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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                       COMMISSION FILE NUMBER: 001-13243

                            ------------------------

                      PAN PACIFIC RETAIL PROPERTIES, INC.

             (Exact Name of Registrant as Specified in Its Charter)

                  MARYLAND                             33-0752457
      (State or Other Jurisdiction of        (I.R.S. Employer Identification
       Incorporation or Organization)                     No.)

        1631-B SOUTH MELROSE DRIVE,                       92083
             VISTA, CALIFORNIA                         (zip code)
  (Address of Principal Executive Offices)

       Registrant's telephone number, including area code: (760) 727-1002

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

<TABLE>
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        TITLE OF EACH CLASS          NAME OF EACH EXCHANGE ON WHICH REGISTERED
-----------------------------------  -----------------------------------------
<S>                                  <C>
   Common Stock, $0.01 par value              New York Stock Exchange
</TABLE>

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

                            ------------------------

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

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

    The aggregate market value of the shares of common stock held by
non-affiliates was approximately $178,613,400 based upon the closing price on
the New York Stock Exchange for such shares of $22.188 on March 17, 1998.

    As of March 17, 1998, the number of shares of the Registrant's common stock
outstanding was 16,814,012.

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                      DOCUMENTS INCORPORATED BY REFERENCE

    Part III of this report on Form 10-K incorporates by reference information
from the Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission within 120 days of the close of the Registrant's fiscal
year.

                      PAN PACIFIC RETAIL PROPERTIES, INC.
                               TABLE OF CONTENTS
                                     PART I

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                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
ITEM 1.   BUSINESS....................................................    1
ITEM 2.   PROPERTIES..................................................    9
ITEM 3.   LEGAL PROCEEDINGS...........................................   17
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   17

                                  PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.......................................   17
ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA........................   17
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.................................   18
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   26
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE..................................   26

                                  PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   26
ITEM 11.  EXECUTIVE COMPENSATION......................................   26
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT................................................   26
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   26

                                  PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
            8-K.......................................................   27
</TABLE>
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                                     PART I

ITEM 1. BUSINESS

    Pan Pacific Retail Properties, Inc. (the "Company"), a self-administered and
self-managed real estate investment trust (a "REIT"), was formed in April 1997
to continue and expand the acquisition, ownership, management, leasing and
development business of Pan Pacific Development (U.S.) Inc. and its affiliates
(collectively, "PPD"). The Company's portfolio consists principally of community
and neighborhood shopping centers predominantly located in four key western U.S.
markets. On August 13, 1997, the Company completed its initial public offering
(the "IPO") of 7,000,000 shares of common stock, par value $.01 per share (the
"Common Stock") at $19.50 per share. On September 8, 1997, the Company issued an
additional 1,050,000 shares of Common Stock at $19.50 upon the Company's
underwriters full exercise of their over-allotment option.

    As of December 31, 1997, the Company owned or controlled a portfolio of 32
shopping center properties (collectively, the "Properties"), of which 28 are
located in the western United States including seven in Northern California,
eight in Southern California, six in Las Vegas, Nevada and seven in the Pacific
Northwest (Washington and Oregon).

    The Company employed 65 people as of December 31, 1997, including five
executive officers and senior personnel in the areas of administration,
accounting services, property management, maintenance, design, leasing,
acquisitions and business development. The Company's executives offices are
located at 1631-B South Melrose Drive, Vista, California, and its telephone
number is (760) 727-1002. In addition to personnel located at its executive
offices, the Company operates regional offices in Las Vegas, Nevada; Kent,
Washington; Chino, California; and Sacramento, California. Each of the regional
offices is responsible for property maintenance, management and leasing.

    The Company plans to make an election to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code (the "Code") commencing with its
taxable year ended December 31, 1997. The Company believes that, commencing with
its taxable year ended December 31, 1997, it has been organized and operated in
such a manner so 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 will continue to operate in such a manner so as to qualify or
remain qualified. Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain federal, state and local taxes on its revenue
and property.

BUSINESS STRATEGIES

    The Company's business strategies involve three fundamental practices: (i)
owning and operating shopping centers in select key markets with strong economic
and demographic characteristics in order to establish and maintain a portfolio
of real estate assets with stable income and the potential for long-term growth;
(ii) developing local and regional market expertise through the hands-on
participation of senior management in property operations and leasing in order
to capitalize on market trends, retailing trends and acquisition opportunities;
and (iii) establishing and maintaining a diversified and complementary tenant
mix with an emphasis on tenants that provide day-to-day consumer necessities in
order to provide steady rental revenue.

