FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549


[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the period ended September 30, 1998


                         Commission File Number 0-25230



                       FIRST WASHINGTON REALTY TRUST, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)



       Maryland                                            52-1879972
       --------                                            ----------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                         identification no.)


4350 East-West Highway, Suite 400, Bethesda, MD               20814
(Address of principal executive offices)                    (Zip code)


Registrant's telephone number, including area code (301) 907-7800

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

       Common Stock, $.01 par value, outstanding as of November 13, 1998:

                        8,566,985 Shares of Common Stock


<PAGE>



                       FIRST WASHINGTON REALTY TRUST, INC.
                                    FORM 10-Q

                                      INDEX


Part I: Financial Information                                             Page
-----------------------------                                             ----

Item 1. Consolidated Balance Sheets as of September 30, 1998
         (unaudited) and December 31, 1997..............................   1

        Consolidated Statements of Operations (unaudited) for
         the three months and nine months ended September 30,
         1998 and 1997 .................................................   2

        Consolidated Statements of Cash Flows (unaudited) for
         the nine months ended September 30, 1998 and 1997 .............   3

        Notes to Unaudited Consolidated Financial Statements ...........   4

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations ............................  10

Part II: Other Information


Item 2. Market for the Registrant's Common Equity and Related
        Shareholders Matters ...........................................  14

Item 6. Exhibits and Reports on Form 8-K ...............................  15

Signatures .............................................................  16



<PAGE>


              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    (dollars in thousands except share data)
                                   -----------

                                                     September 30,  December 31,
                                                         1998         1997
                                                         ----         ----
                                                     (unaudited)
      ASSETS

Rental properties:
  Land ............................................   $  99,557    $  89,042
  Buildings and improvements ......................     408,567      367,756
                                                      ---------    ---------
                                                        508,124      456,798
Accumulated depreciation ..........................     (48,045)     (40,839)
                                                      ---------    ---------
Rental properties, net ............................     460,079      415,959

Cash and equivalents ..............................       2,868        3,142
Tenant receivables, net ...........................       7,680        7,274
Deferred financing costs, net .....................       2,260        2,734
Other assets ......................................      14,931       10,032
                                                      ---------    ---------

          Total assets ............................   $ 487,818    $ 439,141
                                                      =========    =========


      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Mortgage notes payable ..........................   $ 218,296    $ 212,030
  Debentures ......................................      25,000       25,000
  Accounts payable and accrued expenses ...........       9,920       10,914
                                                      ---------    ---------

          Total liabilities .......................     253,216      247,944

Minority interest .................................      52,500       38,255

Stockholders' equity:
  Convertible preferred stock $.01 par
   value, 3,800,000 shares designated;
   2,314,189 issued and outstanding
   (aggregate liquidation preference
   of $57,855) ....................................          23           23

  Common stock $.01 par value, 90,000,000
   shares authorized; 8,556,985 and 7,291,732
   shares issued and outstanding, respectively ....          86           72
  Additional paid-in capital ......................     212,935      179,356
  Accumulated distributions in excess of earnings .     (30,942)     (26,509)
                                                      ---------    ---------

          Total stockholders' equity ..............     182,102      152,942
                                                      ---------    ---------

          Total liabilities and stockholders'
           equity .................................   $ 487,818    $ 439,141
                                                      =========    =========


     The accompanying notes are an integral part of these consolidated financial
statements.

                                        1

<PAGE>

              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)
                                     -------
<TABLE>
<CAPTION>
                                                 For three month       For nine months ended
                                                  September 30              September 30
                                               -------------------     --------------------
                                                 1998        1997        1998        1997
                                                 ----        ----        ----        ----
Revenues:
<S>                                            <C>         <C>         <C>         <C>     
  Minimum rents ............................   $ 14,707    $ 10,984    $ 41,689    $ 30,891
  Tenant reimbursements ....................      3,360       2,499       9,847       6,730
  Percentage rents .........................        170         263         925         836
  Other income .............................        326         370         854         906
                                               --------    --------    --------    --------
     Total revenues ........................     18,563      14,116      53,315      39,363
                                               --------    --------    --------    --------

Expenses:
  Property operating and maintenance .......      4,254       3,452      12,838       9,419
  General and administrative ...............        857         611       2,709       2,751
  Interest .................................      4,811       4,747      14,782      13,675
  Depreciation and amortization ............      3,766       2,750      10,687       7,867
                                               --------    --------    --------    --------
     Total expenses ........................     13,688      11,560      41,016      33,712
                                               --------    --------    --------    --------

  Income before gain on sale of properties,
   income (loss) from Management Company,
   extraordinary item, minority interest and
   distributions to Preferred Stockholders .      4,875       2,556      12,299       5,651

  Gain on sale of properties ...............        335           0       2,018          45

  Income (loss) from Management Company ....        (59)         77         281         376
                                               --------    --------    --------    --------

  Income before extraordinary item,
   minority interest and distributions
   to Preferred Stockholders ...............      5,151       2,633      14,598       6,072

  Extraordinary item - loss on early
   extinguishment of debt ..................          0        (561)       (358)       (695)
                                               --------    --------    --------    --------

  Income before minority interest and
   distributions to Preferred Stockholders .      5,151       2,072      14,240       5,377

