reduce the funds from operations available for
 
                                       14
<PAGE>   17
 
investment or distribution or payment to holders of the securities because of
the additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions.
 
     To qualify as a REIT, the Company is required to distribute at least 95% of
its taxable income to its shareholders each year. Possible timing differences
between receipt of income and payment of expenses, and the inclusion and
deduction of such amounts in determining taxable income, could require the
Company to reduce its dividends below the level necessary to maintain its
qualification as a REIT, which would have material adverse tax consequences.
 
QUALIFICATION OF THE OPERATING PARTNERSHIP AS A PARTNERSHIP FOR FEDERAL INCOME
TAX PURPOSES; IMPACT ON
  REIT STATUS
 
     PGP Inland Communities, L.P., the Company's subsidiary operating
partnership (the "Operating Partnership"), is intended to be treated as a
partnership for federal income tax purposes. If the IRS were to challenge
successfully the status of the Operating Partnership as a partnership for
federal income tax purposes, the Operating Partnership would be treated as an
association taxable as a corporation. In such event, for federal income tax
purposes the character of the Company's assets and income pertaining to its
interest in the Operating Partnership would change, and could cause the Company
to fail to meet the requirements for taxation as a REIT for federal income tax
purposes and therefore to be taxed as a regular corporation. The imposition of a
corporate tax on the Company and the Operating Partnership would significantly
reduce the funds from operations available for investment or distribution or
payment to holders of the securities.
 
     Other REIT Taxes.  Although qualified to be taxed as a REIT, certain
transactions or other events could lead to the Company being taxed at rates
ranging from 4% to 100% on certain income or gains.
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's management has substantial experience in acquiring, managing
and financing multifamily and industrial properties. The Company believes that
its success will depend in significant part upon the efforts of such persons and
that it may be difficult to replace such persons with individuals having
comparable experience.
 
ISSUANCE OF SHARES MAY ADVERSELY AFFECT MARKET PRICE OF COMMON STOCK AND DILUTE
PER SHARE AMOUNTS
  AVAILABLE FOR DISTRIBUTION
 
     Future issuances of substantial amounts of Common Stock upon conversion of
any Debentures that are not tendered pursuant hereto could adversely affect the
market price for the Common Stock and dilute per share amounts available for
distribution to shareholders. An aggregate of $56,506,000 in principal amount of
Debentures are, as of immediately prior to the consummation of the Exchange
Offer, outstanding and convertible, outside of the Exchange Offer, at a
conversion rate of 53.6986 shares of Common Stock for each $1,000 principal
amount of Debentures, into an aggregate of 3,034,293 additional shares of Common
Stock. The Company cannot estimate how many Debentures will be tendered for
exchange in the Exchange Offer. Debentures that are not so tendered are
convertible at any time at the election of the holders.
 
RESTRICTIONS ON TRADING OF UNTENDERED DEBENTURES
 
     While the Exchange Offer is conditioned upon the receipt by the Company of
a minimum of $37,672,550 in aggregate principal amount of Debentures,
representing 66.67% of all outstanding Debentures, the Company may accept for
exchange a greater aggregate principal amount of Debentures. Accordingly, after
the Exchange Offer, the amount of outstanding Debentures may be significantly
decreased. The Debentures are currently traded on AMEX, which requires its
listed securities to meet certain distribution and trading conditions. The
Company can give no assurance that these conditions will continue to be
satisfied after the Exchange Offer, and the greater the number of Debentures
exchanged pursuant to the Exchange Offer, the less likely it will be that such
conditions will be satisfied. If these conditions are not satisfied, AMEX may
delist the Debentures, restricting the liquidity of the Debentures that are not
tendered. In addition, even if the Debentures are not delisted, the consummation
of the Exchange Offer will decrease the number of outstanding Debentures and the
number of holders thereof, most likely rendering the Debentures less liquid.
 
                                       15
<PAGE>   18
 
   
                              RECENT DEVELOPMENTS
    
 
   
     On October 29, 1996, the Company's Common Stock began trading on the NYSE.
The Company believes trading on the NYSE may provide greater exposure for the
Company and increase its ability to raise additional capital. Second, the
Company also announced on November 4, 1996 that its third quarter net income was
$1,363,000, an increase of 272% from $366,000 for the same period in 1995, and
that its third quarter funds from operations were $3,405,000, an increase of 76%
from $1,939,000 for the same period in 1995. In addition, net income for the
nine months ended September 30, 1996 was $2,308,000, an increase of 61% from
$1,438,000 for the same period in 1995, and funds from operations for the nine
months ended September 30, 1996 were $8,155,000, an increase of 41% from
$5,798,000 for the same period in 1995. On November 6, 1996, the Company's Board
of Directors voted to increase the quarterly dividend on the Common Stock from
$.40 to $.41 per share for the fourth quarter of 1996, payable on January 10,
1997 to all shareholders of record as of January 1, 1997.
    
 
                               THE EXCHANGE OFFER
 
PURPOSE AND EFFECT
 
     The Exchange Offer will improve the Company's capitalization by increasing
its outstanding equity base and reducing its indebtedness. The Company believes
that the issuance of additional shares of Common Stock will improve the trading
and liquidity of the Common Stock which may enhance its attractiveness to
institutional and other investors. Additionally, a reduction in the Company's
indebtedness will improve the Company's interest coverage ratio and may lower
its long-term capital costs. The Company believes that improving its
capitalization will provide it with enhanced access to the capital markets and
expand its opportunities for future growth.
 
   
     Debenture holders participating in the Exchange Offer will receive more
shares of Common Stock per $1,000 in principal amount of Debentures than they
would otherwise receive upon conversion outside of the Exchange Offer.
Therefore, participating Debenture holders have an opportunity to share in any
long-term appreciation in the value of the Company's Common Stock to a greater
extent than non-participating holders. In addition, the dividend income to be
received by participating Debenture holders on the shares of Common Stock issued
to them in the Exchange Offer will (assuming the Company's recently-announced
quarterly dividend of $.41 per share remains in effect) exceed the interest
income they would have received on tendered Debentures.
    
 
CONSEQUENCES OF FAILURE TO TENDER DEBENTURES
 
     Following the expiration of the Exchange Offer, the liquidity of the market
for a holder's Debentures could be adversely affected if such holder elects to
not participate in the Exchange Offer. See "Risk Factors -- Restrictions on
Trading of Untendered Debentures."
 
TERMS OF THE EXCHANGE OFFER
 
   
     The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange not
greater than 58 and not less than 54 shares of its Common Stock for each $1,000
in principal amount of the outstanding Debentures. The Company will determine a
single exchange rate (not greater than 58 nor less than 54 shares of Common
Stock for each $1,000 principal amount of Debentures) that it will exchange for
Debentures validly tendered pursuant to the Exchange Offer and not withdrawn
(the "Designated Exchange Rate"), taking into consideration the number of
Debentures so tendered and the exchange rates specified by the tendering
Debenture holders. The Company will select the lowest Designated Exchange Rate
that will enable it to exchange a minimum of $37,672,550 in aggregate principal
amount of Debentures (or such lesser number of Debentures as are validly
tendered and not withdrawn at exchange rates not greater than 58 nor less than
54 shares of Common Stock for each $1,000 principal amount of Debentures)
pursuant to the Exchange Offer. The Company will accept for exchange all
Debentures validly tendered at exchange rates at or below the Designated
Exchange Rate and
    
 
                                       16
<PAGE>   19
 
   
not withdrawn on or prior to the Expiration Date (as defined below), upon the
terms and subject to the conditions of the Exchange Offer. The Designated
Exchange Rate will be applied to each exchange of Debentures effected,
regardless of the exchange rate specified by the holder of such Debentures. All
Debentures tendered without a specified exchange rate will be deemed to be
tendered at an exchange rate of 54 shares of Common Stock for each $1,000
principal amount of Debentures. All Debentures tendered at exchange rates in
excess of the Designated Exchange Rate will be returned. Holders of Debentures
who wish to assure their participation in the Exchange Offer regardless of the
ultimate Designated Exchange Rate may do so by tendering Debentures without
specifying an exchange rate; if the Exchange Offer is successfully consummated,
such validly tendered Debentures will be exchanged at the Designated Exchange
Rate. Tenders of the Debentures may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offer is conditioned
upon the receipt by the Company, on or prior to the Expiration Date, of the
tender of at least $37,672,550 in aggregate principal amount of outstanding
Debentures, representing at least 66.67% of the principal amount of all
outstanding Debentures; however, the Company may waive this condition. See
"Conditions of the Exchange Offer."
    
 
     Debentures may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Debentures may tender less than the aggregate principal
amount represented by the Debentures held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Debentures (or so indicate pursuant to the procedures for book-entry
transfer).
 
   
     As of the date of this Prospectus, $56,506,000 in aggregate principal
amount of the Debentures is outstanding. As of November 6, 1996, there were
twenty-two registered holders of the Debentures, including Cede & Co., Inc.,
which held $55,708,000 in aggregate principal amount of Debentures for its
participants. Only a holder of the Debentures (or such holder's legal
representative or attorney-in-fact) may participate in the Exchange Offer. The
Company believes that, as of the date of this Prospectus, no such holder is an
affiliate (as defined in Rule 405 under the Securities Act) of the Company.
    
 
     The Company shall be deemed to have accepted validly tendered Debentures
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Debentures.
 
ECONOMIC IMPACT ON TENDERING DEBENTURE HOLDERS
 
     A comparison of the economic impact of exchanging $1,000 principal amount
of Debentures pursuant to the Exchange Offer at the different share levels
versus retaining such Debentures is set forth below:
 
   
<TABLE>
<CAPTION>
                                                  54 SHARES   55 SHARES   56 SHARES   57 SHARES   58 SHARES
                                                  ---------   ---------   ---------   ---------   ---------
<S>                                               <C>         <C>         <C>         <C>         <C>
Current Market Value of Exchange Offer
  Shares(1)......................................  $ 1,080     $ 1,100     $ 1,120     $ 1,140     $ 1,160
Current Market Value of $1,000 Principal Amount
  of Debentures(2)...............................    1,040       1,040       1,040       1,040       1,040
                                                   -------     -------     -------     -------     -------
ADDITIONAL VALUE TO DEBENTURE HOLDERS PURSUANT TO
  EXCHANGE OFFER.................................  $    40     $    60     $    80     $   100     $   120
                                                   =======     =======     =======     =======     =======
Dividend Income Per Annum on Exchange Offer
  Shares(3)......................................  $ 88.56     $ 90.20     $ 91.84     $ 93.48     $ 95.12
Interest Income Per Annum on $1,000 Principal
  Amount of Debentures(4)........................    83.75       83.75       83.75       83.75       83.75
                                                   -------    --------     -------     -------     -------
ADDITIONAL INCOME TO DEBENTURE HOLDERS PURSUANT
  TO EXCHANGE OFFER..............................  $  4.81     $  6.45     $  8.09     $  9.73     $ 11.37
                                                   =======     =======     =======     =======     =======
</TABLE>
    
 
---------------
   
(1) Based on the $20.00 closing price of a share of Common Stock on the NYSE on
    November 6, 1996.
    
 
   
(2) Based on the 104% closing price of a $1,000 face amount Debenture on the
    AMEX on November 6, 1996.
    
 
   
(3) The dividend income per annum shown for the Common Stock issuable upon
    acceptance of the Exchange Offer represents an annualized dividend amount of
    $1.64 per share based on the most recent quarterly dividend declared by the
    Company. There is no assurance that the Company's Board of Directors will
    continue to declare dividends on the Common Stock or, if declared, what the
    amount of future dividends will be. The Board of Directors voted on November
    6, 1996 to increase the quarterly dividend on the Common Stock from
    
 
                                       17
<PAGE>   20
 
   
$.40 to $.41 per share for the fourth quarter of 1996, payable on January 10,
1997 to all shareholders of record as of January 1, 1997.
    
 
(4) Unlike dividends on Common Stock, the Company is contractually obligated to
    pay the annual interest on the Debentures. Dividends are taxed differently
    from interest income under federal and state tax laws. Consult your tax
    adviser as to the effect of tax laws on the dividends and interest income
    discussed above.
 
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
 
   
     The Expiration Date shall be December 10, 1996 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
    
 
     The Company expressly reserves the right in its sole discretion at any time
or from time to time, to extend the period of time during which the Exchange
Offer is open, and thereby delay acceptance for exchange of, or exchange of any
Debentures, by giving oral or written notice of such extension to the Exchange
Agent.
 
   
     The Exchange Offer, the Letter of Transmittal and other relevant materials
are being mailed to record holders of Debentures and furnished to brokers,
dealers, commercial banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the Debenture holder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Debentures.
    
 
     If the Company makes a material change in the terms of the Exchange Offer
or the information concerning the Exchange Offer, or if it waives a material
condition of the Exchange Offer, the Company will extend the Exchange Offer
consistent with Rule 13e-4 under the Exchange Act. The Commission has taken the
position that the minimum period during which an offer must remain open
following material changes in the terms of the offer or information concerning
the offer (other than a change in price or a change of more than two percent in
percentage of securities sought, for which an extension of ten business days is
required) will depend upon the facts and circumstances, including the relative
materiality of the terms or information. For purposes of the Exchange Offer, a
"business day" means any day other than a Saturday, Sunday or federal holiday,
and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York
City time.
 