GROWTH STRATEGIES

    The Company's growth strategy is to acquire shopping centers that provide an
opportunity to expand in current markets or to establish a presence in targeted
markets with favorable economic and demographic characteristics. The Company
seeks to acquire properties that can benefit from its hands-on management, that
may require repositioning, redevelopment or renovation or which can be purchased
at attractive capitalization rates and are consistent in terms of quality and
location with the Company's existing portfolio.

                                       1
<PAGE>
    The Company seeks to continue to utilize its in-depth market knowledge
within its four key markets to pursue its strategy of opportunistic acquisitions
of shopping centers for long-term investment. The Company believes that
significant opportunities exist within these markets to acquire shopping center
properties that are consistent with its existing portfolio in terms of quality
of construction, positive submarket demographics and location attributes and
that provide attractive initial capitalization rates with potential for growth
in cash flow. The Company further believes it has certain competitive advantages
which enhance its ability to identify and capitalize on acquisition
opportunities, including: (i) long-standing relationships with institutional and
other owners of shopping center properties in the Company's four primary
regions; (ii) fully integrated real estate operations which enable the Company
to respond quickly to acquisition opportunities and to capitalize on the
resulting economies of scale; and (iii) access to capital as a public company.

    Since the closing of the Company's IPO on August 13, 1997 through December
31, 1997, the Company has acquired seven shopping centers totaling 861,857
square feet for approximately $104.8 million. All of the properties are located
in the Company's four key markets, and five of the shopping centers are anchored
by grocery stores. Management believes that all of the centers are located in
markets with strong demographic characteristics. Management intends to add value
to such retail properties through the application of its active, hands-on
management and aggressive leasing strategies.

    Although the Company believes that current market conditions generally favor
acquisitions, management intends to continue developing quality shopping center
properties when it believes market conditions and tenant opportunities support
favorable risk-adjusted returns. Management completed the development of Phase
II of Laguna Village during the third quarter of 1997. Phase II encompasses
60,020 square feet and was 84.7% leased as of December 31, 1997.

    The Company also seeks to maximize the cash flow from its existing
Properties by continuing to enhance the operating performance of each Property
through its in-house leasing and property management programs. The Company
aggressively pursues: (i) the leasing of currently available space; (ii) the
renewal or releasing of expiring leases at higher rental rates which management
believes currently are available based on improving market conditions and its
recent leasing activity; and (iii) economies of scale in the management and
leasing of properties that may be realized by focusing its acquisition and
development activities within its four primary regions.

FINANCING STRATEGIES

    The Company's financing strategy is to maintain a strong and flexible
financial position by maintaining a prudent level of leverage, maintaining a
large pool of unencumbered assets and managing its variable interest rate
exposure. The Company intends to finance future acquisitions with the most
advantageous sources of capital available to the Company, which may include the
sale of common stock, preferred stock or debt securities through public
offerings or private placements and the incurrence of additional indebtedness
through secured or unsecured borrowings.

RECENT DEVELOPMENTS

    Since January 1, 1998 the Company has acquired the following six shopping
centers:

    - On January 20, 1998, the Company purchased Bear Creek Plaza, a 183,990
      square foot community shopping center located in Medford, Oregon. Bear
      Creek Plaza is anchored by Albertsons, Bi-Mart and T.J. Maxx. The purchase
      price was $13,100,000.

    - On January 21, 1998, the Company purchased San Dimas Marketplace, a
      271,150 square foot community shopping center (154,150 square feet are
      owned) located in San Dimas, California. San Dimas Marketplace is anchored
      by Target, Ross Stores, Office Max, Trader Joes and PetCo. The purchase
      price was $22,800,000.

                                       2
<PAGE>
    - On February 18, 1998, the Company purchased a four-property portfolio,
      including Milwaukie Marketplace, Pioneer Plaza, Powell Valley Junction and
      Shute Park Plaza, all located in the state of Oregon. The purchase price
      of Milwaukie Marketplace, a 266,928 square foot community shopping center
      which is anchored by Albertsons, Rite Aid and Jo-Ann Fabrics and Crafts,
      was $12,735,000. The purchase price of Pioneer Plaza, a 96,027 square foot
      neighborhood shopping center which is anchored by Safeway and Fashion Bug,
      was $7,455,000. The purchase price of Powell Valley Junction, a 103,023
      square foot neighborhood shopping center which is anchored by Food 4 Less
      and Cascade Athletic, was $6,185,000. The purchase price of Shute Park
      Plaza, a 58,560 square foot neighborhood shopping center which is anchored
      by True Value Hardware, was $3,975,000. All of these properties were
      financed primarily by draws under the Company's line of credit.