  Income allocated to minority interest ....     (1,116)       (339)     (3,069)       (838)
                                               --------    --------    --------    --------
  Income before distributions to
   Preferred Stockholders ..................      4,035       1,733      11,171       4,539
  Distributions to Preferred Stockholders ..     (1,410)     (1,410)     (4,231)     (4,231)
                                               --------    --------    --------    --------
  Income allocated to Common Stockholders ..   $  2,625    $    323    $  6,940    $    308
                                               ========    ========    ========    ========
  Earnings per Common Share - Basic
    Income before extraordinary item .......   $   0.31    $   0.16    $   0.94    $   0.20
    Extraordinary item .....................       0.00       (0.10)      (0.05)      (0.14)
                                               --------    --------    --------    --------
    Net income .............................   $   0.31    $   0.06    $   0.89    $   0.06
                                               ========    ========    ========    ========
  Earnings per Common Share - Diluted
    Income before extraordinary item .......   $   0.31    $   0.16    $   0.93    $   0.19
    Extraordinary item .....................       0.00       (0.10)      (0.05)      (0.13)
                                               --------    --------    --------    --------
    Net income .............................   $   0.31    $   0.06    $   0.88    $   0.06
                                               ========    ========    ========    ========
  Shares of Common Stock - Basic............      8,506       5,396       7,769       5,114
                                               ========    ========    ========    ========
  Shares of Common Stock -  Diluted ........      8,560       5,471       7,848       5,179
                                               ========    ========    ========    ========
  Common Distributions per share ...........   $ 0.4875    $ 0.4875    $ 1.4625    $ 1.4625
                                               ========    ========    ========    ========
  Preferred Distributions per share ........   $ 0.6094    $ 0.6094    $ 1.8281    $ 1.8281
                                               ========    ========    ========    ========
</TABLE>


     The accompanying notes are an integral part of these consolidated financial
statements.

                                        2

<PAGE>


              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (unaudited)
                                    --------

                                                               For the nine
                                                               months ended
                                                              September  30,
                                                          ----------------------
                                                            1998          1997
                                                            ----          ----
Operating Activities:
  Income before distributions to Preferred
   Stockholders ......................................    $ 11,172     $  4,539
  Adjustment to reconcile net cash provided
   by operating activities:
    Income allocated to minority interest ............       3,069          838
    Depreciation and amortization ....................      10,687        7,867
    Gain of sale of rental properties ................      (2,018)         (45)
    Loss on early extinguishment of debt .............         358          695
    Amortization of deferred financing costs and
     loan premiums ...................................        (428)       1,071
    Equity in earnings of Management Company .........          79          (16)
    Compensation paid or payable in company stock ....         953        1,678
    Provision for uncollectible accounts .............       1,163          902
    Recognition of deferred rent .....................        (807)        (912)
    Net changes in:
      Tenant receivables .............................        (762)      (2,172)
      Other assets ...................................      (5,434)      (1,138)
      Accounts payable and accrued expenses ..........         107        2,553
                                                          --------     --------
         Net cash provided by operating activities ...      18,139       15,860
                                                          --------     --------

Investing Activities:
  Additions to rental properties .....................      (3,443)      (5,309)
  Acquisition of rental properties ...................     (21,970)     (17,252)
  Proceeds from sale of rental properties ............       4,957        1,172
                                                          --------     --------
         Net cash used in investing activities .......     (20,456)     (21,389)
                                                          --------     --------

Financing Activities:
  Net proceeds from line of credit ...................      30,937       20,500
  Proceeds from mortgage notes .......................         318        1,098
  Proceeds from issuance of common stock .............      25,781       48,929
  Proceeds from exercise of stock options ............          57           --
  Repayment of line of credit ........................     (32,237)     (20,500)
  Repayment on mortgage notes ........................      (2,431)     (34,556)
  Additions to deferred financing costs ..............        (689)        (537)
  Distributions paid to Preferred Stockholders .......      (4,231)      (4,231)
  Distributions paid to Common Stockholders ..........     (11,374)      (7,361)
  Distributions paid to minority interest ............      (4,088)      (2,046)
                                                          --------     --------
         Net cash provided by financing activities ...       2,043        1,296
                                                          --------     --------

  Net decrease in cash and equivalents ...............        (274)      (4,233)
  Cash and equivalents, beginning of period ..........       3,142       11,780
                                                          --------     --------
         Cash and equivalents, end of period .........    $  2,868     $  7,547
                                                          ========     ========


     The accompanying notes are an integral part of these consolidated financial
statements.

                                        3

<PAGE>



              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                    ---------

1. Business

General

     First Washington  Realty Trust,  Inc. (the "Company") is a fully integrated
real estate  organization with expertise in acquisitions,  property  management,
leasing,   renovation  and   development  of  principally   supermarket-anchored
neighborhood  shopping  centers  that has  elected to be taxed as a real  estate
investment  trust ("REIT")  under the Internal  Revenue Code of 1986, as amended
(the "Code") . The Company owns a portfolio of 52 retail properties containing a
total of approximately 5.6 million square feet of gross leasable area located in
the Mid-Atlantic region and the Chicago metropolitan area.

     The Company currently owns approximately 77.1% of the partnership interests
in First Washington  Realty Limited  Partnership (the "Operating  Partnership").
All of the Company's operations are conducted through the Operating Partnership.
The  Operating  Partnership  owns 34 Properties  directly and 18 Properties  are
owned by lower  tier  entities  in which the  Operating  Partnership  owns a 99%
partnership  interest  and the  Company  (or a  wholly-owned  subsidiary  of the
Company) owns a 1% interest.