   
     The Company also expressly reserves the right (i) to delay acceptance for
exchange of or exchange for any Debentures to be exchanged by it pursuant to the
Exchange Offer, regardless of whether such Debentures were theretofore accepted
for exchange, and (ii) at any time, or from time to time, to amend the Exchange
Offer in any manner which would not adversely affect the holders of Debentures.
The Company's reservation of the right to delay exchange of Debentures that it
has accepted for payment is limited by Rule 13e-4 under the Exchange Act, which
requires that a bidder must pay the consideration offered or return the
securities deposited by or on behalf of security holders promptly after the
termination or withdrawal of any exchange offer. Any extension, delay in
payment, or amendment will be followed as promptly as practicable by public
announcement thereof, such announcement in the case of an extension to be issued
no later than 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date. Without limiting the manner in which the
Company may choose to make any public announcement, the Company will have no
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by issuing a release to the Dow Jones News Service.
    
 
CONDITIONS OF THE EXCHANGE OFFER
 
     The Exchange Offer is conditioned upon the receipt by the Company, on or
prior to the Expiration Date, of the tender of at least $37,672,550 in aggregate
principal amount of outstanding Debentures, representing at least 66.67% of the
principal amount of all outstanding Debentures; however, the Company may waive
this condition. In addition, the Company reserves the right to terminate the
Exchange Offer at any time prior to the consummation of the Exchange Offer.
 
                                       18
<PAGE>   21
 
ACCRUED INTEREST
 
     Promptly following the consummation of the Exchange Offer, the Company will
pay in cash interest that has accrued from August 15, 1996 to the date of the
consummation of the Exchange Offer in respect of the Debentures that are
tendered and exchanged pursuant to the Exchange Offer.
 
PROCEDURES FOR TENDERING DEBENTURES
 
   
     The tender of a holder's Debentures as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a holder who wishes to tender Debentures for exchange pursuant to
the Exchange Offer must transmit such Debentures, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth on the back cover page of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. In accordance with Instruction 6 of the
Letter of Transmittal, each Debenture holder who wishes to tender Debentures
must specify the exchange rate (not greater than 58 shares nor less than 54
shares of Common Stock for each $1,000 principal amount of Debentures) at which
such Debenture holder is willing to have the Company exchange such Debentures.
As promptly as practicable following the Expiration Date, the Company will
determine the Designated Exchange Rate (not greater than 58 shares nor less than
54 shares of Common Stock for each $1,000 principal amount of Debentures) that
it will pay for Debentures validly tendered and not withdrawn pursuant to the
Exchange Offer, taking into account the number of Debentures so tendered and the
exchange rates specified by tendering Debenture holders. All Debentures tendered
without a specified exchange rate will be deemed to be tendered at an exchange
rate of 54 shares of Common Stock for each $1,000 principal amount of
Debentures. All Debentures exchanged pursuant to the Exchange Offer will be
exchanged at the Designated Exchange Rate. All Debentures not exchanged pursuant
to the Exchange Offer, including Debentures tendered at exchange rates greater
than the Designated Exchange Rate, will be returned to the tendering Debenture
holders at the Company's expense as promptly as practicable following the
Expiration Date. THE METHOD OF DELIVERY OF DEBENTURES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT
IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
    
 
   
     Any financial institution that is a participant in a Book-Entry Transfer
Facility may make book-entry delivery of the Debentures by causing such
Book-Entry Transfer Facility to transfer such Debentures into the Exchange
Agent's account in accordance with such facility's procedures for such transfer.
In connection with a book-entry transfer, a Letter of Transmittal need not be
transmitted to the Exchange Agent, provided that the book-entry transfer
procedure must be complied with prior to 5:00 p.m., New York City time, on the
Expiration Date and an Agent's Message (as defined below) is received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
The Term "Agent's Message" means a message, transmitted by a Book-Entry Transfer
Facility to, and received by, the Exchange Agent, which states that (i) such
Book-Entry Transfer Facility has received an express acknowledgement from the
participant in such Book-Entry Transfer Facility tendering Debentures, (ii) such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and (iii) the Company may enforce such agreement against such
participant.
    
 
     Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Debentures surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Debentures who
has not completed either the box entitled "Special Exchange Instructions" or the
box entitled "Special Delivery Instructions" in the Letter of Transmittal, or
(ii) for the account of a financial institution (including most commercial
banks, savings and loan associations and brokerage houses) that is a participant
in the Security Transfer Agent Medallion Program, the New York Stock Exchange
 
                                       19
<PAGE>   22
 
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(an "Eligible Institution"). In the event that a signature on a Letter of
Transmittal or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by an Eligible Institution. If the Letter of
Transmittal is signed by a person other than the registered holder of the
Debentures, the Debentures surrendered for exchange must either (i) be endorsed
by the registered holder, with the signature thereon guaranteed by an Eligible
Institution, or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the
Debentures means any person in whose name the Debentures are registered on the
books of the Registrar.
 
   
     All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Debentures tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company and the Exchange Agent reserve the absolute right
to reject any and all Debentures not properly tendered and to reject any
Debentures the acceptance of which might, in the judgment of the Company, the
Exchange Agent or their respective counsel, be unlawful. The Company and the
Exchange Agent also reserve the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Debentures
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Debentures in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Debentures for exchange must be
cured within such period of time as the Company shall determine. The Company and
the Exchange Agent will use reasonable efforts to give notification of defects
or irregularities with respect to tenders of Debentures for exchange but shall
not incur any liability for failure to give such notification. Tenders of the
Debentures will not be deemed to have been made until such irregularities have
been cured or waived.
    
 
     If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
 
     Any beneficial owner of the Debentures (a "Beneficial Owner") whose
Debentures are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to tender Debentures in the
Exchange Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Debentures,
make appropriate arrangements to register ownership of the Debentures in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
 
GUARANTEED DELIVERY PROCEDURES
 
   
     Holders who wish to tender their Debentures and (i) whose Debentures are
not immediately available or (ii) who cannot deliver their Debentures or any
other documents required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date (or complete the procedure for book-entry transfer
on a timely basis), may tender their Debentures according to the guaranteed
delivery procedures set forth in the Letter of Transmittal. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
and a Notice of Guaranteed Delivery (as defined in the Letter of Transmittal)
must be signed by such Holder, (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from the Holder and the Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder, the certificate number or numbers of the tendered Debentures, and the
principal amount of tendered Debentures, stating that the tender is being made
thereby and guaranteeing that, within three (3) business days after the date of
delivery of the Notice of Guaranteed Delivery, the tendered Debentures, a duly
executed Letter of Transmittal or an Agent's Message, and any other required
documents will be deposited by the Eligible Institution with the
    
 
                                       20
<PAGE>   23
 
   
Exchange Agent, and (iii) such properly completed and executed documents
required by the Letter of Transmittal and the tendered Debentures in proper form
for transfer (or confirmation of a book-entry transfer of such Debentures into
the Exchange Agent's account at a Book-Entry Transfer Facility and the receipt
of an Agent's Message) must be received by the Exchange Agent within three (3)
business days after the date of delivery of the Notice of Guaranteed Delivery.
Any Holder who wishes to tender Debentures pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery relating to such Debentures prior to 5:00 p.m.,
New York City time, on the Expiration Date.
    
 
ACCEPTANCE OF DEBENTURES FOR EXCHANGE; DELIVERY OF SHARES OF COMMON STOCK
 
     Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Debentures that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The shares of Common Stock issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Debentures. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted validly tendered
Debentures, when, as, and if the Company has given oral or written notice
thereof to the Exchange Agent.
 
   
     In all cases, issuances of shares of Common Stock for Debentures that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of such Debentures, a properly completed
and duly executed Letter of Transmittal and all other required documents (or of
confirmation of a book-entry transfer of such Debentures into the Exchange
Agent's account at a Book-Entry Transfer Facility and the receipt of an Agent's
Message); provided, however, that the Company reserves the absolute right to
waive any defects or irregularities in the tender or conditions of the Exchange
Offer. If any tendered Debentures are not accepted for any reason, such
unaccepted Debentures will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
    
 
WITHDRAWAL RIGHTS
 
   
     Tenders of the Debentures may be withdrawn by delivery of a written notice
to the Exchange Agent, at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Debentures to be withdrawn (the "Depositor"), (ii)
identify the Debentures to be withdrawn (including the certificate number or
numbers and principal amount of such Debentures, as applicable), (iii) be signed
by the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Debentures were tendered and must be guaranteed by an
Eligible Institution. Any questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
in its sole discretion. The Debentures so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any
Debentures which have been tendered for exchange but which are withdrawn will be
returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal. Properly withdrawn Debentures may be retendered by
following one of the procedures described under "The Exchange
Offer -- Procedures for Tendering Debentures" at any time on or prior to the
Expiration Date.
    
 
                                       21
<PAGE>   24
 
THE EXCHANGE AGENT; ASSISTANCE
 
     Harris Trust Company of California is the Exchange Agent. All tendered
Debentures, executed Letters of Transmittal and other related documents should
be directed to the Exchange Agent as follows:
 
                       HARRIS TRUST COMPANY OF CALIFORNIA
 
<TABLE>
<S>                                 <C>                                 <C>
              By Mail:                     By Overnight Courier:                      By Hand:
 Harris Trust Company of California  Harris Trust Company of California  Harris Trust Company of California
c/o Harris Trust Company of New York c/o Harris Trust Company of New York c/o Harris Trust Company of New York
        Wall Street Station              77 Water Street, 4th Floor                Receive Window
           P.O. Box 1010                     New York, NY 10005              77 Water Street, 5th Floor
      New York, NY 10268-1010                                                    New York, NY 10005
                                         By Facsimile Transmission:
                                      (For Eligible Institutions Only)
                                               (212) 701-7636
                                               (212) 701-7637
                                           Confirm by Telephone:
                                               (212) 701-7624
</TABLE>
 
THE INFORMATION AGENT; ASSISTANCE
 
     D.F. King & Co., Inc. is the Information Agent. All questions regarding the
Exchange Offer, including requests for additional copies of the Prospectus, the
Letter of Transmittal and other related documents, should be addressed to the
Information Agent as follows:
 
                             D.F. KING & CO., INC.
                                77 WATER STREET
                            NEW YORK, NEW YORK 10005
 
                          CALL COLLECT (212) 269-5550
   
                            TOLL FREE (800) 207-2014
    
 
FEES AND EXPENSES
 
     All expenses incident to the Company's consummation of the Exchange will be
borne by the Company, including, without limitation: (i) all registration and
filing fees (including, without limitation, fees and expenses of compliance with
state securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for the shares of Common Stock in
a form eligible for deposit with DTC and of printing Prospectuses), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) fees and disbursements of independent certified
public accountants, (vi) rating agency fees, (vii) internal expenses of the
Company (including, without limitation, all salaries and expenses of officers
and employees of the Company performing legal or accounting duties), and (viii)
fees and expenses incurred in connection with the listing of the shares of
Common Stock on a securities exchange.
 
     The Company will pay the Exchange Agent and the Information Agent
reasonable and customary fees for their services and will reimburse them for
their reasonable out-of-pocket expenses in connection therewith.
 
     The Company has retained Alex. Brown & Sons Incorporated as its financial
advisor with respect to the Exchange Offer, and will pay reasonable and
customary fees to such firm.
 
     The Company will pay all transfer taxes, if any, applicable to the exchange
of Debentures pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Debentures pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
 
                          DESCRIPTION OF CAPITAL STOCK
 
     Information with respect to the Company's capital stock, including the
Debentures and the Common Stock, is incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
 
                                       22
<PAGE>   25
 
                            BUSINESS AND PROPERTIES
 
GENERAL
 
     The tables below set forth certain information relating to the Company's
Industrial and Multifamily Properties by location and type as of June 30, 1996.
For the six months ended June 30, 1996, approximately 51% and 49% of Company's
pro forma net operating income was derived from its Industrial and Multifamily
Properties, respectively.
 
  Industrial
 
<TABLE>
<CAPTION>
                                                                                PERCENT
                                                                                 OF NET
                                                 NUMBER OF      LEASABLE       OPERATING
                                                 PROPERTIES    SQUARE FEET     INCOME(1)      OCCUPANCY
                                                 ---------     -----------     ----------     ---------
<S>                                              <C>           <C>             <C>            <C>
California
  Inland Empire(2).............................       3         1,009,214           24%           98%
  San Diego....................................       4           802,132           12            94
  Orange County................................       6           857,241           13            95
  Los Angeles..................................       1           623,261           25            96
  Northern California..........................       1           193,358            1            86
Pacific Northwest
  Seattle, WA..................................       4           660,666           25            95
                                                     --         ---------          ---
Total or Weighted Average......................      19         4,145,872          100%           95%
                                                     ==         =========          ===
</TABLE>
 
  Multifamily
 
<TABLE>
<CAPTION>
                                                                              PERCENT
                                                                               OF NET
                                                     NUMBER OF               OPERATING
                                                     PROPERTIES    UNITS     INCOME(1)      OCCUPANCY
                                                     ---------     -----     ----------     ---------
<S>                                                  <C>           <C>       <C>            <C>
California
  Inland Empire(2).................................      11        1,368          36%           95%
  Orange County....................................       3          742          21            94
Pacific Northwest
  Seattle, WA......................................       6        1,556          36            96
  Portland, OR.....................................       1          279           7            93
                                                         --        -----         ---
Total or Weighted Average..........................      21        3,945         100%           95%
                                                         ==        =====         ===
</TABLE>
 
---------------
(1) Rental revenue less rental expenses and real estate taxes for the six months
    ended June 30, 1996.
 
(2) Includes the eastern portion of Los Angeles County adjacent to the
    Riverside/San Bernardino metropolitan area.
 
     The information in the following sections is forward looking and involves
risks and uncertainties that could significantly impact the Company's Funds from
Operations in the short and long term. Higher than expected acquisition, rental
and/or rehabilitation costs, delays in the rehabilitation of properties, a
downturn in the local economies and/or the lack of growth of such economies
could reduce the Company's Funds from Operations.
 