DISPOSITIONS

    The Company has no current intention to cause the disposition of any of the
Properties, although it reserves the right to do so if, after taking into
account the tax consequences of any disposition, including the Company's
continued ability to qualify as a REIT, it determines that such action would be
in its best interests.

CERTAIN CAUTIONARY STATEMENTS

    REAL ESTATE INVESTMENT ASSOCIATED RISKS.  Real property investments are
subject to varying degrees of risk. The yields available from equity investments
in real estate depend in large part on the amount of income generated and
expenses incurred. If the Properties do not generate revenue sufficient to meet
operating expenses, including debt service, tenant improvements, leasing
commissions and other capital expenditures, the Company may have to borrow
additional amounts to cover fixed costs and the Company's cash flow and ability
to make distributions to its stockholders will be adversely affected.

    The Company's revenue and the value of its properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; changes in retail
expenditures by consumers; the perceptions of prospective tenants of the
attractiveness of the property; the ability of the Company to manage and
maintain the Properties and secure adequate insurance; and increased operating
costs (including real estate taxes and utilities). In addition, real estate
values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.

    POTENTIAL INABILITY OF COMPANY TO RETAIN TENANTS AND RELET SPACE.  The
Company will be subject to the risks that upon expiration or in certain limited
circumstances or termination, leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Leases covering a
total of approximately 6.11% and 38.7% of the leased gross leasable area ("GLA")
of the Properties will expire through the end of 1998 and 2002, respectively.
The Company budgets for renovation and reletting expenses, which take into
consideration its views of both the current and expected market conditions in
the geographic regions in which the Properties are located, but no assurance can
be given that these reserves will be sufficient to cover such costs. If the
Company is unable to promptly relet or renew leases for all or a substantial
portion of this space, if the rental rates upon such renewal or reletting are
significantly lower than expected or if the Company's reserves for these
purposes prove inadequate, the Company's cash flow and ability to make expected
distributions to stockholders could be adversely affected.

    DEPENDENCE ON MARKET CONDITIONS IN THE GEOGRAPHIC REGIONS.  Seven Properties
are located in Northern California, eight Properties are located in Southern
California, six are located in Las Vegas, Nevada and seven are located in the
Pacific Northwest. To the extent that general economic or other relevant
conditions in these regions decline and result in a decrease in consumer demand
in these regions, the Company's performance may be adversely affected.

                                       3
<PAGE>
    POTENTIAL ILLIQUIDITY OF REAL ESTATE.  Equity real estate investments are
relatively illiquid. Such illiquidity will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions. In addition, the Code limits a REIT's ability to sell
properties held for fewer than four years, which may affect the Company's
ability to sell properties without adversely affecting returns to holders of
Common Stock.

    COMPETITION WITH OTHER DEVELOPERS AND REAL ESTATE COMPANIES.  There are
numerous commercial developers and real estate companies that compete with the
Company in seeking land for development, properties for acquisition and tenants
for properties. There are numerous shopping facilities that compete with the
Properties in attracting retailers to lease space. In addition, retailers at the
Properties face increasing competition from outlet stores, discount shopping
clubs, and other forms of marketing of goods, such as direct mail, internet
advertising and telemarketing. Such competition may reduce properties available
for acquisition or development, reduce percentage rents payable to the Company
and may, through the introduction of competition, contribute to lease defaults
or insolvency of tenants. Thus, competition could materially affect the
Company's ability to generate net income and to make distributions to its
stockholders.

    COST OF COMPLIANCE WITH CHANGES IN LAWS.  Because increases in income,
service or transfer taxes are generally not passed through to tenants under
leases, such increases may adversely affect the Company's cash flow and its
ability to make distributions to stockholders. The Properties are also subject
to various federal, state and local regulatory requirements, such as
requirements of the Americans with Disabilities Act of 1990 (the "ADA") and
state and local fire and life safety requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental authorities
or awards of damages to private litigants. The Company believes that the
Properties are currently in substantial compliance with all such regulatory
requirements and the Company expects to maintain compliance with such regulatory
requirements. However, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed which would require
significant unanticipated expenditures by the Company and could have an adverse
effect on the Company's cash flow and expected distributions.