     Due to the  Company's  ability,  as the general  partner,  to exercise both
financial and operational control over the Operating Partnership,  the Operating
Partnership is consolidated for financial reporting purposes.  Allocation of net
income to the limited  partners of the Operating  Partnership  is based on their
respective   partnership   interests  and  is  reflected  in  the   accompanying
Consolidated Financial Statements as minority interests. Losses allocable to the
limited  partners  in  excess  of  their  basis  are  allocated  to  the  Common
Stockholders as the limited partners have no requirement to fund losses.

     The Operating  Partnership also owns 100% of the non-voting preferred stock
of First  Washington  Management,  Inc.  ("FWM" or "Management  Company") and is
entitled to 99% of the cash flow from FWM. FWM provides management,  leasing and
related  services  for the  Properties  and to  third-party  clients,  including
individual, institutional and corporate property owners.

     In July 1998, the Company  completed a public offering of 1,150,000  shares
of Common Stock (the "July 1998  Offering").  The shares of stock were priced at
$23.75,  resulting in net proceeds of approximately  $25,781 after deducting the
underwriter's  discount  and  offering  expenses of  approximately  $1,532.  The
proceeds of the offering were used to pay down the Company's Line of Credit.

2. Summary of Significant Accounting Policies

Basis of Presentation

     The unaudited interim consolidated  financial statements of the Company are
prepared  pursuant  to  the  Securities  and  Exchange  Commission's  rules  and
regulations  for reporting on Form 10-Q and should be read in  conjunction  with
the financial  statements  and the notes  thereto of the  Company's  1997 Annual
Report to Stockholders.  Accordingly,  certain  disclosures  accompanying annual
financial  statements  prepared in accordance with generally accepted accounting
principles  are  omitted.  In  the  opinion  of  management,   all  adjustments,
consisting   solely  of  normal  recurring   adjustments,   necessary  for  fair
presentation of the  consolidated  financial  statements for the interim periods
have  been  included.  The  current  period's  results  of  operations  are  not
necessarily indicative of results which ultimately may be achieved for the year.

                                        4

<PAGE>



              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                    ---------


     The consolidated  financial  statements include the accounts of the Company
and its majority  owned  entities,  including  the  Operating  Partnership.  All
significant intercompany balances and transactions have been eliminated.

Income per Share

     Basic and diluted  income per share is calculated by dividing  income after
minority interest,  less preferred  distributions by the weighted average number
of common shares outstanding during the periods presented.

Recent Accounting Pronouncements

     On March 19, 1998, the Emerging Issues Task Force ("EITF") of the Financial
Accounting  Standards  Board  reached a  consensus  opinion on issue No.  97-11,
"Accounting  for Internal Costs Relating to Real Estate  Property  Acquisitions"
which requires that the internal costs of preacquisition  activities incurred in
connection  with  the  acquisition  of an  operating  property  be  expensed  as
incurred. The Company has historically  capitalized internal preacqusition costs
of operating  properties as a component of the  acquisition  price.  The Company
capitalized  $227 for the period  January 1 through  March 19, 1998 and $229 for
the nine months ended  September 30, 1997.  The Company will realize an increase
in general and  administrative  expense due to the adoption of this ruling which
is effective immediately.

     On May 21, 1998,  the Emerging  Issues Task Force ("EITF") of the Financial
Accounting  Standards  Board  reached a  consensus  opinion  on Issue No.  98-9,
"Accounting  for Contingent  Rent In Interim  Financial  Periods" which provides
that  recognition of rental income in interim periods must be deferred until the
specified  target that triggers the  contingent  rental income is achieved.  The
Company has  historically  recognized  rental  income based on a  percentage  of
tenant  sales  ratably  over the  course  of the  year.  This  consensus  become
effective  May 21, 1998 and  requires the Company to defer  recognition  of this
income until the date that the tenant's sales exceed the breakpoint set forth in
the lease agreement. The impact of this consensus was to decrease the percentage
rentals  recognized in the third quarter by $200 and the remainder of the fiscal
year ending December 31, 1998 by approximately $40. Additionally,  the amount of
percentage  rentals  recognized in each quarter of subsequent  fiscal years will
differ from historical experience,  with a significant  concentration of revenue
being recognized in the third and fourth quarters.

     During the second quarter,  the Financial Accounting Standards Board issued
SFAS 133 "Accounting for Derivative  Instruments and Hedging Activities",  which
will be effective for the Company's fiscal year 2000. This statement establishes
accounting and reporting standards  requiring that every derivative  instrument,
including  certain  derivative  instruments  imbedded  in  other  contracts,  be
recorded in the balance  sheet as either an asset or  liability  measured at its
fair value.  The statement also requires that changes in the  derivative's  fair
value be recognized in earnings  unless specific hedge  accounting  criteria are
met. The Company is currently  assessing the impact of this new statement on its
consolidated financial position, liquidity, and results of operations.

     The Company  adopted  SFAS No.  130,  "Reporting  Comprehensive  Income" on
January 1, 1998. The Company has no items of other comprehensive income.