INDUSTRIAL PROPERTIES
 
     The Company focuses on multi-tenant business parks and mid-size
warehouse/distribution facilities. Whenever possible, the Company seeks a
significant market share in its principal markets so that it can accommodate its
tenants as their needs change and have an influence on trends in market rents.
The Company
 
                                       23
<PAGE>   26
 
also seeks properties that are well-located and offer convenient access to major
distribution points, such as shipping ports, major airports and major freeways.
 
     Management believes that the Southern California industrial property market
is poised for recovery based upon an increasing level of leasing interest and a
limited supply of new product. As evidence of this, the Company already has
observed recent increases in the prices for industrial properties and tenant
requests for longer term leases. With over 70% of its industrial leases expiring
during the next three years, the Company believes it is in a good position to
capitalize on anticipated rental rate increases. The Company's industrial
properties are currently occupied by over 400 tenants, and no one tenant
accounts for more than 2.5% of the Company's total rental revenues.
 
     The Company generally offers industrial leases in the one- to five-year
range. Lease terms include, in most cases, annual adjustments based on changes
in the consumer price index. The standard lease also includes some refurbishing
and tenant improvement allowance with the amount varying depending upon the
length of the lease, the size of the space leased and the use. The Company seeks
tenants primarily involved in warehouse, distribution, assembly and light
manufacturing activities.
 
     The following table presents information concerning the Industrial
Properties, including the actual average rent per square foot and percentage of
the leasable square footage leased and occupied by tenants as of June 30, 1996:
 
   
<TABLE>
<CAPTION>
                                                                    LEASABLE   NUMBER   AVERAGE BASE
                                                        DATE         SQUARE      OF       RENT PER
           PROPERTY                   LOCATION        COMPLETED      FOOTAGE   TENANTS    SQ. FT.     OCCUPANCY
------------------------------  --------------------- ---------     ---------  -------  ------------  ---------
<S>                             <C>                   <C>           <C>        <C>      <C>           <C>
Seattle I.....................  Seattle, WA              1968          42,240      2        $.40         100%
Seattle II....................  Seattle, WA              1981          64,077     10         .57          96
Seattle III...................  Seattle, WA              1981          78,720     14         .54         100
Pacific Gulf Business
  Park(1).....................  Tukwila, WA              1975-79      475,629    188         .50          94
Etiwanda......................  Ontario, CA              1991         576,327      3         .29         100
Golden West...................  Rancho Cucamonga, CA     1990         296,821     86         .36          95
Vista.........................  Vista, CA                1990         356,800     11         .38          93
Baldwin Industrial Park.......  Baldwin Park, CA         1986         623,261     17         .36          96
Pacific Gulf Business
  Park(1).....................  Garden Grove, CA         1986         189,526     76         .63          88
Garden Grove Industrial
  Park........................  Garden Grove, CA         1979         251,927     11         .38         100
Crescent Business Center......  Rancho Cucamonga, CA     1981         136,066     24         .41          98
Eden Landing Commerce Park....  Hayward, CA              1972-74      193,358    104         .64          86
San Marcos Commerce Center....  San Marcos, CA           1985          72,100     15         .38         100
Bay San Marcos Industrial
  Center......................  San Marcos, CA           1988         121,768      7         .41          96
Escondido Business Center.....  Escondido, CA            1988-92      251,464     64         .49          94
Bell Ranch Industrial Park....  Santa Fe Springs, CA     1981         128,640      2         .27         100
La Mirada Business Center.....  La Mirada, CA            1975          82,010     48         .61          90
Pacific Park..................  Aliso Viejo, CA          1988          99,622     39         .90          92
North County Business Park....  Yorba Linda, CA          1987-89      105,516     13         .57         100
                                                                    ---------  -------
Total or Weighted
  Average(2)..................                                      4,145,872    734         .52          95
                                                                    =========  =======
</TABLE>
    
 
---------------
(1) Under rehabilitation.
 
   
(2) Excludes Riverview Industrial Park, a multi-tenant industrial/warehouse
    project consisting of approximately 297,000 square feet, Miramar, a
    multi-tenant industrial/warehouse project consisting of approximately
    186,000 square feet, and Bullocks/City of Industry, a multi-tenant
    industrial/warehouse project consisting of approximately 326,596 square
    feet, each of which were acquired after June of 1996.
    
 
                                       24
<PAGE>   27
 
     The following table shows scheduled lease expirations for all leases for
the Industrial Properties as of June 30, 1996.(1)
 
<TABLE>
<CAPTION>
                                                                       ANNUAL                   PERCENTAGE
                                              NUMBER OF    GLA OF     BASE RENT    PERCENTAGE     ANNUAL
                                               LEASES     EXPIRING   OF EXPIRING     OF GLA     BASE RENT
                    YEAR                      EXPIRING     LEASES      LEASES       EXPIRING     EXPIRING
--------------------------------------------  ---------   --------   -----------   ----------   ----------
<S>                                           <C>         <C>        <C>           <C>          <C>
1996........................................     169       772,305   $ 3,886,544      20.0%        20.0%
1997........................................     245       828,097     4,343,381      21.4         22.3
1998........................................     182       799,750     4,508,796      20.7         23.2
1999........................................     102       620,670     2,804,510      16.1         14.4
2000........................................      36       162,556       863,196       4.2          4.4
2001........................................      24       169,218       863,665       4.4          4.4
2002........................................       5       319,569     1,133,833       8.3          5.8
2003........................................       7        90,530       522,364       2.3          2.7
2004........................................       1        90,400       469,284       2.3          2.4
2005 and thereafter.........................       1        11,520        57,600        .3           .3
</TABLE>
 
---------------
 
   
(1) Excludes Riverview Industrial Park, a multi-tenant industrial/warehouse
    project consisting of approximately 297,000 square feet, Miramar, a
    multi-tenant industrial/warehouse project consisting of approximately
    186,000 square feet, and Bullocks/City of Industry, a multi-tenant
    industrial/warehouse project consisting of approximately 326,596 square
    feet, each of which were acquired after June of 1996.
    
 
   
MULTIFAMILY PROPERTIES
    
 
     The Company invests primarily in two types of multifamily apartment
communities: communities oriented to family-style living and communities for
active seniors ages 55 and older.
 
     The Company focuses on family-style apartment communities with greater
concentrations of two- and three-bedroom units with rents affordable by middle
income families. The Company believes that there is a strong demand among middle
income families for affordable rental housing such as that offered by the
Company.
 
     The Company also focuses on active senior housing for individuals ages 55
and older, where seniors can be involved in activities, social gatherings and
other types of entertainment with residents of their own age group. The Company
offers no assisted living or related services; the Company's properties are
oriented to those seniors interested in renting versus owning and who are able
to care for themselves. The Company believes that the senior population will
continue to grow and that the market for rental housing for active seniors will
be strong. In addition, management believes that active senior housing typically
has lower operating and management costs due to lower tenant turnover.
 
     Each of the Multifamily Properties provides tenants with attractive
amenities, including a swimming pool (except Inn at Laguna Hills) and clubhouse,
and many include jacuzzis, tennis courts, sports courts and saunas. Many offer
additional features such as vaulted ceilings, fireplaces, washers and dryers,
cable television and limited access gates. None of the Multifamily Properties
currently are subject to rent control or rent stabilization regulations.
However, certain of these properties are subject to restrictions based upon tax-
exempt loan requirements. There can be no assurances that rent control or rent
stabilization regulations will not be imposed in the future.
 
                                       25
<PAGE>   28
 
     The following table presents information concerning the Multifamily
Properties, including average gross scheduled rents per unit and percentage of
units occupied as of June 30, 1996:
 
<TABLE>
<CAPTION>
                                                                         AVERAGE    AVERAGE
                                                      YEAR              UNIT SIZE     RENT
           PROPERTY                  LOCATION       COMPLETED   UNITS    (SQ FT)    PER UNIT   OCCUPANCY
------------------------------  ------------------  ---------   -----   ---------   --------   ---------
<S>                             <C>                 <C>         <C>     <C>         <C>        <C>
Applewood(1)..................  Santa Ana, CA          1972       406       801       $707         94%
Park Place....................  Santa Ana, CA          1990       196       799        669         95
Inn at Laguna Hills(2)........  Laguna Hills, CA       1994       140       500        558         93
Daisy 5(1)(3).................  Covina, CA             1977        38       897        723         92
Daisy 7(1)(3).................  Diamond Bar, CA        1978       204       950        822         98
Daisy 12(1)(3)................  San Dimas, CA          1979       102       952        669         93
Daisy 16(1)(3)................  West Covina, CA        1981       250       986        710         94
Daisy 17(1)(3)................  San Dimas, CA          1981       156       962        738         96
Lariat(1)(3)..................  San Dimas, CA          1981        30       970        767        100
Daisy 19(1)(3)................  Ontario, CA            1983       125     1,019        761         98
Daisy 20(1)(3)................  Ontario, CA            1982       155     1,000        673         94
Sunnyside I(1)(2)(3)..........  San Dimas, CA          1984       164       495        540         91
Sunnyside II(1)(2)(3).........  Ontario, CA            1983        60       493        477         95
Sunnyside III(1)(2)(3)........  Ontario, CA            1985        84       504        477         94
Fulton's Landing..............  Everett, WA            1988       248       745        529         97
Fulton's Crossing.............  Everett, WA            1986       256       803        529         97
Lora Lakes....................  Burien, WA             1987       234       907        612         97
Holly Ridge...................  Burien, WA             1987       146       946        635         96
Hampton Bay...................  Kent, WA               1987       304       884        637         99
Heatherwood(1)................  Federal Way, WA        1985       368       741        526         91
Waterhouse....................  Beaverton, OR          1990       279       937        658         93
                                                                -----
Total or Weighted Average.....                                  3,945                              95%
                                                                =====                              ===
</TABLE>
 
---------------
(1) Under rehabilitation.
 
(2) Properties serving active senior tenants (individuals ages 55 and older).
 
(3) Owned by PGP Inland Communities, L.P., a limited partnership in which the
    Company has a minimum 78% equity interest, full management and control, and
    the right to 100% of cash flow until certain net operating income levels are
    achieved.
 
                                       26
<PAGE>   29
 
                  POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
 
     The following is a discussion of the Company's investment policies,
financing policies, policies with respect to certain other activities and
conflicts of interest policies. The Company's policies with respect to these
activities have been determined by the Board of Directors of the Company and may
be amended or revised from time to time at the discretion of the Board of
Directors without a vote of the shareholders of the Company.
 
INVESTMENT POLICIES
 
   
     The Company's investment objectives will be generally to seek to acquire
well-located multifamily and industrial properties at prices equal to or less
than replacement cost which provide attractive initial returns and opportunities
to increase cash flow through active management. The Company's portfolio of
properties will consist of multifamily properties located in California and the
Pacific Northwest and industrial properties located in California and the
Pacific Northwest. The Company intends to continue to focus on multifamily and
industrial properties in these regions. The Company is of the opinion that the
opportunity to acquire under-performing multifamily and industrial properties
will continue to be available and offers substantial opportunity.
    
 
     The Company may purchase or lease income-producing multifamily and
industrial properties for long-term investment and improve its properties, or
sell such properties, in whole or in part, when circumstances warrant. The
Company may also participate with other entities in multifamily and industrial
property ownership, through joint ventures or other types of co-ownership.
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness may be incurred in connection
with acquiring investments. Any such financing or indebtedness will have a
priority over equity ownership interests in the Company.
 
     Subject to the asset and gross income tests necessary for REIT
qualification (see "Federal Income Tax Considerations"), the Company may also
invest in securities of entities engaged in real estate activities or securities
of other issuers, including for the purpose of exercising control over such
entities. The Company may in the future acquire all or substantially all of the
securities or assets of other REITs or similar entities where such investments
would be consistent with the Company's investment policies. In any event, the
Company does not intend that its investments in securities will require the
Company to register as an "investment company" under the Investment Company Act
of 1940, and the Company intends to divest securities before any such
registration would be required. The Company has no other stated criteria with
respect to any such investment.
 
FINANCING POLICIES
 
     The Company's debt financing policy will be determined from time to time in
light of then current economic conditions, relative costs of debt and equity
capital, market values of its properties, growth and acquisition opportunities
and other factors. To the extent that the Board of Directors of the Company
determines to obtain additional capital, the Company may raise such capital
through additional equity offerings (including offerings of senior securities),
debt financings or retention of cash flow (subject to provisions in the Code
concerning taxability of undistributed REIT income), or a combination of these
methods.
 
     To the extent that the Board of Directors determines to obtain additional
debt financing, the Company intends to do so generally through mortgages on its
properties and lines of credit. These mortgages may be recourse, non-recourse or
cross-collateralized and may contain cross-default provisions. The Company does
not have a policy limiting the number or amount of mortgages that may be placed
on any particular property, but mortgage financing instruments usually limit
additional indebtedness on such properties. The Company may also determine to
issue debt securities (which may be convertible into Common Shares or be
accompanied by warrants to purchase such shares) and to finance acquisitions
through the exchange of properties or issuance of Common Shares or other
securities, including senior securities.
 
                                       27
<PAGE>   30
 
     As of June 30, 1996, the Company has a secured revolving line of credit
from a bank for a maximum amount of $68,000,000 which expires in July 1998. As
of June 30, 1996 the Company had borrowed $38,644,000 under the revolving line
of credit. In the future, the Company may seek to extend, expand, reduce or
renew such facility, or obtain new credit facilities or lines of credit. Future
credit facilities and lines of credit may be used for the purpose of making
acquisitions or capital improvements, providing working capital or meeting the
taxable income distribution requirements for REITs under the Code if the Company
has taxable income without receipt of cash sufficient to enable the Company to
meet such distribution requirements.
 