    RELIANCE ON CERTAIN TENANTS AND ANCHORS.  The Company's income and funds
from operations could be adversely affected in the event of the bankruptcy or
insolvency, or a downturn in the business, of any anchor store, or if any anchor
tenant does not renew its lease when it expires. If the tenant sales at the
Properties were to decline, tenants might be unable to pay their rent or other
occupancy costs. In the event of default by a tenant, delays and costs in
enforcing the lessor's rights could be experienced. In addition, the closing of
one or more anchor-occupied stores or lease termination by one or more anchor
tenants of a shopping center whose leases may permit termination could adversely
impact that Property and result in lease terminations or reductions in rent by
other tenants whose leases may permit termination or rent reduction in those
circumstances and adversely affect the Company's ability to re-lease the space
that is vacated. Each of these developments could adversely affect the Company's
funds from operations and its ability to make expected distributions to
shareholders.

    LIMITATIONS ON CONTROL OF PARTIALLY-OWNED PROPERTIES.  The Company owns a
91% partnership interest in the limited partnership that owns Chino Town Square
and a 50% managing general partnership interest in the limited partnership that
owns Melrose Village Plaza. The Company may have certain fiduciary
responsibilities to third parties which it will need to consider when making
decisions relating to these Properties. The Company will not have sole control
of certain major decisions relating to these Properties and will need to seek
the consent of such third parties under certain circumstances such as sales,
refinancings, the timing and amount of additional capital contributions thereto
and the transfer, assignment or pledge of the Company's partnership interests in
the partnerships owning these Properties. In addition, the Company may also
participate with other entities in property ownership through joint ventures or
partnerships in the future. Partnership or joint venture investments may, under
certain circumstances, involve risks not otherwise present, including the
possibility that the Company's partners or

                                       4
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co-venturers might become bankrupt, that such partners or co-venturers might at
any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of the Company, and that such
partners or co-venturers may be in a position to take action contrary to the
Company's instructions or requests or contrary to the Company's policies or
objectives, including the Company's policy with respect to maintaining its
qualification as a REIT.

    LACK OF OPERATING HISTORY WITH RESPECT TO THE RECENT ACQUISITION AND
DEVELOPMENT OF PROPERTIES.  At December 31, 1997, the Company owned and operated
32 Properties, consisting of over 5.3 million square feet. Thirteen of the
Properties have been acquired since January 1, 1997, and may have
characteristics or deficiencies currently unknown to the Company that affect
their valuation or revenue potential, and it is also possible that the operating
performance of these Properties may decline under the Company's management. As
the Company acquires additional properties, the Company will be subject to risks
associated with managing new properties, including lease-up and tenant
retention. In addition, the Company's ability to manage its growth effectively
will require it to successfully integrate its new acquisitions into its existing
management structure. No assurances can be given that the Company will be able
to succeed with such integration or to effectively manage additional properties
or that newly acquired properties will perform as expected.

    INFLUENCE OF CERTAIN AFFILIATES.  Stuart Tanz, the Company's Chairman,
President and Chief Executive Officer, and Russell Tanz, a director of the
Company, through their and their families' ownership interests in Revenue
Properties Company Limited ("RPC") and RPC's ownership of PPD, own or control
approximately over 50% of the total outstanding shares of Common Stock of the
Company as of March 15, 1998. In addition, PPD has the right to nominate certain
of the directors of the Company. Under the terms of the Company's Charter, no
other stockholder presently is permitted to own in excess of 6.25% of the Common
Stock. Consequently, although the Tanz family will not be able to take action on
behalf of the Company without the concurrence of other members of the Company's
Board of Directors, they may be able to exert substantial influence over the
Company's affairs, which influence might not be consistent with the interest of
other stockholders. In addition, there may be conflicts between the interests of
the public stockholders of RPC and the public stockholders of the Company.

    DEPENDENCE ON KEY MANAGEMENT PERSONNEL.  The executive officers of the
Company have substantial experience in owning, operating, managing, acquiring
and developing shopping centers. The Company believes that its success will
depend in large part upon the efforts of such persons. The Company has entered
into employment agreements with certain of its executive officers which provide
for their continued employment with the Company for up to three years and
contain certain non-compete provisions. There can be no assurance that these
executive officers will remain in the employ of the Company, notwithstanding
their potential liability for damages to the Company if they should terminate
their employment. In the event key management personnel do not remain in the
employ of the Company, the Company could be adversely affected.