                                        5

<PAGE>



              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                    ---------


3. Acquisition of Rental Properties

     During the first nine months of 1998,  the Company  acquired  five shopping
centers for an aggregate  acquisition  cost of  approximately  $57,363.  All the
acquisitions  were accounted for using the purchase method of accounting and the
operations of each property is included in the Company's Statement of Operations
from their  respective  dates of acquisition.  The following is a summary of the
acquisitions:

<TABLE>
<CAPTION>

  Date                                                                        Total     Anchor                 Anchor
Acquired  Property Name                Location                   GLA         Cost      Tenant                 (GLA)
--------  -------------                --------                   ---         ----      ------                 -----
<S>    <C>                         <C>                         <C>         <C>         <C>                   <C>    
1/98    Bowie Plaza                 Bowie, Maryland             104,836     $12,135    Giant Food             21,750
3/98    Watkins Park Plaza          Mitchellville, Maryland     112,143      14,662    Safeway                43,205
4/98    Parkville Shopping Center   Baltimore, Maryland         140,925       8,388    A&P Superfresh         39,571
5/98    Elkridge Corners            Elkridge, Maryland           73,529       8,873    A&P Superfresh         18,750
6/98    Village Shopping Center     Richmond, Virginia          110,885      13,305    Ukrop's Supermarket    39,003
                                                                -------      ------                           ------
                                                                542,318     $57,363                          162,279
                                                                =======     =======                          =======
</TABLE>


The acquisitions were financed as follows:

<TABLE>
<CAPTION>

                            Number of
Property                   Partnerships  Market   Assumed Mortgage    Line of Credit
 Name                         Units      Value        Debt(1)              Draw       Cash         Total
 ----                         -----      -----        -------              ----       ----         -----
<S>                          <C>         <C>          <C>                <C>         <C>         <C>    
Bowie Plaza                  130,626     $3,592       $5,374             $3,000      $  169      $12,135
Watkins Park Plaza                --         --           --             10,000       4,662(2)    14,662
Parkville Shopping Center    185,361      4,819        3,182                 --         387        8,388
Elkridge Corners              89,109      2,228        6,645                 --          --        8,873
Village Shopping Center      373,162      9,702           --              3,500         103       13,305
                             -------    -------      -------            -------      ------      -------
                             778,258    $20,341      $15,201            $16,500      $5,321      $57,363
                             =======    =======      =======            =======      ======      =======
</TABLE>
-------------

(1)  Includes loan premiums.
(2)  Includes net proceeds from the sale of properties of approximately $4,253.

     The following  unaudited pro forma condensed combined results of operations
are  presented  as if the  acquisitions  of the rental  properties,  the sale of
properties  as  discussed  in  footnote 4 and the  September  1997 and July 1998
offerings occurred on January 1, 1997. The proforma  statements are provided for
information  purposes only. They are based on historical  information and do not
necessarily  reflect the actual  results  that would have  occurred nor are they
necessarily indicative of future results of operations of the Company.



                                        6

<PAGE>


              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                    ---------



                                                  For the nine months ended
                                                         September 30,
                                                  -------------------------
                                                      1998        1997
                                                      ----        ----

Total Revenues ...............................       $54,390   $  53,088
                                                     =======   =========
Pro forma net income .........................       $ 6,992   $   6,563
                                                     =======   =========
Pro forma earnings per Common Share - Basic ..       $  0.81   $    0.79
                                                     =======   =========
Pro forma earnings per Common Share - Diluted        $  0.80   $    0.79
                                                     =======   =========



4. Sale of Properties

     In March 1998, the Company sold its two multi-family properties (Branchwood
and Park Place  Apartments) for a combined sales price of approximately  $8,050.
The gain on sale is  approximately  $1,536 and net proceeds after the payment of
the existing mortgage debt was approximately  $3,962. In March 1998, the Company
sold one of the  Georgetown  retail  shops  consisting  of 5,000 square feet for
$750. The gain on sale is approximately  $147 and net proceeds after the payment
of existing  mortgage debt was  approximately  $291. The proceeds of these sales
were used to purchase  Watkins Park Plaza in a like-kind  exchange as defined in
Internal Revenue Code Section 1031.

     In  September  1998,  the Company sold one of the  Georgetown  retail shops
consisting  of 3,700  square  feet for $800.  The gain on sale is  approximately
$335,  and net proceeds  was  approximately  $757.  The proceeds of this sale is
currently  held in escrow and is expected to be used in a like-kind  exchange as
defined in Internal Revenue Code Section 1031.

5. Line of Credit

     In January 1998, the Company closed on a $35,500  collateralized  revolving
Line of Credit with Union Bank of Switzerland.  This line is  collateralized  by
six properties (Kenhorst Plaza, Shoppes of Graylyn, Four Mile Fork, Takoma Park,
Centre Ridge Marketplace and Newtown Square).  The line which matures on January
31,  2001  replaces  the Lines of Credit the  Company  had with  Mellon Bank and
Corestates  Bank.  Loans  under this line will bear  interest  at LIBOR plus one
percent (1%). The line was  subsequently  increased to $45,000 on March 20, 1998
and Watkins Park Plaza was pledged as additional collateral. As of September 30,
1997,  $2,000 is outstanding on the Line of Credit which is included in mortgage
notes payable.