POLICIES WITH RESPECT TO OTHER ACTIVITIES
 
     The Company may, but does not presently intend to, make investments other
than those previously described. The Company has authority to offer shares of
its Common Stock or other equity or debt securities in exchange for property and
to repurchase or otherwise reacquire shares of its Common Stock or any other
securities and may engage in such activities in the future. The Company may also
in the future make loans to joint ventures in which it participates. Because the
Company does not presently intend to engage in these activities, it has not
established any policies or criteria with respect to such activities. The
Company will not engage in trading, underwriting or the agency distribution or
sale of securities of other issuers. At all times, the Company intends to make
investments in such a manner as to be consistent with the requirements of the
Code to qualify as a REIT unless, because of circumstances or changes in the
Code (or in the regulations promulgated thereunder), the Board of Directors
determines that it is no longer in the best interests of the Company to qualify
as a REIT. The Company's policies with respect to such activities may be
reviewed and modified from time to time by the Company's Board of Directors
without a vote of the shareholders.
 
CONFLICTS OF INTEREST POLICIES
 
     The Company has adopted certain policies designed to reduce potential
conflicts of interest. In general, the Company will not engage in any
transactions with any director, officer or affiliate thereof involving the sale
or disposition of an equity interest in any property of the Company to such
person, and most other transactions between the Company and any director or
officer, or affiliate thereof, must be approved by a majority vote of the
disinterested directors as being fair, competitive, and commercially reasonable
and no less favorable to the Company than similar transactions between
unaffiliated parties under the same circumstances. Such restrictions do not
apply where such director, officer or affiliate has acquired the property for
the sole purpose of facilitating its acquisition by the Company, and the total
consideration paid by the Company does not exceed the cost of the property to
such person (where the cost is increased by the person's holding costs and
decreased by any income received by the person from the property) and no special
benefit results to such person.
 
                                       28
<PAGE>   31
 
                        PRO FORMA FINANCIAL INFORMATION
 
     See "Summary Financial Information" and "Index to Financial Statements."
 
                                   MANAGEMENT
 
     Information with respect to the Company's management, including directors
and executive officers and their respective compensation, certain relationships
and transactions, and certain beneficial owners of the Company's capital stock
is incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
 
     Stewart Bowie, Peter Eppinga and Robert Morgan, each of whom are directors
of the Company, hold $350,000, $62,000 and $93,000, respectively, in aggregate
principal amount of Debentures. Such individuals may tender their Debentures
pursuant to the Exchange Offer on the same terms and conditions as all other
holders of Debentures.
 
                         MARKET AND TRADING INFORMATION
 
   
     The Debentures are traded on AMEX and the Common Stock is traded on the
NYSE. The high and low prices per $1,000 principal amount of Debentures for the
last two years, according to published reports, has been as follows for the
periods indicated:
    
 
   
<TABLE>
<CAPTION>
                                  PERIOD                            HIGH         LOW
        ----------------------------------------------------------  ----         ---
        <S>                                                         <C>          <C>
        1994
          Third Quarter...........................................   970         926 1/4
          Fourth Quarter..........................................   941 1/4     890
        1995
          First Quarter...........................................   895         870
          Second Quarter..........................................   940         882 1/2
          Third Quarter...........................................   960         910
          Fourth Quarter..........................................   950         920
        1996
          First Quarter...........................................  1000         927 1/2
          Second Quarter..........................................  1002 1/2     960
          Third Quarter...........................................  1015         980
          Fourth Quarter (through November 6, 1996)...............  1040        1000
</TABLE>
    
 
   
     The high and low prices of the Common Stock for the last two years,
according to published reports, has been as follows for the periods indicated:
    
 
   
<TABLE>
<CAPTION>
                                  PERIOD                            HIGH         LOW
        ----------------------------------------------------------  ----         ---
        <S>                                                         <C>          <C>
        1994
          Third Quarter...........................................   17 1/2      15 1/2
          Fourth Quarter..........................................   16 7/8      12 3/4
        1995
          First Quarter...........................................   16 1/4      14 5/8
          Second Quarter..........................................   16 1/4      14 1/2
          Third Quarter...........................................   16 5/8      14 5/8
          Fourth Quarter..........................................   16 3/4      13
        1996
          First Quarter...........................................   18 3/4      15 7/8
          Second Quarter..........................................   18 3/8      16 1/8
          Third Quarter...........................................   18 3/4      16 1/2
          Fourth Quarter (through November 6, 1996)...............   20          18 1/8
</TABLE>
    
 
   
     On November 6, 1996, the Common Stock closed at $20.00 per share and the
Debentures closed at $1040 per $1000 principal amount Debenture.
    
 
                                       29
<PAGE>   32
 
                   CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
 
   
     In the opinion of Gibson, Dunn & Crutcher LLP, counsel to the Company, the
following is a summary of certain anticipated material United States federal
income tax considerations to holders of Debentures resulting from the exchange
of Debentures for cash and Common Stock pursuant to the Exchange Offer, and of
the ownership and disposition of Common Stock. The discussion is based upon
laws, regulations, rulings and judicial decisions now in effect, all of which
are subject to change or alternative construction, with possible retroactive
effect. The discussion does not deal with all aspects of taxation that may be
relevant to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders subject to special treatment
under the federal income tax laws, such as insurance companies, tax-exempt
organizations or retirement accounts (except to the extent discussed under the
heading "-- Taxation of Tax-Exempt Shareholders"), financial institutions or
dealers in securities, foreign corporations and persons who are neither citizens
nor residents of the United States (except as discussed under the heading
" -- Taxation of Non-U.S. Shareholders"), nor does it discuss any aspect of
state, local or foreign taxation. The Company has not sought, nor does it intend
to seek, a ruling from the Internal Revenue Service (the "Service" or "IRS")
with respect to any of the matters summarized in this discussion. Therefore,
there is no assurance that the Service or a court would agree with the
conclusions described herein. The discussion is limited to Debentures and Common
Stock held as "capital assets" as defined by the Internal Revenue Code of 1986,
as amended (the "Code").
    
 .
 
     EACH HOLDER OF DEBENTURES IS URGED TO CONSULT WITH ITS OWN TAX ADVISOR TO
DETERMINE THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THE
HOLDER OF THE EXCHANGE OF DEBENTURES FOR COMMON STOCK PURSUANT TO THE EXCHANGE
OFFER, THE TAX CONSEQUENCES TO THE HOLDER OF THE OWNERSHIP AND DISPOSITION OF
SHARES OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REIT, AS WELL AS
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
 
EXCHANGE OF DEBENTURES FOR CASH AND COMMON STOCK
 
     In General.  The federal income tax consequences of the Exchange Offer will
depend primarily on whether the Exchange Offer constitutes a "recapitalization"
for purposes of the Code, which, in turn, will depend on whether the Debentures
are "securities" for federal income tax purposes.
 
   
     The term "security" is not defined in the Code or the regulations issued
thereunder, and has not been clearly defined by court decisions. One of the most
significant factors considered in determining whether a particular debt
instrument is a "security" is the original term thereof. In general, the longer
the term of an instrument, the greater the likelihood that it will be considered
a "security." Because the Debentures have an original term to maturity of seven
years, are subordinated to the claims of senior creditors and are convertible
into Common Stock, the Debentures should be treated as securities for federal
income tax purposes and, except as otherwise indicated, the balance of this
discussion is based on the assumption that such treatment will be respected.
    
 
   
     Accrued Interest.  Cash paid in respect of accrued and unpaid interest on
the Debentures though the closing of the Exchange Offer should be treated as
payment of such accrued and unpaid stated interest for federal income tax
purposes. Assuming that treatment is respected, such amounts would be includible
in the income of the holder, as interest income, to the extent it accrued during
the period the holder held the Debentures and was not previously included in
such holder's income. The balance of this discussion is based on the assumption
that such treatment will be respected.
    
 
   
     If the Debentures are Securities.  If the Debentures are securities for
federal income tax purposes, then a holder of a Debenture (i) would not be
required to recognize any gain upon the exchange of Debentures for Common Stock
pursuant to the Exchange Offer, other than as discussed above in respect of
accrued and unpaid interest, and (ii) would not be permitted to recognize any
loss realized upon the exchange.
    
 
                                       30
<PAGE>   33
 
   
     Assuming the Debentures are securities for federal income tax purposes, (i)
a holder's initial aggregate tax basis in the Common Stock received will be
equal to the holder's adjusted tax basis in the Debentures exchanged therefor,
other than basis attributable to accrued and unpaid stated interest, and (ii) a
holder's holding period in the Common Stock will include the holder's holding
period in the Debentures exchanged therefor. If a holder transfers Debentures
with more than one tax basis and holding period, such holder either may be
treated as having acquired more than one block of Common Stock for purposes of
determining basis and holding period (if such holder properly identifies the
blocks of Debentures surrendered) or as having both an average tax basis and a
split holding period in each share of Common Stock received.
    
 
   
     If the Debentures Are Not Securities.  If the Debentures are not securities
for federal income tax purposes, (i) a holder of Debentures would recognize gain
or loss measured by the difference between (a) the fair market value of the
Common Stock (in addition to any interest income as discussed above), and (b)
the holder's tax basis in the Debentures surrendered, other than basis
attributable to accrued and unpaid stated interest, (ii) subject to the
discussion below under the caption "Market Discount," gain or loss (if any)
recognized by a holder generally would be capital gain or loss, and would be a
long-term capital gain or loss if such holder's holding period exceeded one year
at the time of the exchange, (iii) a holder's initial tax basis in the Common
Stock received would be its fair market value at the date the Exchange Offer is
consummated and (iv) a holder's holding period for the Common Stock received
would begin on the day after the date the Exchange Offer is consummated.
    
 
     Market Discount.  The Code generally requires holders of "market discount
bonds," as defined below, to treat as interest income any gain realized on the
redemption or disposition of such bonds to the extent of the market discount
accrued during the holder's period of ownership (unless the holder has
previously included such discount in income pursuant to an election by such
holder). However, an exception is made for certain tax-free reorganizations.
Therefore, if the Exchange Offer qualifies as a tax-free reorganization (i.e.,
the Debentures are "securities" as discussed above), no market discount will be
includible in income as a result of the exchange of Debentures for Common Stock
pursuant to the Exchange Offer. Under regulations to be promulgated by the
Treasury, accrued market discount with respect to a Debenture as of the
consummation of the Exchange Offer would carry over and be allocated to the
Common Stock and would be treated as ordinary income to the extent of any gain
recognized on the subsequent disposition of such Common Stock. If the Exchange
Offer does not qualify as a tax-free reorganization, accrued market discount
will be includible in income, as interest income, at the consummation of the
Exchange Offer to the extent of any gain recognized by the holder on the
exchange.
 
     Subject to a statutory de minimis exception, a holder will be treated as
owning a market discount bond if such holder purchased his or her Debentures at
a price below the revised issue price of the Debentures. In general, the revised
issue price of a debt instrument equals the original issue price of such
instrument plus the amount of any original issue discount deducted by the issuer
of such instrument.
 
CONSEQUENCES OF THE EXCHANGE OFFER TO NON-EXCHANGING DEBENTURE HOLDERS
 
     Holders of Debentures who do not participate in the Exchange Offer should
have no federal income tax consequences as a result of the Exchange Offer.
 
TAXATION OF THE COMPANY
 
     General.  The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ended
December 31, 1994. The Company believes that it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it has operated or will operate in a manner so as to
qualify or remain qualified.
 
     The sections of the Code and Treasury Regulations governing REITs are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions,
 
                                       31
<PAGE>   34
 
Treasury Regulations and rules promulgated thereunder, and administrative and
judicial interpretations thereof.
 
     The Company's qualification as a REIT depends on the Company having met and
continuing to meet -- through actual operating results, distribution levels and
diversity of stock ownership -- the various qualification tests imposed under
the Code and discussed below. Accordingly, no assurance can be given that the
actual results of the Company's operations for any particular taxable year have
satisfied or will satisfy such requirements. Further, the anticipated federal
income tax treatment described in this Prospectus may be changed, perhaps
retroactively, by legislative, administrative or judicial action at any time.
See "-- Failure to Qualify."
 
     If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) of income that generally
results from an investment in a regular corporation. However, the Company will
be subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed "REIT taxable income" (as defined
below), including undistributed net capital gains. Second, under certain
circumstances the Company may be subject to the "alternative minimum tax" as a
consequence of its items of tax preference to the extent that tax exceeds its
regular tax. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by reason of
default on indebtedness held by the Company) that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business, other than foreclosure property), such income will be subject to a
100% tax. Fifth, if the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the greater
of the amount by which the Company fails the 75% or 95% test, multiplied by (b)
a fraction intended to reflect the Company's profitability. Sixth, if the
Company should fail to distribute during each calendar year at least the sum (i)
85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
net income for such year, and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, with
respect to any asset (a "Built-in Gain Asset") acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in certain transactions in which the basis
of the Built-in Gain Asset in the hands of the Company is determined by
reference to the basis of the asset in the hands of the C corporation, if the
Company recognizes gain on the disposition of such asset during the 10-year
period (the "Recognition Period") beginning on the date on which such asset was
acquired by the Company, then, to the extent of the Built-in Gain (i.e., the
excess of (a) the fair market value of such asset over (b) the Company's
adjusted basis in such asset, determined as of the beginning of the Recognition
Period), such gain will be subject to tax at the highest regular corporate rate
pursuant to IRS regulations that have not yet been promulgated.
 
   
     Requirements for Qualification.  The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) in which during the last half of each taxable year not
more than 50% in value of its outstanding stock is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) do not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
    
 
                                       32
<PAGE>   35
 
     The Company believes that it has issued sufficient shares to allow it to
satisfy conditions (v) and (vi). In addition, the Company's Certificate of
Incorporation provides for restrictions regarding the transfer and ownership of
shares, which restrictions are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and (vi) above. These
restrictions may not ensure that the Company will, in all cases, be able to
satisfy the share ownership requirements described above. If the Company fails
to satisfy such share ownership requirements, the Company's status as a REIT
will terminate. See "Failure to Qualify."
 