    DEBT FINANCING AND EXISTING DEBT MATURITIES.  The Company is subject to
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, the risk that existing indebtedness on the Properties (which in
all cases will not have been fully amortized at maturity) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. At December 31, 1997, the Company had
outstanding indebtedness of approximately $170,766,000, which will mature over
10 years. Since the Company anticipates that only a small portion of the
principal of the indebtedness will be repaid prior to maturity, and the Company
will not have funds on hand sufficient to repay the balance of the indebtedness
in full at maturity, it will be necessary for the Company to refinance the debt
either through additional borrowings or equity or debt offerings. If principal
payments due at maturity cannot be refinanced, extended or paid with proceeds of
other capital transactions, the Company expects that its cash flow will not be
sufficient in all years to pay distributions at expected levels and to repay all
such maturing

                                       5
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debt. Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing, the interest expense
relating to such refinanced indebtedness would increase, which could adversely
affect the Company's cash flow and its ability to make expected distributions to
its stockholders. In addition, in the event the Company is unable to refinance
the indebtedness on acceptable terms, the Company might dispose of properties
upon disadvantageous terms, which might result in losses to the Company and
might adversely affect funds available for distribution to stockholders.

    POTENTIAL DEFAULTS UNDER MORTGAGE FINANCING.  At December 31, 1997, the
Company had approximately $108,316,000 in principal amount of mortgage
financing. The payment and other obligations under certain of the mortgage
financing is secured by cross-collateralized, and cross-defaulted first mortgage
liens in the aggregate amount of approximately $53,836,000 on four Properties.
If the Company is unable to meet its obligations under the mortgage financing,
the Properties securing such debt could be foreclosed upon, which could have a
material adverse effect on the Company and its ability to make expected
distributions and could threaten the continued viability of the Company.

    RISING INTEREST RATES AND VARIABLE RATE DEBT.  Advances under the Company's
unsecured credit facility (the "Unsecured Credit Facility") may bear interest at
a variable rate. In addition, the Company may incur other variable rate
indebtedness in the future. Increases in interest rates on such indebtedness
would increase the Company's interest expense, which could adversely affect the
Company's cash flow and its ability to pay expected distributions to
stockholders. Accordingly, the Company may in the future engage in other
transactions to further limit its exposure to rising interest rates as
appropriate and cost effective.

    TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A
REIT.  Commencing with its taxable year ended December 31, 1997, the Company
believes it qualifies as a REIT under the Code. Qualification as a REIT involves
the satisfaction of numerous requirements (some on an annual and some on a
quarterly basis) established under highly technical and complex Code provisions
for which there are only limited judicial and administrative interpretations,
and involve the determination of various factual matters and circumstances not
entirely within the Company's control. No assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification.

    If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would 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 net earnings of the Company available for
distribution to stockholders because of the additional tax liability to the
Company for the years involved. In addition, distributions to stockholders would
no longer be required to be made.

    ACQUISITION AND DEVELOPMENT INVESTMENTS MAY NOT PERFORM AS EXPECTED.  The
Company intends to continue acquiring, developing and redeveloping shopping
center properties. Acquisitions of retail properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
development costs and costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate.

    The Company intends to expand or renovate its Properties from time to time.
Expansion and renovation projects generally require expenditure of capital as
well as various government and other approvals, the receipt of which cannot be
assured. While policies with respect to expansion and renovation activities are
intended to limit some of the risks otherwise associated with such activities,
the Company will nevertheless incur certain risks, including expenditures of
funds on, and devotion of management's time to, projects which may not be
completed.

                                       6
<PAGE>
    The Company anticipates that future acquisitions, development and
renovations will be financed through a combination of advances under its
unsecured credit facility, other lines of credit and other forms of secured or
unsecured financing. If new developments are financed through construction
loans, there is a risk that, upon completion of construction, permanent
financing for newly developed properties may not be available or may be
available only on disadvantageous terms.

    It is possible that the Company will in the future expand its business to
new geographic markets. The Company will not initially possess the same level of
familiarity with new markets outside of the geographic areas in which the
Properties are currently located, which could adversely affect its ability to
acquire, develop, manage or lease properties in any new localities.

    The Company also intends to develop and construct shopping centers in
accordance with the Company's development and business strategies. Risks
associated with the Company's development and construction activities may
include: abandonment of development opportunities; construction costs of a
property exceeding original estimates, possibly making the property
uneconomical; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; financing may not be available on
favorable terms for development of a property; and construction and lease-up may
not be completed on schedule, resulting in increased debt service expense and
construction costs. In addition, new development activities, regardless of
whether they would ultimately be successful, typically require a substantial
portion of management's time and attention. Development activities would also be
subject to risks relating to the inability to obtain, or delays in obtaining,
all necessary zoning, land use, building, occupancy, and other required
governmental permits and authorizations.