                                        7

<PAGE>




              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                    ---------

6. Summary of Noncash Investing and Financing Activities

     Significant  noncash  transactions  for the nine months ended September 30,
1998 and 1997 were as follows:


                                                              1998        1997
                                                              ----        ----

Liabilities assumed in acquisition of
 rental properties .....................................     $15,201     $60,057
Common units in the Operating Partnership
 issued in connection with the acquisition
 of rental properties ..................................     $20,341     $25,013
Preferred units in the Operating Partnership
 issued in connection with the acquisition
 of rental properties ..................................          --     $   277
Increase in minority interest's ownership
 of the Operating Partnership ..........................     $15,266     $14,847
Accrued compensation paid through the issuance
 of Common Stock .......................................     $   898     $ 3,233


7. Stock Option Plans

     On May 8, 1998,  the  Stockholders  approved an amendment to the  Company's
1994 Stock Option Plan. The amendment  increases the number of shares  available
for issuance under the Stock Option Plan from 796,691 to 1,296,691 shares.

     On May 8, 1998,  the  Stockholders  approved an amendment to the  Company's
1996  Restricted  Stock  Plan.  The  Amendment  increases  the  number of shares
available for issuance  under the  Restricted  Stock Plan from 18,508 to 368,508
shares.

     On May 8, 1998,  the  Stockholders  approved an amendment to the  Company's
1996 Contingent  Stock  Agreements.  The amendment  further grants an additional
150,000 shares of Common Stock to senior  management  under a  performance-based
incentive plan.

8. Subsequent Events

     In October 1998,  the Company  acquired Town Center at Sterling  located in
Sterling,  Virginia.  The total acquisition cost of $22,195 was financed through
the issuance of 325,452  common units to the seller of the property with a value
of  approximately  $7,485,  assumed  mortgage  indebtness  of $9,357 and cash of
$5,353.  The mortgage loan carries an all-in  effective rate of 7.0% and matures
in July 2003. The Center contains  179,002 square feet of GLA and is anchored by
Giant Food.





                                        8

<PAGE>



              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                    ---------

     In  October  1998,  the  Company  acquired  Willston  Centers  I & II,  two
contiguous neighborhood shopping centers located in Falls Church,  Virginia. The
total  acquisition  cost of $23,804 was financed through the issuance of 551,084
common  units  to the  seller  of the  property  with a value  of  approximately
$12,675,  assumed mortgage indebtness of $10,668, and cash of $461. The mortgage
loan  carries an all-in  effective  rate of 7.0% and  matures  in October  2002.
Willston  Center I contains  86,468  square  feet of GLA and is  anchored by CVS
Pharmacy. Willston Center II contains 127,434 square feet of GLA and anchored by
Safeway.

     On October 10, 1998,  the Board of  Directors  declared a  distribution  of
$0.4875 and $0.6094 per share of Common Stock and Preferred Stock,  respectively
to shareholders of record as of November 1, 1998, payable on November 15, 1998.



                                        9

<PAGE>




Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operation

Overview

     The following  discussion  should be read in conjunction with the "Selected
Consolidated  Financial  Information"  and the  Financial  Statements  and notes
thereto of the Company  appearing  elsewhere  in this Form 10-Q.  Dollars are in
thousands except per share data.

Comparison  of the three  months  ended  September  30, 1998 to the three months
ended September 30, 1997

     For the three months ended September 30, 1998, the net income  allocated to
common  stockholders  increased  by  $2,302  from a net  income of $323 to a net
income of $2,625,  when  compared to the three months ended  September 30, 1997,
due to an increase in revenues  which were  primarily due to the purchase of the
six Chicago properties in September 1997,  Mitchellville  Plaza in October 1997,
Spring Valley Center in December 1997 (the "1997 Acquisitions"),  Bowie Plaza in
January 1998,  Watkins Park Plaza in March 1998,  Parkville  Shopping  Center in
April 1998,  Elkridge  Corners Shopping Center in May 1998, and Village Shopping
Center in June 1998 (the "1998 Acquisitions"), and a gain recognized an the sale
of a property,  offset by an increase in expenses  primarily due to the 1997 and
1998 Acquisitions, and an increase in the amount of income allocated to minority
interests.

     Total revenues  increased by $4,447 or 31.5%, from $14,116 to $18,563,  due
primarily to an increase in minimum rents of $3,723 and tenant reimbursements of
$861. The increases were primarily due to the 1997 and 1998 Acquisitions.

     Property  operating and  maintenance  expense  increased by $802, or 23.2%,
from  $3,452 to $4,254,  due  primarily  to the 1997  Acquisitions  and the 1998
Acquisitions.  General and  administrative  expenses increased by $246 or 40.3%,
from  $611 to $857  due  primarily  to an  increase  in the  amount  of  accrued
officers' compensation of $150 and internal  preacquisition costs of $129. Prior
to March 19, 1998, internal  preacquisition  costs were capitalized and included
in the cost of acquiring rental properties.

     Interest  expense  increased  by $64, or 1.3%,  from $4,747 to $4,811,  due
primarily  to the  increased  mortgage  indebtedness  associated  with  the 1997
Acquisitions  and the 1998  Acquisitions  offset by a reduction of mortgage debt
through  proceeds from the September  1997 and July 1998 Offering and a decrease
in the weighted average  interest rate. The average debt  outstanding  increased
from $218.0 million for 1997 to $255.8 million for 1998 and the weighted average
interest rate decreased from 8.7% to 7.5%.