     To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year from
the record holders of certain percentages of its shares of stock in which the
record holders are to disclose the actual owners of the shares (i.e., the
persons required to include in gross income the REIT dividends). A REIT with
2,000 or more record shareholders must demand statements from record holders of
5% or more of its shares, one with less than 2,000, but more than 200 record
shareholders must demand statements from record holders of 1% or more of the
shares, while a REIT with 200 or fewer record shareholders must demand
statements from record holders of 0.5% or more of the shares. A list of those
persons failing or refusing to comply with this demand must be maintained as
part of the Company's records. A shareholder who fails or refuses to comply with
the demand must submit a statement with its tax return disclosing the actual
ownership of the shares and certain other information.
 
     In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the assets tests, discussed below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of PGP Inland Communities, L.P., the Company's subsidiary operating partnership
(the "Operating Partnership"), are treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described
herein. The Company controls the Operating Partnership and believes it has
operated the Operating Partnership in a manner consistent with the requirements
for qualification as a REIT, and intends to continue to operate the Operating
Partnership in such a manner. However, there can be no assurance that the
Company has operated or will actually operate the Operating Partnership in a
manner that has enabled or will enable the Company to continue to satisfy the
REIT provisions of the Code.
 
     Income Tests.  In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived directly
or indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived from
items of income that qualify under the 75% test, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, gain from the sale or other disposition of stock or
securities held for less than one year, gain from certain sales of real property
held primarily for sale and gain from the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income for each taxable year.
 
     Rents received by the Company qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income test if the Company,
or an owner of 10% or more of the Company, actually or constructively owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15%
 
                                       33
<PAGE>   36
 
of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the Company generally must not operate or manage the property or furnish or
render services to the tenants of such property, other than through an
independent contractor from whom the Company derives no revenue, provided,
however, the Company may directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and not otherwise considered "rendered to the occupant" of the property. The
Company regularly monitors its activities to ensure that the foregoing tests are
satisfied.
 
     The Company receives fees in exchange for management services rendered to
the Operating Partnership. Although the percentage of those fees exceeding the
Company's capital interest in the Operating Partnership will not qualify under
the 75% or 95% gross income tests, the Company believes that the aggregate
amount of such income (together with any other nonqualifying income) in any
taxable year has not exceeded and will not exceed the limits on nonqualifying
income under the gross income tests.
 
     If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches to its return for that year a schedule of the nature and amount
of each item of its income and (iii) any incorrect information on the schedule
was not due to fraud with intent to evade tax. However, in the event the Company
does not meet these tests, the Company would not be entitled to the benefit of
these relief provisions. If these relief provisions are inapplicable to a
particular set of circumstances involving the Company, the Company will not
qualify as a REIT. As discussed above in "-- General," even if these relief
provisions apply, a tax would be imposed with respect to the excess
nonqualifying income. There are no comparable relief provisions which could
mitigate the consequences of a failure to satisfy the 30% gross income test.
 
     Asset Tests.  The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and government securities.
Second, not more than 25% of Company's total assets may be represented by
securities other than those included in the 75% asset test. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities. In applying these tests, the Company will be
deemed to own a proportionate share of any assets owned, directly or indirectly,
by the Operating Partnership based on its capital interest in the Operating
Partnership.
 
   
     The Company believes that it has complied and will continue to comply with
the asset tests, since substantially all of the Company's investments represent
qualifying real estate assets, including the Company's share of the assets of
the Operating Partnership.
    
 
     Annual Distribution Requirements.  The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. "REIT taxable income" for any year means the taxable
income of the Company for such year (excluding any net income derived either
from property held primarily for sale to customers or from foreclosure
property), subject to certain adjustments provided in the REIT provisions of the
Code. In addition, if the Company disposes of any Built-in Gain Asset during
such asset's Recognition Period, the Company will be required, pursuant to IRS
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or
 
                                       34
<PAGE>   37
 
before the first regular dividend payment after such declaration. The Company
intends to make, and to cause the Operating Partnership to make, timely
distributions sufficient to satisfy these annual distribution requirements. To
the extent that the Company does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its REIT taxable income, as
adjusted, it will be subject to tax thereon at regular capital gain and ordinary
corporate tax rates.
 
     It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements described
above due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if nondeductible
capital expenditures such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange, or to cause the Operating Partnership to
arrange, for short-term or long-term borrowing, to sell assets, or to pay
dividends in the form of taxable stock dividends.
 
     Under certain circumstances, the Company may be able to rectify a failure
to meet the above distribution requirements for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.
 
     Furthermore, if the Company should fail to distribute each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year and (iii) any undistributed taxable
income from prior periods, the Company will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. Any
REIT taxable income and capital gains on which tax is imposed for any year is
treated as an amount distributed during that year for purposes of this excise
tax.
 
FAILURE TO QUALIFY
 
     If the Company should fail to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
rates applicable to regular C corporations. Distributions to shareholders in any
year in which the Company fails to qualify as a REIT will not be deductible by
the Company nor will they be required to be made. As a result, the Company's
failure to qualify as a REIT will reduce the cash available for distribution by
the Company to shareholders. In addition, if the Company fails to qualify as a
REIT, all distributions to shareholders will be taxable as ordinary income to
the extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief. In addition, a recent
federal budget proposal contains language which, if enacted, would result in the
immediate taxation of all gain inherent in a C corporation's assets upon an
election by the corporation to become a REIT, and thus would effectively
preclude the Company from re-electing REIT status following a termination of its
REIT qualification.
 
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
 
     As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are properly designated
by the Company as capital gain dividends will be taxed as long-term capital gain
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income. Distributions (not
designated as capital gain dividends) in excess of current and accumulated
earnings and profits will be treated as tax-free returns of capital to the
extent of the shareholder's basis in
 
                                       35
<PAGE>   38
 
the shares, and will reduce the adjusted basis of such shares (but not below
zero). To the extent distributions in excess of current and accumulated earnings
and profits exceed the basis of a shareholder's shares they will be included in
income as long-term capital gain (or short-term capital gain if the shares have
been held for one year or less), assuming the shares are a capital asset in the
hands of the shareholder. In addition, any dividend declared by the Company in
October, November or December of any year payable to a shareholder of record on
a specified date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Shareholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
 
     Upon any sale or other disposition of shares, a domestic shareholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares for tax purposes. In general, provided the shares
were held as a capital asset, any gain or loss realized on a taxable disposition
of shares will be treated as long-term capital gain or loss if the shares have
been held for more than 12 months and otherwise as short-term capital gain or
loss. However, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
 
INFORMATION REPORTING AND BACKUP WITHHOLDING
 
     The Company reports to its domestic shareholders and the IRS the amount of
dividends paid with respect to each calendar year, and the amount of tax
withheld therefrom, if any. Under the backup withholding rules, a shareholder
may be subject to backup withholding at a rate of 31% with respect to dividends
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount withheld under the backup withholding rules will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions made
to any shareholders who fail to certify to their non-foreign status to the
Company. See "-- Taxation of Non-U.S. Shareholders."
 
TAXATION OF TAX-EXEMPT SHAREHOLDERS
 
     The IRS has ruled that amounts distributed as dividends by a REIT do not
constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, dividend income from the Company should
not, subject to certain exceptions described below, be UBTI to a qualified plan,
IRA or other tax-exempt entity (a "Tax-Exempt Shareholder") provided the
Tax-Exempt Shareholder has not held its shares as "debt financed property"
within the meaning of Section 514 of the Code and the shares are not otherwise
used in an unrelated trade or business of the Tax-Exempt Shareholder. Similarly,
income from the sale of Common Stock should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Shareholder has held such
Common Stock as a dealer (under Section 512(b)(5)(B) of the Code) or as
"debt-financed property."
 
     For Tax-Exempt Shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
 
   
     Notwithstanding the above, however, a portion of the dividends paid by the
Company will be treated as UBTI to certain trusts if the Company is treated as a
"pension held REIT." A trust will be subject to this rule
    
 
                                       36
<PAGE>   39
 
if it (i) is described in Section 401(a) of the Code, (ii) is tax-exempt under
Section 501(a) of the Code and (iii) holds more than 10% (by value) of the
interests in the REIT. Tax-exempt pension funds that are described in Section
401(a) of the Code are referred to below as "qualified trusts."
 
     The Company will be treated as a "pension held REIT" if (i) it would not
have qualified as a REIT but for the fact that Section 856(h)(3) of the Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the "five or fewer" shareholder requirement (discussed above), as owned by the
beneficiaries of the trust (rather than by the trust itself) and (ii) either (a)
at least one such qualified trust holds more than 25% (by value) of the
interests in the Company or (b) one or more such qualified trusts, each of whom
owns more than 10% (by value) of the interests in the Company, hold in the
aggregate more than 50% (by value) of the interests in the Company. The Company
believes that it has not been, and is not, a "pension held REIT."
 
TAXATION OF NON-U.S. SHAREHOLDERS
 
     The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax law and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income and
other tax laws with regard to an investment in Common Stock, including any
reporting requirements.
 
     Distributions.  Distributions by the Company to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions generally will be subject to withholding of United
States federal income tax at a 30% rate on the total amount distributed unless
an applicable income tax treaty reduces or eliminates that tax. However,
dividends that are "effectively connected" with the conduct of a trade or
business by the Non-U.S. Shareholder will be subject to tax on a net basis at
graduated rates, in the same manner as domestic shareholders are taxed with
respect to such dividends, and are generally not subject to withholding. Any
such "effectively connected" dividends received by a Non-U.S. Shareholder that
is a corporation may also be subject to an additional branch profits tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
 
     Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of ascertaining the requirement of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations not currently in effect, however, a Non-U.S.
Shareholder who seeks to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification and other requirements. Under certain
treaties, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT, such as the Company. A Non-U.S. Shareholder must file
a properly completed and executed IRS Form 4224 (or, under proposed regulations
not currently in effect, IRS Form W-8) with the Company's withholding agent
certifying that the investment to which the distribution relates is effectively
connected with the conduct of a United States trade or business of such Non-U.S.
Shareholder in order to qualify for the exemption from withholding under the
effectively connected income exemption discussed above.
 
     Distributions that are neither attributable to gain from sales or exchanges
by the Company of United States real property interests nor designated by the
Company as capital gains dividends and that are in excess of current or
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's Common Stock, but rather will reduce the adjusted basis of
such Common Stock. To the extent such distributions in excess of the Company's
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's Common
 
                                       37
<PAGE>   40
 
Stock, they will give rise to gain from the sale or exchange of the Common
Stock, the tax treatment of which is described below. Under current Treasury
Regulations, if it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current or accumulated
earnings and profits, the entire distribution will generally be treated as a
dividend subject to withholding. However, amounts thus withheld are generally
refundable if it is subsequently determined that such distribution was, in fact,
in excess of current or accumulated earnings and profits of the Company. Under
proposed regulations not currently in effect, the Company may, at its option,
make a reasonable estimate of the portion of a distribution that is out of
current or accumulated earnings and profits and withhold only with respect to
such portion, although any such determination would not affect the Non-U.S.
Shareholder's liability for the 30% tax on the amount ultimately determined to
have been distributed out of the Company's current or accumulated earnings and
profits.
 
     Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
attributable to gain from sales or exchanges by the Company of United States
real property interests) generally will not be subject to United States federal
income taxation unless (i) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
domestic shareholders with respect to such gain (except that a shareholder that
is a foreign corporation may also be subject to the 30% branch profits tax, as
discussed above) or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and either has a "tax home" in the United States or sold his shares
under circumstances where the sale is attributable to a U.S. office, in which
case the nonresident alien individual will be subject a 30% tax on the
individual's capital gains.
 
     Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
be treated as income that is effectively connected with a United States trade or
business of the Non-U.S. Shareholder. Non-U.S. Shareholders would thus generally
be taxed on such distributions at the same rates applicable to domestic
shareholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a corporate Non-U.S. Shareholder that is not
entitled to a treaty exemption or rate reduction. The Company is required to
withhold 35% of any such distribution, and the withheld amount is creditable
against the Non-U.S. Shareholder's United States federal income tax liability.
 
     Sale of Shares of Common Stock.  Gain recognized by a Non-U.S. Shareholder
upon a sale or other disposition of shares of Common Stock generally will not be
subject to United States federal income tax unless (i) the Company is not a
"domestically controlled REIT," or (ii) the investment in the shares of Common
Stock is effectively connected with the Non-U.S. Shareholder's United States
trade or business or (iii) in the case of a Non-U.S. Shareholder who is a
nonresident alien individual, the individual is present in the United States for
183 days or more during the taxable year and either has a "tax home" in the
United States or sold his shares under circumstances where the sale is
attributable to a U.S. office. A domestically controlled REIT is defined
generally as a REIT in which at all times during a specified testing period less
than 50% in value of the stock was held directly or indirectly by foreign
persons. The Company currently believes that it is a domestically controlled
REIT. However, because the Company's Common Stock is publicly traded, no
assurance can be given that the Company is or will continue to be a
domestically-controlled REIT. In the circumstances described above in clauses
(i) and (ii), the Non-U.S. Shareholders will generally be subject to the same
treatment as domestic shareholders with respect to such gain (subject to a
special alternative minimum tax in the case of nonresident alien individuals in
the circumstances described above in clause (i) and, in the case of foreign
corporations, subject to the possible application of the 30% branch profits tax,
discussed above). In the circumstances described above in clause (iii), the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
 
     Information Reporting and Backup Withholding.  The Company must report
annually to the IRS and to each Non-U.S. Shareholder the amount of distributions
subject to withholding as described above and the tax withheld with respect to
such distributions, regardless of whether withholding is actually required.
Copies of the information returns reporting such distributions and withholding
may also be made available to the tax
 
                                       38
<PAGE>   41
 
authorities in the country in which the Non-U.S. Shareholder resides under the
provisions of an applicable income tax treaty. Additional issues may arise
pertaining to information reporting and backup withholding for Non-U.S.
Shareholders. Non-U.S. Shareholders should consult their tax advisors with
regard to U.S. information reporting and backup withholding.
 