    THE PROPERTIES MAY BE SUBJECT TO UNKNOWN ENVIRONMENTAL LIABILITIES.  Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances or petroleum product
releases at such property and may be held liable to a governmental entity or to
third parties for property damage and for investigation and clean-up costs
incurred by such parties in connection with the contamination. Such laws
typically impose clean-up responsibility and liability without regard to whether
the owner knew of or caused the presence of the contaminants, even when the
contaminants were associated with previous owners or operators and the liability
under such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. The
costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure properly to
remediate the contamination on such property, may adversely affect the owner's
ability to sell or rent such property or to borrow using such property as
collateral. The presence of contamination at a property can impair the value of
the property even if the contamination is migrating onto the property from an
adjoining property. Persons who arrange for the disposal or treatment of
hazardous or toxic substances at a disposal or treatment facility also may be
liable for the costs of removal or remediation of a release of hazardous or
toxic substances at such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs incurred in connection with the contamination. Sometimes, the
remedy to remediate contamination may include deed restriction or institutional
control, which can restrict how the property may be used. Finally, the owner of
a site may be subject to common law claims by third parties based on damages and
costs resulting from environmental contamination emanating from such site.

    Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos containing materials (a "ACM")
when such materials are in poor condition or in the event of construction,
remodeling, renovation or demolition of a building. Such laws may impose
liability for release of ACM and may provide for third parties to seek recovery
from owners or operators of real properties for personal injury associated with
ACM. In connection with its ownership and operation of the Properties, the
Company may be potentially liable for such costs.

                                       7
<PAGE>
    Shopping centers may have businesses such as dry cleaners and auto repair or
servicing businesses which handle, store and generate small quantities of
hazardous wastes. The operation may result in spills or releases from
time-to-time that can result in soil or groundwater contamination. Independent
environmental consultants have recently conducted or updated Phase I
Environmental Assessments (the "Phase I Assessments") at the Properties. These
Phase I Assessments have included, among other things, a visual inspection of
the Properties and the surrounding area and a review of relevant state, federal
and historical documents.

    The Company's Phase I Assessments of the Properties have not revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's business, assets or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.

    Nevertheless, it is possible that the Company's Phase I Assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no assurance
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Company.

    The Company believes that the Properties are in substantial compliance in
all material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances or petroleum products. The
Company has not been notified by any governmental authority, and is not
otherwise aware of any material noncompliance, liability or claim relating to
hazardous or toxic substances or petroleum products in connection with any of
its Properties, other than as noted above.

    NO LIMITATION ON AMOUNT OF INDEBTEDNESS THE COMPANY MAY INCUR.  At December
31, 1997, the Company's debt to total market capitalization ratio was
approximately 32.2%. The Company currently has a policy of incurring debt only
if upon such incurrence the debt to total market capitalization ratio would be
50% or less, but the organizational documents of the Company do not contain any
limitation on the amount of indebtedness the Company may incur. Accordingly, the
Board of Directors could alter or eliminate this policy. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the Company's cash flow
and, consequently, the amount available for distribution to stockholders, and
could increase the risk of default on the Company's indebtedness.

    CERTAIN TYPES OF LOSSES MAY EXCEED INSURANCE COVERAGE.  The Company carries
comprehensive liability, public area liability, fire, earthquake, flood, boiler
and machinery, extended coverage and rental loss insurance covering the
Properties, with policy specifications and insured limits which the Company
believes are adequate and appropriate under the circumstances. There are,
however, certain types of losses that are not generally insured because it is
not economically feasible to insure against such losses. Should an uninsured
loss or a loss in excess of insured limits occur, the Company could lose its
capital invested in the Property, as well as the anticipated future revenue from
the Property and, in the case of debt which is with recourse to the Company,
would remain obligated for any mortgage debt or other financial obligations
related to the Property. Any such loss would adversely affect the Company.

    DISPOSITION OF PROPERTIES WITH BUILT-IN GAIN.  In connection with the
formation of the Company, certain subsidiaries taxable as "C" corporations were
merged either into the Company or into subsidiaries of the Company which will
qualify as "qualified REIT subsidiaries". Certain of these subsidiaries held 13
properties with built-in gain at the time the subsidiaries were merged into the
Company or into subsidiaries of the Company. Pursuant to Treasury Regulations
which have not yet been promulgated, if these properties are sold within 10
years of the date they were acquired by the Company, the Company will be
required to pay taxes on the built-in gain that would have been realized if the
merging "C" corporation had

                                       8
<PAGE>
liquidated on the day before the date of the mergers. Therefore, with respect to
managing its portfolio, the Company may have less flexibility in determining
whether or not to dispose of these properties, and if it desires to do so at
some future date, it may be subject to tax on the built-in gain as a result of
any disposition of these properties to the extent the gain exceeds any available
net operating loss carry forwards for any property.