     Depreciation and amortization  expenses increased by $1,016, or 36.9%, from
$2,750  to  $3,766,  primarily  due  to  the  1997  Acquisitions  and  the  1998
Acquisitions.

     A gain  on  sale of  properties  of $335  was  realized  and  there  was no
extraordinary  loss.  For the same period in 1997,  there was no gain on sale of
properties  and  there  was  a  $561   extraordinary   loss  due  to  the  early
extinguishment of debt.

     Income  allocated  to  minority  interests  increased  by $777 from $339 to
$1,116  due  to an  increase  in net  income  and an  increase  in the  minority
interests' ownership of the Operating Partnership from 16.9% to 22.9%.



                                       10

<PAGE>


Comparison of the nine months ended  September 30, 1998 to the nine months ended
September 30, 1997

     For the nine months ended  September 30, 1998, the net income  allocated to
common  stockholders  increased  by  $6,633  from a net  income of $308 to a net
income of $6,941, when compared to the nine months ended September 30, 1997, due
to an increase in revenues  which were  primarily due to the purchase of the six
Chicago  properties  in September  1997,  Mitchellville  Plaza in October  1997,
Spring Valley Center in December 1997 (the "1997 Acquisitions"),  Bowie Plaza in
January 1998,  Watkins Park Plaza in March 1998,  Parkville  Shopping  Center in
April 1998,  Elkridge  Corners Shopping Center in May 1998, and Village Shopping
Center in June 1998 (the "1998 Acquisitions"),  a gain recognized on the sale of
properties offset by an increase in expenses  primarily due to the 1997 and 1998
Acquisitions,  and an  increase  in the amount of income  allocated  to minority
interests.

     Total revenues increased by $13,952 or 35.4%, from $39,363 to $53,315,  due
primarily to an increase in minimum  rents of $10,798 and tenant  reimbursements
of $3,117. The increases were primarily due to the 1997 and 1998 Acquisitions.

     Property  operating and maintenance  expense increased by $3,419, or 36.3%,
from $9,419 to $12,838, due primarily to the 1997 and 1998 Acquisitions. General
and administrative  expenses decreased by $42 or 1.5%, from $2,751 to $2,709 due
primarily  to an  decrease  in the  amount of  compensation  paid or  payable to
officers   in  Company   stock  of  $722  offset  by  an  increase  in  internal
preacquisition costs of $305, accrued cash bonuses to officers of $175 and other
cash expenses of $200. Prior to March 19, 1998,  internal  preacquisition  costs
were capitalized and included in the cost of acquiring rental properties.

     Interest expense increased by $1,107, or 8.1%, from $13,675 to $14,782, due
primarily to the increased  mortgage  indebtedness  associated with the 1997 and
1998  Acquisitions  offset by a reduction in mortgage  debt from the proceeds of
the  September  1997 and July 1998  offering  and a  reduction  in the  weighted
average  interest  rate.  The average  debt  outstanding  increased  from $212.8
million for 1997 to $253.5 million for 1998, and the weighted  average  interest
rate decreased from 8.6% to 7.8%.

     Depreciation and amortization  expenses increased by $2,820, or 35.8%, from
$7,867 to $10,687, primarily due to the 1997 and 1998 Acquisitions.

     During 1998, a gain on sale of  properties of $2,018 was realized and there
was a $358 extraordinary  loss due to the early  extinguishment of debt. For the
same period in 1997, a gain on sale of  properties of $45 was realized and there
was a $695 extraordinary loss due to the early extinguishment of debt.

     In 1998, the Company sold its two multi-family  properties  (Branchwood and
Park Place) and two of the Georgetown  retail shops retiring  $4,236 of mortgage
debt associated with these properties.  In 1997, the Company sold Thieves Market
in which $734 of mortgage debt associated with the property was retired.

     Income  allocated  to minority  interests  increased by $2,231 from $838 to
$3,069  due  to an  increase  in net  income  and an  increase  in the  minority
interests ownership of the Operating Partnership from 16.9% to 22.9%.



                                       11

<PAGE>


Liquidity and Capital Resources

Indebtedness

     As  of  September  30,  1998,  the  Company  had  total   indebtedness   of
approximately   $243.3  million  (including  $25.0  million  of  debentures  and
approximately   $218.3   million  of  mortgage   indebtedness).   The   mortgage
indebtedness   consists  of   approximately   $211.4  million  in   indebtedness
collateralized by 35 of the Properties and tax-exempt bond financing obligations
issued by the  Philadelphia  Authority  for  Industrial  Development  (the "Bond
Obligations")  of  approximately  $6.9  million  collateralized  by  one  of the
properties. Of the Company's indebtedness, $15.5 million (6.4%) is variable rate
indebtedness,  and $227.8  million  (93.6%) is at a fixed  rate.  The  effective
interest  rates of the  indebtedness  range  from 5.6% to 9.8%,  with a weighted
average  interest rate of 7.8%,  and will mature  between 1999 and 2014. A large
portion of the Company's indebtedness will become due by 2000, requiring balloon
payments of $88.9 million in 1999, and $24.4 million in 2000.  From 1999 through
2014,  the Company will have to refinance an aggregate of  approximately  $204.5
million.  Since  the  Company  anticipates  that  only a  small  portion  of the
principal of such  indebtedness will be repaid prior to maturity and the Company
will likely not have sufficient  funds on hand to repay such  indebtedness,  the
Company  will  need to  refinance  such  indebtedness  through  modification  or
extension  of existing  indebtedness,  additional  debt  financing or through an
additional offering of equity securities.