TAX RISKS ASSOCIATED WITH OWNING AN INTEREST IN THE OPERATING PARTNERSHIP
 
     The Company owns an interest in the Operating Partnership. The ownership of
an interest in the Operating Partnership may involve special tax risks,
including the possible challenge by the IRS of (i) allocations of income and
expense items, which could affect the computation of taxable income of the
Company and (ii) the status of the Operating Partnership as a partnership (as
opposed to an association taxable as a corporation) for federal income tax
purposes. If the Operating Partnership is treated as an association taxable as a
corporation for federal income tax purposes, the Operating Partnership would be
treated as a taxable entity. In addition, in such a situation, (i) if the
Company owned more than 10% of the outstanding voting securities of the
Operating Partnership, or the value of such securities exceeded 5% of the value
of the Company's assets, the Company would fail to satisfy the asset tests
described above and would therefore fail to qualify as a REIT, (ii)
distributions from the Operating Partnership to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross income
test described above and would, therefore, preclude the Company from satisfying
such test, (iii) the interest in the Operating Partnership held by the Company
would not qualify as a "real estate asset," which could preclude the Company
from meeting the 75% asset test described above and (iv) the Company would not
be able to deduct its share of any losses generated by the Operating Partnership
in computing its taxable income. See "-- Failure to Qualify" for a discussion of
the effect of the Company's failure to meet such tests for a taxable year.
 
     Although the Company believes it will be so treated, the Operating
Partnership has not requested, and does not intend to request, a ruling from the
IRS that it will be treated as a partnership for federal income tax purposes. No
assurance can be given that the IRS will not challenge the status of the
Operating Partnership as a partnership for federal income tax purposes. If such
a challenge were sustained by a court, the Operating Partnership could be
treated as a corporation for federal income tax purposes.
 
OTHER TAX CONSEQUENCES
 
     The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
 
                                       39
<PAGE>   42
 
                                 MISCELLANEOUS
 
     WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
 
     No vote of stockholders is necessary for consummation of the Exchange
Offer, and holders of Debentures who do not tender their Debentures pursuant to
the Exchange Offer will have no appraisal rights under applicable state law or
otherwise.
 
     The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Debentures in any jurisdiction in which the making
or acceptance thereof would not be in compliance with the laws of such
jurisdiction. In any jurisdiction where securities or blue sky laws require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is
being made on behalf of the Company by one or more registered brokers or dealers
licensed under the laws of such jurisdictions.
 
     No person has been authorized to give any information or make any
representation on behalf of the Company other than as contained in this
Prospectus or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized.
 
                                 LEGAL MATTERS
 
   
     The validity of the shares of Common Stock issued pursuant to the Exchange
Offer will be passed upon for the Company by Piper & Marbury L.L.P., Maryland
counsel to the Company. Certain tax matters described in "Certain Federal Income
Tax Considerations" will be passed upon for the Company by Gibson, Dunn &
Crutcher LLP, counsel to the Company.
    
 
                                       40
<PAGE>   43
 
                          PACIFIC GULF PROPERTIES INC.
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
  Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996..................  F-3
  Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended
     June 30, 1996....................................................................  F-4
  Pro Forma Condensed Consolidated Statement of Operations For the Year Ended December
     31, 1995.........................................................................  F-5
  Notes to Pro Forma Condensed Consolidated Financial Statements......................  F-6
</TABLE>
 
                                       F-1
<PAGE>   44
 
                          PACIFIC GULF PROPERTIES INC.
 
             PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
     Pacific Gulf Properties, Inc. (the "Company") was incorporated in Maryland
in 1993 and operates as a real estate investment trust under the Internal
Revenue Code of 1986, as amended. The Company commenced operations in February
1994 upon the completion of its initial public offering of 3,900,000 shares of
Common Stock. Since its initial public offering through June 30, 1996, the
Company has issued 3,416,860 additional shares of common Stock, including
2,435,481 shares of Common Stock issued in connection with its latest offering
in May 1996 (the "May 1996 Offering"). Proceeds from the May 1996 Offering have
been used by the Company to acquire nine additional industrial properties
located in California containing 1,342,000 leasable square feet (the
"Acquisition Properties"), eight of which were acquired by June 30, 1996.
Through this Offer to Exchange (the "Exchange Offer"), the Company is offering
to exchange its 8.375% Convertible Subordinated Debentures Due 2001 with an
outstanding principal balance of $56,506,000 at June 30, 1996 (the "Debentures")
for Common Stock of the Company. If all debenture holders accept the Company's
Exchange Offer, the Company will issue 3,277,348 additional shares of Common
Stock (based on 58 shares of Common Stock per $1,000 principal amount of
Debentures).
 
     The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of June 30, 1996 is based on the unaudited historical financial statements of
the Company and has been prepared as if each of the following transactions had
occurred as of June 30, 1996: (i) the completion of this Exchange Offer for the
exchange of the Company's Debentures into shares of Common Stock as more fully
described in this Prospectus, and (ii) the purchase of the remaining Acquisition
Property. The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1995 is based on the historical
financial statements of the Company and has been prepared as if each of the
following transactions had occurred as of the beginning of the period presented:
(i) the purchases completed by the Company during 1995 consisting of 12
multifamily properties and one industrial property containing approximately
475,000 leasable square feet located in Seattle, Washington (the "1995
Acquisitions"), (ii) the sale of the Company's four multifamily properties
located in Texas, which occurred in November 1995 (the "Texas Dispositions"),
(iii) the purchase completed by the Company in March 1996 of an industrial
property containing approximately 189,000 leasable square feet located in Garden
Grove, California (the "Pacific Gulf Business Park"), (iv) the purchase of the
Acquisition Properties completed by the Company during June and July 1996, and
(v) the completion of the May 1996 Offering and the establishment of a line of
credit for the purchase of the Acquisition Properties and (vi) the completion of
this to Exchange Offer for the exchange of the Company's Debentures into shares
of Common Stock as more fully described in this Prospectus. The unaudited Pro
Forma Condensed Consolidated Statement of Operations for the six months ended
June 30, 1996 is based on the historical financial statements of the Company and
has been prepared as if each of the following transactions had occurred as of
the beginning of the period presented: (i) the purchase completed by the Company
in March 1996 of the Pacific Gulf Business Park, (ii) the purchase of the
Acquisition Properties, and (iii) the completion of the May 1996 Offering and
the establishment of a line of credit for the purchase of the Acquisition
Properties and (iv) the completion of this Exchange Offer for the exchange of
the Company's Debentures into shares of Common Stock as more fully described in
this Prospectus.
 
     The following pro forma information is not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the completion of the described transactions as of the beginning of the
periods indicated, nor does it purport to project the Company's financial
position or results of operations at any future date or for any future period.
In addition, the historical operating results for the six months ended June 30,
1996 are not necessarily indicative of the results to be obtained by the Company
for the year ending December 31, 1996. The following information should be read
in conjunction with the Company's annual report on Form 10-K, as amended, and
all of the financial information and notes thereto contained elsewhere in this
Prospectus or incorporated therein by reference.
 
                                       F-2
<PAGE>   45
 
                          PACIFIC GULF PROPERTIES INC.
 
                 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                                 JUNE 30, 1996
                                  (UNAUDITED)
                                 (IN THOUSANDS)
 
   
<TABLE>
<CAPTION>
                                                                  PRO FORMA
                                   COMPANY      PRO FORMA          BEFORE        EXCHANGE OF         COMPANY
                                  HISTORICAL   ADJUSTMENTS        EXCHANGE       DEBENTURES         PRO FORMA
                                  ----------   -----------      -------------   -------------       ---------
<S>                               <C>          <C>              <C>             <C>                 <C>
ASSETS
Real estate, net................   $ 330,432     $ 6,442(A)       $ 336,874       $      --         $ 336,874
Cash and cash equivalents.......      13,115      (6,442)(A)          6,673          (2,722)(B)         3,951
Accounts receivable.............       1,168          --              1,168              --             1,168
Other assets....................       6,207          --              6,207          (1,967)(D)         4,240
                                    --------     -------           --------        --------          --------
                                   $ 350,922     $    --          $ 350,922       $  (4,689)        $ 346,233
                                    ========     =======           ========        ========          ========
LIABILITIES AND SHAREHOLDERS'
  EQUITY
Loans payable...................   $ 138,114     $    --          $ 138,114       $      --         $ 138,114
Line of credit..................      38,644          --             38,644              --            38,644
Accounts payable and accrued
  liabilities...................       7,351          --              7,351          (1,972)(B)         5,379
Dividends payable...............       2,928          --              2,928              --             2,928
Convertible subordinated
  debentures....................      55,685          --             55,685         (55,685)(C)            --
                                    --------     -------           --------        --------          --------
                                     242,722          --            242,722         (57,657)          185,065
Minority interest in
  consolidated partnership......       3,518          --              3,518              --             3,518
Shareholders' equity
  Common shares.................          74          --                 74              33(D)            107
  Outstanding restricted
     stock......................        (960)         --               (960)             --              (960)
  Additional paid-in capital....     114,872          --            114,872          57,796(D)        172,668
  Distributions in excess of
     earnings...................      (9,304)         --             (9,304)         (4,861)(E)       (14,165)
                                    --------     -------           --------        --------          --------
                                     104,682          --            104,682          52,968           157,650
                                    --------     -------           --------        --------          --------
                                   $ 350,922     $    --          $ 350,922       $  (4,689)        $ 346,233
                                    ========     =======           ========        ========          ========
</TABLE>
    
 
     The accompanying notes are an integral part of the pro forma financial
                                  statements.
 
                                       F-3
<PAGE>   46
 
                          PACIFIC GULF PROPERTIES INC.
 
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1996
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                 PRO FORMA
                                     COMPANY       PRO FORMA       BEFORE       EXCHANGE OF       COMPANY
                                    HISTORICAL    ADJUSTMENTS     EXCHANGE      DEBENTURES      PRO FORMA(O)
                                    ----------    -----------    ----------    -------------    ------------
<S>                                 <C>           <C>            <C>           <C>              <C>
REVENUES
Rental income
  Multifamily properties..........   $  14,301       $   --        $14,301        $    --        $   14,301
  Industrial properties...........       8,399        3,412(F)      11,811             --            11,811
                                     ---------       ------        -------        -------        ----------
                                        22,700        3,412         26,112             --            26,112
EXPENSES
Rental property expenses
  Multifamily properties..........       5,693           --          5,693             --             5,693
  Industrial properties...........       2,078          881(F)       2,959             --             2,959
                                     ---------       ------        -------        -------        ----------
                                         7,771          881          8,652             --             8,652
Depreciation......................       3,805          384(G)       4,189             --             4,189
Interest (including amortization
  of financing costs).............       8,831          758(H)       9,589         (2,652)(L)         6,937
General and administrative........       1,348           --          1,348             --             1,348
                                     ---------       ------        -------        -------        ----------
                                        21,755        2,023         23,778         (2,652)           21,126
                                     ---------       ------        -------        -------        ----------
NET INCOME........................   $     945       $1,389        $ 2,334        $(2,652)       $    4,986
                                     =========       ======        =======        =======        ==========
WEIGHTED AVERAGE COMMON
  SHARES(M)(N)....................   5,263,212                                                   10,577,907
                                     =========                                                   ==========
NET INCOME PER COMMON SHARE.......   $     .18                                                   $      .47
                                     =========                                                   ==========
</TABLE>
 
     The accompanying notes are an integral part of the pro forma financial
                                  statements.
 
                                       F-4
<PAGE>   47
 
                          PACIFIC GULF PROPERTIES INC.
 
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1995
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                PRO FORMA
                                    COMPANY       PRO FORMA       BEFORE       EXCHANGE OF       COMPANY
                                   HISTORICAL    ADJUSTMENTS     EXCHANGE      DEBENTURES      PRO FORMA(O)
                                   ----------    -----------    ----------    -------------    ------------
<S>                                <C>           <C>            <C>           <C>              <C>
REVENUES
Rental income
  Multifamily properties.........  $   24,898      $ 2,948(I)     $27,846        $    --       $    27,846
  Industrial properties..........      12,193       11,105(I)      23,298             --            23,298
                                   ----------      -------        -------        -------       -----------
                                       37,091       14,053         51,144             --            51,144
                                   ----------      -------        -------        -------       -----------
EXPENSES
Rental property expenses
  Multifamily properties.........      10,215        1,476(I)      11,691             --            11,691
  Industrial properties..........       2,567        3,801(I)       6,368             --             6,368
                                   ----------      -------        -------        -------       -----------
                                       12,782        5,277         18,059             --            18,059
Depreciation.....................       6,081        1,724(J)       7,805             --             7,805
Interest (including amortization
  of financing costs)............      14,066        5,261(K)      19,327         (5,298)(L)        14,029
General and administrative.......       2,423           --          2,423             --             2,423
                                   ----------      -------        -------        -------       -----------
                                       35,352       12,262         47,614         (5,298)           42,316
                                   ----------      -------        -------        -------       -----------
INCOME BEFORE GAIN ON SALE OF
  PROPERTIES(P)..................  $    1,739      $ 1,791        $ 3,530        $(5,298)      $     8,828
                                   ==========      =======        =======        =======       ===========
WEIGHTED AVERAGE COMMON SHARES...   4,830,723                                                   10,543,652
                                   ==========                                                  ===========
INCOME BEFORE GAIN ON SALE OF
  PROPERTIES PER COMMON SHARE....  $      .36                                                  $       .84
                                   ==========                                                  ===========
</TABLE>
 
     The accompanying notes are an integral part of the pro forma financial
                                  statements.
 