ITEM 2. PROPERTIES

GENERAL

    As of December 31, 1997, the Properties consist of 32 neighborhood/community
shopping centers containing 5.3 million square feet of which 4.5 million square
feet is owned by the Company. The Properties are primarily situated in four key
western U.S. markets including Northern California, Southern California, Las
Vegas, Nevada and the Pacific Northwest, each of which the Company believes has
attractive economic and demographic characteristics. The largest concentration
of Properties, consisting of 40% of the total GLA, is located in California (21%
of which is located in Northern California and 19% is located in Southern
California). Another 30% of the total GLA is located in Las Vegas, Nevada and
24% of the total GLA is located in the Pacific Northwest primarily in the
Seattle, Washington and Portland, Oregon metropolitan areas. In addition,
Properties consisting of the remaining 6% of the total GLA are located in New
Mexico, Tennessee, Kentucky and Florida. As of December 31, 1997, 98% of the
Properties' total GLA was occupied by 749 tenants, of which 75% were national
tenants and 10% were regional tenants (together representing 85% of the total
leased GLA).

    The Properties are regionally managed under active central control by the
Company's executive officers. Property management, leasing, capital
expenditures, construction and aquisition decisions are centrally administered
at the Company's corporate office. The Company employs property managers at each
of its regional offices to oversee and direct the day-to-day operations of the
Properties, as well as the on-site personnel. Property managers communicate
daily with the Company's corporate offices to implement the Company's policies
and procedures.

    As a result of management's in-house leasing program, the Properties benefit
from a stable, diversified merchandising mix. At December 31, 1997, 75.2% of the
total leased GLA was leased to national tenants, 9.5% leased to regional
tenants, and 15.3% to local tenants. To promote stability and attract non-anchor
tenants, the Company generally enters into long-term leases (typically 15 to 20
years) with major or anchor tenants which usually contain provisions permitting
tenants to renew their leases at rates which often include fixed rent increases
or CPI adjustments from the prior base rent. At December 31, 1997, anchor
tenants leased 59.3% of the total leased GLA with only 34.4% of anchor-leased
GLA (20.4% of the total leased GLA) scheduled to expire within the next 10
years. To take advantage of improving market conditions and changing retail
trends, the Company generally enters into shorter term leases (typically three
to five years) with non-anchor tenants. The Company's leases are generally on a
triple-net basis, which require the tenants to pay their PRO RATA share of all
real property taxes, insurance and property operating expenses.

                                       9
<PAGE>
PROPERTIES

    The following table sets forth certain information about each of the
Properties at December 31, 1997:
<TABLE>
<CAPTION>
                                                  GROSS LEASABLE AREA
                                                  -------------------                             TOTAL
                                        YEAR                  ANCHOR              % OCCUPIED    NUMBER OF
                                     COMPLETED/     OWNED      OWNED     TOTAL      AS OF      TENANTS AS
PROPERTY AND LOCATION                RENOVATED    (SQ. FT.)   (SQ.FT)  (SQ.FT.)    12/31/97    OF 12/31/97
-----------------------------------  ----------   ---------   -------  ---------  ----------   -----------
<S>                                  <C>          <C>         <C>      <C>        <C>          <C>
NORTHERN CALIFORNIA
Chico Crossroads ..................  1988/1994     267,735          0    267,735    100.0           18
  CHICO, CA
Monterey Plaza ....................       1990     183,180     49,500    232,680     98.1           29
  SAN JOSE, CA
Brookvale Center ..................  1968/1989     128,224          0    128,224     96.6           16
  FREMONT, CA
Laguna Village ....................  1996/1997     108,203          0    108,203     91.5           10
  SACRAMENTO, CA
Lakewood Shopping Center .                1988     107,769          0    107,769     97.4           27
  WINDSOR, CA
Fairmont Shopping Center .                1988     104,281          0    104,281    100.0           29
  PACIFICA, CA
Rosewood Village ..................       1988      50,248          0     50,248     95.8           19
  SANTA ROSA, CA
                                                  ---------   -------  ---------    -----          ---
TOTAL/WEIGHTED AVERAGE.............                949,640     49,500    999,140     97.7          148
                                                  ---------   -------  ---------    -----          ---
SOUTHERN CALIFORNIA
Chino Town Square(2) ..............       1987     337,001    188,060    525,061     99.3           53
  CHINO, CA
Melrose Village Plaza(2) ..........       1990     132,674          0    132,674     89.4           27
  VISTA, CA
Tustin Heights ....................       1983     131,518          0    131,518     91.0           15
  TUSTIN, CA
Laurentian Center .................       1988      97,131          0     97,131    100.0           25
  ONTARIO, CA
Palmdale Center ...................       1975      81,050          0     81,050    100.0           14
  PALMDALE, CA
Vineyard Village East .............       1992      45,200          0     45,200    100.0            4
  ONTARIO, CA
Foothill Center ...................       1990      19,636          0     19,636     72.7            8
  RIALTO, CA
Arlington Courtyard ...............       1991      12,221          0     12,221     90.0            5
  RIVERSIDE, CA
                                                  ---------   -------  ---------    -----          ---
TOTAL/WEIGHTED AVERAGE.............                856,431    188,060  1,044,491     95.9          151
                                                  ---------   -------  ---------    -----          ---