     The Company currently has two collateralized revolving lines of credit (the
"Lines of Credit")  totaling  approximately  $51 million.  In January 1998,  the
Company  closed on $35,500  collateralized  revolving  Line of Credit with Union
Bank of Switzerland.  This line is  collateralized  by six properties  (Kenhorst
Plaza, Shoppes of Graylyn, Four Mile Fork, Takoma Park, Centre Ridge Marketplace
and Newtown  Square).  The line which  matures on January 31, 2001  replaces the
Lines of Credit the  Company had with Mellon  Bank and  Corestates  Bank.  Loans
under this line will bear interest at LIBOR plus one percent (1%).  The line was
subsequently  increased  to $45,000 on March 20, 1998 and Watkins Park Plaza was
pledged as additional  collateral.  The Company has a  collateralized  revolving
line of credit of up to $5.8 million from First Union Bank. Loans under the line
of credit bear interest at LIBOR plus two percent (2%) per annum,  and mature on
December 15, 1998. Loans under the line of credit are  collateralized by a first
mortgage lien on Brafferton Shopping Center. As of September 30, 1998, there was
$2,000  outstanding  under the Lines of Credit  which is  reflected  as mortgage
notes payable and included in the discussion of mortgage indebtedness above.

Liquidity

     The Company expects to meet its short-term liquidity requirements generally
through its working  capital,  net cash provided by operations  and draws on the
Lines of Credit.  The Company  believes that the foregoing  sources of liquidity
will be sufficient to fund liquidity needs through 1999.

     The Company expects to meet certain long-term  liquidity  requirements such
as development, property acquisitions,  scheduled debt maturities,  renovations,
expansions  and  other  non-recurring  capital  improvements  through  long-term
secured  and  unsecured  indebtedness,  including  the Lines of  Credit  and the
issuance of additional equity securities.  The Company also expects to use funds
available under the Lines of Credit to fund acquisitions, development activities
and capital improvements on an interim basis.

     During  1999,  $88.9  million of the  Company's  indebtedness  becomes due,
including the $25.0 million Exchangeable  Debentures.  The Company believes that
it will be able to retire this debt  through  either a  refinancing  of the debt
using the properties as collateral, an equity offering or a combination of both.
The Company currently  believes that the loan-to-values on the properties are at
a level  that  will  enable  the  Company  to  refinance  the loans  without  an
additional requirement for capital.

     The  Company  has  elected  to  qualify  as a REIT for  federal  income tax
purposes  commencing  with its tax year ended December 31, 1994. To qualify as a
REIT, the Company is required,  among other items, to pay  distributions  to its
shareholders of at least 95% of its taxable income.  The Company intends to make
quarterly distributions to its shareholders from operating cash flow.

                                       12

<PAGE>



New Accounting Standards

     On March 19, 1998, the Emerging Issues Task Force ("EITF") of the Financial
Accounting  Standards  Board  reached a  consensus  opinion on issue No.  97-11,
"Accounting  for Internal Costs Relating to Real Estate  Property  Acquisitions"
which requires that the internal costs of preacquisition  activities incurred in
connection  with  the  acquisition  of an  operating  property  be  expensed  as
incurred. The Company has historically  capitalized internal preacqusition costs
of operating properties as a component of the acquisition price. The Company has
historically capitalized internal preacqusition costs of operating properties as
a component  of the  acquisition  price.  The Company  capitalized  $227 for the
period  January 1  through  March 19,  1998 and $229 for the nine  months  ended
September  30,  1997.  The  Company  will  realize an  increase  in general  and
administrative  expense due to the  adoption of this ruling  which is  effective
immediately.

     On May 21, 1998,  the Emerging  Issues Task Force ("EITF") of the Financial
Accounting  Standards  Board  reached a  consensus  opinion  on Issue No.  98-9,
"Accounting  for Contingent  Rent In Interim  Financial  Periods" which provides
that  recognition of rental income in interim periods must be deferred until the
specified  target that triggers the  contingent  rental income is achieved.  The
Company has  historically  recognized  rental  income based on a  percentage  of
tenant  sales  ratably  over the  course  of the  year.  This  consensus  become
effective  May 21, 1998 and  requires the Company to defer  recognition  of this
income until the date that the tenant's sales exceed the breakpoint set forth in
the lease agreement. The impact of this consensus was to decrease the percentage
rentals  recognized in the third quarter by $200 and the remainder of the fiscal
year ending December 31, 1998 by approximately $40. Additionally,  the amount of
percentage  rentals  recognized in each quarter of subsequent  fiscal years will
differ from historical experience,  with a significant  concentration of revenue
being recognized in the fourth quarter.

     During the second quarter,  the Financial Accounting Standards Board issued
SFAS 133 "Accounting for Derivative  Instruments and Hedging Activities",  which
will be effective for the Company's fiscal year 2000. This statement establishes
accounting and reporting standards  requiring that every derivative  instrument,
including  certain  derivative  instruments  imbedded  in  other  contracts,  be
recorded in the balance  sheet as either an asset or  liability  measured at its
fair value.  The statement also requires that changes in the  derivative's  fair
value be recognized in earnings  unless specific hedge  accounting  criteria are
met. The Company is currently  assessing the impact of this new statement on its
consolidated financial position, liquidity, and results of operations.