                                       F-5
<PAGE>   48
 
                          PACIFIC GULF PROPERTIES INC.
 
         NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(A) Purchase of Riverview Industrial Park (297,180 leasable square feet) and the
    last of the Acquisition Properties which was purchased by the Company in
    July 1996 utilizing proceeds from the May 1996 Offering.
 
(B)  Payment of (i) accrued and unpaid interest of $1,972 to holders of the
     Debentures pursuant to the Exchange Offer and (ii) transaction costs of
     $750 including underwriting, proxy solicitation, transfer taxes and legal
     expenses.
 
(C) Exchange of all of the Company's outstanding Debentures ($56,506 aggregate
    principal amount net of unamortized debenture discount of $821) into shares
    of Common Stock pursuant to the Exchange Offer.
 
(D) Issuance of 3,277,348 shares of Common Stock in exchange for all of the
    outstanding Debentures as follows:
 
   
<TABLE>
        <S>                                                                  <C>
        Common stock, $.01 par value.......................................  $    33
        Additional paid-in capital.........................................   57,796
                                                                             -------
                                                                             $57,829
                                                                             =======
</TABLE>
    
 
     Par value is calculated as follows:
 
   
<TABLE>
<CAPTION>
                                                              SHARES PER $1
                                                             PRINCIPAL AMOUNT
                                                              OF DEBENTURES         TOTAL
                                                             ----------------     ----------
     <S>                                                     <C>                  <C>
     Shares issued pursuant to:
       Original conversion terms...........................       53.6986          3,034,293
       Excess shares ("Sweetener").........................        4.3014            243,055
                                                                  -------         ----------
       Total shares........................................       58.0000          3,277,348
     Par value per share...................................                       $      .01
                                                                                  ----------
     Par value of Common Stock (in thousands)..............                       $       33
                                                                                  ==========
     Additional paid-in capital is calculated as follows:
     Principal amount of debentures tendered...............                          $56,506
     Issuance of excess shares as a Sweetener(E)...........                            4,861
     Less: Unamortized debenture discount..................                             (821)
          Unamortized debenture issuance costs.............                           (1,967)
          Transaction costs................................                             (750)
                                                                                      57,829
     Less: par value of Common Stock.......................                              (33)
     Additional paid-in capital (in thousands).............                          $57,796
</TABLE>
    
 
   
(E)  Loss on exchange of the Debentures resulting from the issuance of 243,055
     excess shares as a Sweetener at $20.00 per share (the estimated closing
     price per share on the date of exchange).
    
 
                                       F-6
<PAGE>   49
 
                          PACIFIC GULF PROPERTIES INC.
 
 NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(F)  Revenues and certain expenses of the following industrial properties for
     the period prior to their acquisition by the Company, adjusted to reflect
     increased property taxes based on the properties' acquisition cost and
     current property tax rates:
 
<TABLE>
<CAPTION>
                                                         PACIFIC GULF      ACQUISITION
                                                         BUSINESS PARK     PROPERTIES      TOTAL
                                                         -------------     -----------     ------
    <S>                                                  <C>               <C>             <C>
    Rental income......................................      $195            $3,217       $3,412
    Rental property expenses...........................        72               809          881
                                                             ----            ------       ------
                                                             $123            $2,408       $2,531
                                                             ====            ======       ======
</TABLE>
 
(G) Depreciation relating to Pacific Gulf Business Park and the Acquisition
    Properties computed utilizing the remaining estimated useful lives of
    approximately 40 years and the depreciable basis of the properties for the
    period prior to their acquisition as follows:
 
<TABLE>
<CAPTION>
                                                        PURCHASE     DEPRECIABLE     DEPRECIATION
                         PROPERTY                        PRICE          BASIS          EXPENSE
    --------------------------------------------------  --------     -----------     ------------
    <S>                                                 <C>          <C>             <C>
    Pacific Gulf Business Park........................   $ 6,800       $ 3,009           $ 16
    Acquisition Properties
      Eden Landing Commerce Park......................     7,300         5,460             56
      Riverview Industrial Park.......................     6,442         5,281             66
      Bay San Marcos Industrial Center................     4,678         2,942             32
      Escondido Business Center.......................    10,372         6,523             70
      Bell Ranch Industrial Park......................     3,750         3,000             35
      North County Business Park......................     6,350         3,169             35
      San Marcos Commerce Center......................     2,710         1,871             20
      Pacific Park....................................     6,900         3,001             28
      La Mirada Business Center.......................     3,600         2,453             26
                                                         -------       -------           ----
                                                          52,102        33,700            368
                                                         -------       -------           ----
                                                         $58,902       $36,709           $384
                                                         =======       =======           ====
</TABLE>
 
(H) Interest expense on the borrowings utilized to finance the purchase of
    Pacific Gulf Business Park in March 1996 and the purchase of the Acquisition
    Properties in June and July 1996, for the period prior to their acquisition,
    calculated based on the actual interest rates of the specific new borrowings
    as follows:
 
<TABLE>
<CAPTION>
                                                                                         INTEREST
                          PROPERTY                          DEBT       INTEREST RATE     EXPENSE
    -----------------------------------------------------  -------     -------------     -------
    <S>                                                    <C>         <C>               <C>
    Pacific Gulf Business Park...........................  $ 8,000          7.3%           $122
    Acquisition Properties...............................   19,475          7.5%            634
    Amortization of related loan fees and costs..........                                     2
                                                                                           ----
                                                                                           $758
                                                                                           ====
</TABLE>
 
     The Company borrowed $8,000 to finance the acquisition of Pacific Gulf
     Business Park which was collateralized by another property. A total of
     $6,800 of the borrowing was used to purchase the property. The remaining
     proceeds were used to rehabilitate the property.
 
     The Acquisition Properties were financed utilizing borrowings under the
     Company's acquisition line of credit. The interest expense on these
     borrowings is calculated for the period indicated at an interest rate of
     LIBOR plus 2%, the actual rate on the date of the borrowings. A .125%
     change in the interest rate on all of the Company's variable rate debt
     would increase the Company's pro forma interest expense by $26,000 for the
     six months ended June 30, 1996.
 
                                       F-7
<PAGE>   50
 
                          PACIFIC GULF PROPERTIES INC.
 
 NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(I)  Actual revenues and certain expenses of the following multifamily and
     industrial properties for the period prior to their acquisition or disposal
     by the Company:
 
<TABLE>
<CAPTION>
                                        1995       PACIFIC GULF    ACQUISITION      TEXAS
                                    ACQUISITIONS   BUSINESS PARK   PROPERTIES    DISPOSITIONS     TOTAL
                                    ------------   -------------   -----------   ------------    -------
      <S>                           <C>            <C>             <C>           <C>             <C>
      Rental income
        Multifamily...............     $ 8,426          $ --          $   --        $(5,478)     $ 2,948
        Industrial................       3,272           724           7,109             --       11,105
                                       -------          ----          ------        -------      -------
                                        11,698           724           7,109         (5,478)      14,053
                                       -------          ----          ------        -------      -------
      Rental property expenses
        Multifamily...............       3,878            --              --         (2,402)       1,476
        Industrial................       1,317           378           2,106             --        3,801
                                       -------          ----          ------        -------      -------
                                         5,195           378           2,106         (2,402)       5,277
                                       -------          ----          ------        -------      -------
                                       $ 6,503          $346          $5,003        $(3,076)     $ 8,776
                                       =======          ====          ======        =======      =======
</TABLE>
 
(J)  Depreciation expense of $2,257 relating to the 1995 Acquisitions, Pacific
     Gulf Business Park and the Acquisition Properties, net of the reduction in
     depreciation due to the Texas Dispositions of $533 (the actual depreciation
     relating to the Texas Dispositions for the period prior to their disposal).
     The depreciation expense relating to the 1995 Acquisitions, Pacific Gulf
     Business Park and the Acquisition Properties for the period prior to their
     acquisition, computed utilizing the remaining estimated useful lives and
     depreciable basis of the properties follows:
 
<TABLE>
<CAPTION>
                                                        PURCHASE    DEPRECIABLE    DEPRECIATION
                          PROPERTY                       PRICE         BASIS         EXPENSE
      ------------------------------------------------  --------    -----------    ------------
      <S>                                               <C>         <C>            <C>
      40-Year Life Property
        1995 Acquisitions
           Konwiser Acquisition Properties............  $ 71,469      $52,281         $  817
           Heatherwood Apartments.....................    12,500       10,000            222
           Tukwila Business Park......................    17,250       11,019            264
        Pacific Gulf Business Park....................     6,800        3,009             75
        Acquisition Properties
           Eden Landing Commerce Park.................     7,300        5,460            137
           Riverview Industrial Park..................     6,442        5,281            132
           Bay San Marcos Industrial Center...........     4,678        2,942             73
           Escondido Business Center..................    10,372        6,527            164
           Bell Ranch Industrial Park.................     3,750        3,000             75
           North County Business Park.................     6,350        3,169             79
           San Marcos Commerce Center.................     2,710        1,871             47
           Pacific Park...............................     6,900        3,001             75
           La Mirada Business Center..................     3,600        2,453             61
      5-Year Life Property
        Personal Property.............................       289          289             36
                                                                                      ------
                                                                                      $2,257
                                                                                      ======
</TABLE>
 
(K) Interest expense of $6,007 relating to the 1995 Acquisitions, Pacific Gulf
    Business Park, and the Acquisition Properties, less reduction of interest
    expense resulting from the Texas Dispositions of $746 (the actual interest
    relating to the Texas Dispositions for the year ended December 31, 1995).
    The
 
                                       F-8
<PAGE>   51
 
                          PACIFIC GULF PROPERTIES INC.
 
 NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     interest expense associated with the borrowings used to finance the
     purchase of the 1995 Acquisitions, Pacific Gulf Business Park and the
     purchase of the Acquisition Properties, for the period prior to their
     acquisition, was calculated based on the actual interest rates on the debt
     which was assumed and the specific interest rates on new borrowings, as
     follows:
 
<TABLE>
<CAPTION>
                                                                                      PRO FORMA
                                                                         INTEREST     INTEREST
                           PROPERTY                           DEBT         RATE        EXPENSE
                           --------                         -------     --------     ---------
    <S>                                                      <C>         <C>          <C>
    1995 Acquisitions
      Konwiser Acquisition Properties......................  $30,263        8.0%       $ 1,513
                                                              13,000        8.0%           650
                                                              24,850        5.7%           885
      Tukwila Business Park................................   11,765        7.4%           838
    Pacific Gulf Business Park.............................    8,000        7.3%           584
    Acquisition Properties.................................   19,475        7.5%         1,361
    Amortization of related loan fees and costs............                                176
                                                                                      --------
                                                                                       $ 6,007
                                                                                      ========
</TABLE>
 
(L)  Reduction in interest expense (including the related amortization of
     debenture discount and costs of $285 for the six months ended June 30, 1996
     and $566 for the year ended December 31, 1995) resulting from the exchange
     of the Debentures as of the beginning of each period presented.
 
(M)  Represents the weighted average of common shares and common stock
     equivalents outstanding during the period indicated. Common Stock
     equivalents include stock options which are considered dilutive for
     purposes of computing primary earnings per share.
 
(N)  Pro forma weighted average common shares include 2,435,581 shares of Common
     Stock issued by the Company in conjunction with its May 1996 Offering and
     3,277,348 shares of Common Stock to be issued as part of the Company's
     Exchange Offer.
 
   
(O)  Excludes the effect of the $4,861 nonrecurring loss which will be
     recognized by the Company upon the exchange of the Debentures resulting
     from the Sweetener included in the Company's Exchange Offer.
    
 
(P)  Excludes the effect of the $6,664 nonrecurring gain from the sale of the
     multifamily properties comprising the Texas Dispositions in November 1995.
 
                                       F-9
<PAGE>   52
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     The Company's Articles of Incorporation limits the liability of the
Company's directors and officers to the Company and its stockholders to the
fullest extent permitted from time to time by Maryland law. Maryland law
presently permits the liability of directors and officers to a corporation or
its stockholders for money damages to be limited, except (i) to the extent that
it is proved that the director or officer actually received an improper benefit
or profit, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.
 
     The Company's bylaws require the Company to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The Maryland General Corporation Law permits a corporation
to indemnify its directors, officers and certain other parties against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service to or at the request of the corporation, unless
it is established that the act or omission of the indemnified party was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or was the result of active and deliberate dishonesty, (ii) the indemnified
party actually received an improper personal benefit, or (iii) in the case of
any criminal proceeding, the indemnified party had reasonable cause to believe
that the act or omission was unlawful. Indemnification may be made against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by the director or officer in connection with the proceeding; provided,
however, that if the proceeding is one by or in the right of the corporation,
indemnification may not be made with respect to any proceeding in which the
director or officer has been adjudged to be liable to the corporation. In
addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttal presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
 
     The Company maintains an insurance policy which provides liability coverage
for directors and officers of the Company.
 
                                      II-1
<PAGE>   53
 
ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits.
 
   
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                                        DESCRIPTION
-------   -----------------------------------------------------------------------------------
<C>       <S>
    3.1   Amended and Restated Articles of Incorporation*
    3.2   Bylaws*
    4.1   Indenture between the Company and Harris Trust Company of California, as trustee*
    5.1   Opinion of Piper & Marbury L.L.P.
    8.1   Tax Opinion of Gibson, Dunn & Crutcher LLP
   10.1   Purchase and Sale Agreement between Santa Anita Realty Enterprises, Inc. and the
          Company*
   10.2   Amended and Restated Employment Agreement between the Company and Glenn L.
          Carpenter+
   10.3   Amended and Restated Employment Agreement between the Company and Donald G.
          Herrman+
   10.4   Amended and Restated Employment Agreement between the Company and Lonnie P. Nadal+
   10.5   Employment Agreement between the Company and Robert A. Dewey+
   10.6   1993 Share Option Plan*
   10.7   Park Place Acquisition Agreement*
   10.8   Management Agreement between Santa Anita Realty Enterprises, Inc. and the Company*
   10.9   Purchase and Sale Agreement and Joint Escrow Instructions among Golden West Equity
          Properties, Inc., Golden West Ontario Associates, Golden West Vista Associates and
          Pacific Gulf Properties Inc.*
  10.10   Registration Rights Agreement between Santa Anita Realty Enterprises, Inc. and the
          Company*
  10.11   Amendment Nos. 1 and 2 to the Purchase and Sale Agreement and Joint Escrow
          Instructions among Golden West Equity Properties, Inc., Gold West Ontario
          Associates, Golden West Vista Associates and Pacific Gulf Properties Inc.*
  10.12   Revolving Credit Agreement, dated as of June 10, 1994, between Pacific Gulf
          Properties Inc. and Bank of America National Trust and Savings Association**
  10.13   Master Agreement, dated September 30, 1994, between Pacific Gulf Properties, Inc.,
          PGP Baldwin, Inc., Santa Anita Realty Enterprises, Inc., Baldwin Associates, Ltd.
          and Wm. P. Willman & Associates regarding Baldwin Park Acquisition**
  10.14   Closing Agreement, dated October 1, 1994, between Pacific Gulf Properties Inc. and
          Santa Anita Realty Enterprises, Inc. regarding Baldwin Park Acquisition**
  10.15   Settlement Agreement and Mutual General Release, effective as of January 30, 1995,
          between Pacific Gulf Properties Inc., PGP Baldwin, Inc., Baldwin Industrial
          Properties, Ltd., Baldwin Associates, Ltd., W.T. Grant, et al. regarding Baldwin
          Park Acquisition**
  10.16   Award of Arbitration dated March 15, 1995 regarding Baldwin Park Acquisition**
  10.17   Stipulation and Order Confirming Arbitration Award dated March 22, 1995 regarding
          Baldwin Park Acquisition**
  10.18   Term Loan Agreement, dated March 3, 1995, between Pacific Gulf Properties Inc. and
          Bank of America National Trust and Savings Association**
  10.19   Term Loan Agreement, dated March 3, 1995, between Pacific Gulf Properties Inc. and
          Bank of America National Trust and Savings Association**
  10.20   Term Loan Agreement, dated March 3, 1995, between Pacific Gulf Properties Inc. and
          Bank of America National Trust and Savings Association**
  10.21   Exchange Agreement, dated April 15, 1995, between the Company and Glenn L.
          Carpenter, regarding Deferred Compensation Agreement+
</TABLE>
    
 
                                      II-2
<PAGE>   54
 
   
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                        DESCRIPTION
-------   -----------------------------------------------------------------------------------
<C>       <S>
  10.22   Exchange Agreement, dated April 15, 1995, between the Company and Donald G.
          Herrman, regarding Deferred Compensation Agreement+
  10.23   Exchange Agreement, dated April 15, 1995, between the Company and Lonnie P. Nadal,
          regarding Deferred Compensation Agreement+
  10.24   Exchange Agreement, dated April 15, 1995, between the Company and Robert A. Dewey,
          regarding Deferred Compensation Agreement+
  10.25   Amended and Restated Agreement of Limited Partnership of PGP Inland Communities,
          L.P., dated as of August 15, 1995+
  10.26   Master Contribution Agreement, dated as of August 15, 1995, regarding formation of
          PGP Inland Communities, L.P.+
  10.27   Purchase Agreement and Escrow Instructions, dated September 15, 1995, by and
          between Capitol Investment Associates Corp. and Pacific Gulf Properties Trust,
          regarding sale of Texas apartment portfolio+
  10.28   Modification Agreement, dated as of April 21, 1995, between Company and Bank of
          America National Trust and Savings Association, which modifies Revolving Credit
          Agreement dated June 10, 1994+
  10.29   Dividend Reinvestment Plan of the Company dated May 9, 1995***
  21.01   Subsidiaries**
  23.01   Consent of Ernst & Young LLP
   99.1   Letter of Transmittal related to Exchange Offer
   99.2   Notice of Guaranteed Delivery related to Exchange Offer
   99.3   Letter to clients related to Exchange Offer from brokers, dealers, commercial
          banks, trust companies and other nominees
   99.4   Letter related to Exchange Offer from Information Agent to brokers, dealers,
          commercial banks, trust companies and other nominees
   99.5   Letter related to Exchange Offer from Chairman of the Board and Chief Executive
          Officer
   99.6   Advertisement related to Exchange Offer
</TABLE>
    
 
---------------
 
   * Incorporated by reference from the Company's registration statement on Form
     S-11 (33-69382) declared effective by the Securities and Exchange
     Commission on February 10, 1994.
 
  ** Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1994.
 
 *** Incorporated by reference from the Company's registration statement on Form
     S-3 (33-92082) filed on May 9, 1995.
 
   + Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.
 
**** To be filed by amendment.
 
                                      II-3
<PAGE>   55
 
ITEM 22.  UNDERTAKINGS.
 
     (a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
 
     (b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
 
     (c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
 
                                      II-4
<PAGE>   56
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Orange,
State of California, on November 7, 1996.
    
 
                                          PACIFIC GULF PROPERTIES INC.
 
   
                                          By:   /s/  DONALD G. HERRMAN
                                            ------------------------------------
                                                     Donald G. Herrman
                                            Executive Vice President, Secretary
                                                  Chief Financial Officer
    
 
   
     Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in their capacities and on the dates indicated.
    
 
   
<TABLE>
<CAPTION>
            SIGNATURE                     TITLE                          DATE
            ---------                     -----                          ----
<S>                               <C>                                <C>
* /s/   GLENN L. CARPENTER        Chairman of the Board of           November 7, 1996
------------------------------      Directors, President and
        Glenn L. Carpenter          Chief Executive Officer 
                                    (Principal Executive Officer)

  /s/   DONALD G. HERRMAN         Executive Vice President,          November 7, 1996
------------------------------      Secretary and Chief Financial
        Donald G. Herrman           Officer (Principal Financial
                                    and Accounting Officer)

* /s/   ROYCE B. MCKINLEY          Director                          November 7, 1996
------------------------------
        Royce B. McKinley

* /s/   STEWART W. BOWIE           Director                          November 7, 1996
------------------------------
        Stewart W. Bowie

* /s/   PETER L. EPPINGA           Director                          November 7, 1996
-------------------------------
        Peter L. Eppinga

* /s /  JOHN F. KOOKEN             Director                          November 7, 1996
-------------------------------
        John F. Kooken

* /s/   ROBERT E. MORGAN           Director                          November 7, 1996
-------------------------------
        Robert E. Morgan

* /s/   KEITH W. RENKEN            Director                          November 7, 1996
-------------------------------
        Keith W. Renken

*                                                                    November 7, 1996
-------------------------------
     by Donald G. Herrman
        Power of Attorney
</TABLE>
    
 
                                      II-5
<PAGE>   57
 
   
                                 EXHIBIT INDEX
    
 
   
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
EXHIBIT                                                                                 NUMBER
NUMBER                                   DESCRIPTION                                     PAGE
-------   -------------------------------------------------------------------------  ------------
<C>       <S>                                                                        <C>
    3.1   Amended and Restated Articles of Incorporation*..........................
    3.2   Bylaws*..................................................................
    4.1   Indenture between the Company and Harris Trust Company of California, as
          trustee*.................................................................
    5.1   Opinion of Piper & Marbury L.L.P.........................................
    8.1   Tax Opinion of Gibson, Dunn & Crutcher LLP...............................
   10.1   Purchase and Sale Agreement between Santa Anita Realty Enterprises, Inc.
          and the Company*.........................................................
   10.2   Amended and Restated Employment Agreement between the Company and Glenn
          L. Carpenter+............................................................
   10.3   Amended and Restated Employment Agreement between the Company and Donald
          G. Herrman+..............................................................
   10.4   Amended and Restated Employment Agreement between the Company and Lonnie
          P. Nadal+................................................................
   10.5   Employment Agreement between the Company and Robert A. Dewey+............
   10.6   1993 Share Option Plan*..................................................
   10.7   Park Place Acquisition Agreement*........................................
   10.8   Management Agreement between Santa Anita Realty Enterprises, Inc. and the
          Company*.................................................................
   10.9   Purchase and Sale Agreement and Joint Escrow Instructions among Golden
          West Equity Properties, Inc., Golden West Ontario Associates, Golden West
          Vista Associates and Pacific Gulf Properties Inc.*.......................
  10.10   Registration Rights Agreement between Santa Anita Realty Enterprises,
          Inc. and the Company*....................................................
  10.11   Amendment Nos. 1 and 2 to the Purchase and Sale Agreement and Joint
          Escrow Instructions among Golden West Equity Properties, Inc., Gold West
          Ontario Associates, Golden West Vista Associates and Pacific Gulf
          Properties Inc.*.........................................................
  10.12   Revolving Credit Agreement, dated as of June 10, 1994, between Pacific
          Gulf Properties Inc. and Bank of America National Trust and Savings
          Association**............................................................
  10.13   Master Agreement, dated September 30, 1994, between Pacific Gulf
          Properties, Inc., PGP Baldwin, Inc., Santa Anita Realty Enterprises,
          Inc., Baldwin Associates, Ltd. and Wm. P. Willman & Associates regarding
          Baldwin Park Acquisition**...............................................
  10.14   Closing Agreement, dated October 1, 1994, between Pacific Gulf Properties
          Inc. and Santa Anita Realty Enterprises, Inc. regarding Baldwin Park
          Acquisition**............................................................
  10.15   Settlement Agreement and Mutual General Release, effective as of January
          30, 1995, between Pacific Gulf Properties Inc., PGP Baldwin, Inc.,
          Baldwin Industrial Properties, Ltd., Baldwin Associates, Ltd., W.T.
          Grant, et al. regarding Baldwin Park Acquisition**.......................
  10.16   Award of Arbitration dated March 15, 1995 regarding Baldwin Park
          Acquisition**............................................................
  10.17   Stipulation and Order Confirming Arbitration Award dated March 22, 1995
          regarding Baldwin Park Acquisition**.....................................
  10.18   Term Loan Agreement, dated March 3, 1995, between Pacific Gulf Properties
          Inc. and Bank of America National Trust and Savings Association**........
  10.19   Term Loan Agreement, dated March 3, 1995, between Pacific Gulf Properties
          Inc. and Bank of America National Trust and Savings Association**........
</TABLE>
    
<PAGE>   58
 
   
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
EXHIBIT                                                                                 NUMBER
NUMBER                                   DESCRIPTION                                     PAGE
-------   -------------------------------------------------------------------------  ------------
<C>       <S>                                                                        <C>
  10.20   Term Loan Agreement, dated March 3, 1995, between Pacific Gulf Properties
          Inc. and Bank of America National Trust and Savings Association**........
  10.21   Exchange Agreement, dated April 15, 1995, between the Company and Glenn
          L. Carpenter, regarding Deferred Compensation Agreement+.................
  10.22   Exchange Agreement, dated April 15, 1995, between the Company and Donald
          G. Herrman, regarding Deferred Compensation Agreement+...................
  10.23   Exchange Agreement, dated April 15, 1995, between the Company and Lonnie
          P. Nadal, regarding Deferred Compensation Agreement+.....................
  10.24   Exchange Agreement, dated April 15, 1995, between the Company and Robert
          A. Dewey, regarding Deferred Compensation Agreement+.....................
  10.25   Amended and Restated Agreement of Limited Partnership of PGP Inland
          Communities, L.P., dated as of August 15, 1995+..........................
  10.26   Master Contribution Agreement, dated as of August 15, 1995, regarding
          formation of PGP Inland Communities, L.P.+...............................
  10.27   Purchase Agreement and Escrow Instructions, dated September 15, 1995, by
          and between Capitol Investment Associates Corp. and Pacific Gulf
          Properties Trust, regarding sale of Texas apartment portfolio+...........
  10.28   Modification Agreement, dated as of April 21, 1995, between Company and
          Bank of America National Trust and Savings Association, which modifies
          Revolving Credit Agreement dated June 10, 1994+..........................
  10.29   Dividend Reinvestment Plan of the Company dated May 9, 1995***...........
  21.01   Subsidiaries**...........................................................
  23.01   Consent of Ernst & Young LLP.............................................
   99.1   Letter of Transmittal related to Exchange Offer..........................
   99.2   Notice of Guaranteed Delivery related to Exchange Offer..................
   99.3   Letter to clients related to Exchange Offer from brokers, dealers,
          commercial banks, trust companies and other nominees.....................
   99.4   Letter related to Exchange Offer from Information Agent to brokers,
          dealers, commercial banks, trust companies and other nominees............
   99.5   Letter related to Exchange Offer from Chairman of the Board and Chief
          Executive Officer........................................................
   99.6   Advertisement related to Exchange Offer..................................
</TABLE>
    
 
---------------
 
   * Incorporated by reference from the Company's registration statement on Form
     S-11 (33-69382) declared effective by the Securities and Exchange
     Commission on February 10, 1994.
 
  ** Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1994.
 
 *** Incorporated by reference from the Company's registration statement on Form
     S-3 (33-92082) filed on May 9, 1995.
 
   + Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.
 
**** To be filed by amendment.