Year 2000

     Many of the world's computer systems  currently record years in a two digit
format. These computer systems will be unable to properly interpret dates beyond
the year 1999,  which could lead to disruptions in our operations.  This problem
is commonly referred to as the Year 2000 issue.

     The following systems are vulnerable to the Year 2000 issue:

     Accounting/General   Ledger/Property   Management  Software.   The  Company
currently  believes  that our  software  package is Year 2000  compliant  in all
material aspects. Additional testing and compliance is ongoing. Nonetheless, the
Company is  currently  reviewing  other vendor  products  which better serve the
Company's  current  needs.  These  products  also  claim to be fully  Year  2000
compliant.  The Company has budgeted $500 for replacement software and hardware,
including installation and implementation costs. Currently,  the Company expects
implementation commencement in early 1999 with completion by June 1999.

     Hardware  Components,  Servers  and  Workstations.   These  components  are
currently  being  upgraded  to be fully  Year 2000  compliant.  We  expect  such
upgrades to be completed by early 1999.

     Key Vendors.  We have identified key vendors and customers we believe could
have a  material  impact  on  operations  if those  vendors  are not  Year  2000
compliant.  We are developing a short  questionnaire to send to our majorvendors
regarding their Year 2000 compliance.  However,  the Company currently  believes
that there will be no mutual adverse impact on the Company's operations.


                                       13

<PAGE>



     Although  we  are  taking  the  foregoing  steps  to  establish  Year  2000
compliance,  we  cannot  guarantee  that all of our  systems  will be Year  2000
compliant or that other companies on which we rely will be timely converted.  As
a result, our operations could be adversely affected.



                                     Part II

OTHER INFORMATION

Item 2. Recent Sales of Unregistered Equity Securities

     (a) Securities Sold

          The following  table sets forth the date of sale,  title and amount of
          unregistered securities sold by the Company since December 31, 1997:

          Date of Sale                    Title                    Amount
          ------------                    -----                    ------
            01/01/98                   Common Units               130,626
            04/30/98                   Common Units               185,361
            05/28/98                   Common Units                89,109
            06/01/98                   Common Units               373,162

     (b) Underwriters and other purchasers

          i.   January  1,  1998  Sales.   Underwriters  were  not  retained  in
               connection  with the sale of these  securities.  These units were
               sold to the seller of Bowie Plaza, an "accredited investor".

          ii.  April  30,  1998  Sales.   Underwriters   were  not  retained  in
               connection  with the sale of these  securities.  These units were
               sold to the seller of Parkville  Shopping Center,  an "accredited
               investor".

          iii. May 28, 1998 Sales.  Underwriters were not retained in connection
               with the sale of these  securities.  These units were sold to the
               seller of Elkridge Corners, an "accredited investor".

          iv.  June 1, 1998 Sales.  Underwriters were not retained in connection
               with the sale of these  securities.  These units were sold to the
               seller of Village Shopping Center, an "accredited investor".

     (c) Consideration

          i.   January 1, 1998 Sales.  These  units were issued in exchange  for
               property  having a value of  approximately  $6.8 million,  net of
               assumed  indebtedness.  There were no  underwriting  discounts or
               commissions with respect to such securities.

          ii.  April 30,  1998 Sales.  These  units were issued in exchange  for
               property  having a value of  approximately  $5.2 million,  net of
               assumed  indebtedness.  There were no  underwriting  discounts or
               commissions with respect to such securities.

          iii. May 28,  1998 Sales.  These  units were  issued in  exchange  for
               property  having a value of  approximately  $2.2 million,  net of
               assumed  indebtedness.  There were no  underwriting  discounts or
               commissions with respect to such securities.

                                       14

<PAGE>



          iv.  June 1, 1998  Sales.  These  units were  issued in  exchange  for
               property  having a value of  approximately  $9.8 million,  net of
               assumed  indebtedness.  There were no  underwriting  discounts or
               commissions with respect to such securities.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

          3.1  Amended and Restated Bylaws

          27   Financial Data Schedule 


     (b) Reports on Form 8-K.

          An  interim  report  on Form 8-K was filed on May 18,  1998  including
          certain exhibits thereto.

          An interim report on Form 8-K was filed on June 17, 1998 reporting the
          acquisition of five retail properties.

          An  interim  report on Form 8-K was filed on July 28,  1998  regarding
          recently enacted legislation.

          An  interim  report on Form 8-K was filed on July 31,  1998  including
          certain exhibits thereto.

          An interim report on Form 8-K was filed on October 23, 1998, regarding
          the adopted Stockholder Rights Amendment.

          An interim report of Form 8-K was filed on October 27, 1998, including
          certain exhibits thereto.

          An interim report of Form 8-K was filed on October 30, 1998, regarding
          Risk Factors.

                                       15

<PAGE>





                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                        FIRST WASHINGTON REALTY TRUST, INC.


Date:  November 11, 1998                         /s/ William J. Wolfe
                                                --------------------------------
                                        By:      William J. Wolfe
                                                 President and
                                                 Chief Executive Officer


Date:  November 11, 1998                         /s/ James G. Blumenthal
                                                 -------------------------------
                                        By:      James G. Blumenthal
                                                 Executive Vice President and
                                                 Chief Financial Officer



                                       16