<CAPTION>

                                     ANNUALIZED BASE RENT IN PLACE AT 12/31/97(1)
                                     ---------------------------------------------
                                                  ANN. BASE
                                     ANN. BASE   RENT/LEASED
PROPERTY AND LOCATION                RENT(1)($)  SQ.FT.(4)($)    MAJOR RETAILERS
-----------------------------------  ----------  -----------   -------------------
<S>                                  <C>         <C>           <C>
NORTHERN CALIFORNIA
Chico Crossroads ..................  2,045,405       7.64      HomeBase,
  CHICO, CA                                                    Food-4-Less, Barnes
                                                               & Noble, Office
                                                               Depot,
Monterey Plaza ....................  2,546,092      14.17      Wal-Mart, Lucky(3),
  SAN JOSE, CA                                                 Walgreens
Brookvale Center ..................  1,089,793       8.80      Lucky, Longs Drugs,
  FREMONT, CA                                                  World Gym
Laguna Village ....................  1,659,031      16.75      United Artists
  SACRAMENTO, CA                                               Theatres, 24 Hour
                                                               Fitness
Lakewood Shopping Center .             998,571       9.51      Raley's
  WINDSOR, CA                                                  Supermarket, U.S.
                                                               Post Office
Fairmont Shopping Center .           1,195,607      11.47      Lucky, Rite Aid
  PACIFICA, CA
Rosewood Village ..................    745,697      15.49      Lad's Supermarket,
  SANTA ROSA, CA                                               Bradley Video
                                     ----------     -----
TOTAL/WEIGHTED AVERAGE.............  10,280,196     11.08
                                     ----------     -----
SOUTHERN CALIFORNIA
Chino Town Square(2) ..............  4,482,403      13.40      Target(3),
  CHINO, CA                                                    Wal-Mart,
                                                               Mervyn's(3),
                                                               Nordstrom Rack, AMC
                                                               Theaters
Melrose Village Plaza(2) ..........  1,322,585      11.14      Lucky, Sav-On Drug
  VISTA, CA
Tustin Heights ....................  1,411,996      11.79      Ralphs, Longs
  TUSTIN, CA                                                   Drugs, Michael's
                                                               Arts & Crafts
Laurentian Center .................  1,195,143      12.30      Pep Boys, 24 Hour
  ONTARIO, CA                                                  Fitness, A-1
                                                               Hardware
Palmdale Center ...................    505,317       6.23      Smart & Final, Rite
  PALMDALE, CA                                                 Aid, Pic 'N' Save
Vineyard Village East .............    366,945       8.12      Sears, Dunn Edwards
  ONTARIO, CA                                                  Paints
Foothill Center ...................    130,709       9.15      PIP Printing
  RIALTO, CA
Arlington Courtyard ...............    131,666      11.97      Harvest Christian
  RIVERSIDE, CA                                                Bookstore
                                     ----------     -----
TOTAL/WEIGHTED AVERAGE.............  9,546,764      11.62
                                     ----------     -----
</TABLE>

----------------------------------

(1) Annualized base rent for all leases in place in which tenants are in
    occupancy at December 31, 1997, calculated as follows: total base rent,
    calculated in accordance with GAAP, to be received during the entire term of
    each lease, divided by the terms in months of such leases, multiplied by 12.

(2) The company owns a 91.5% interest in Chino Town Square and 50% interest in
    Melrose Village Plaza. Table reflects 100% of Property data.

(3) These retailers own their space and are not tenants of the Company.

(4) Annualized base rent divided by the owned GLA occupied at December 31, 1997.

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                    GROSS LEASABLE
                                                         AREA
                                                  ------------------
                                        YEAR                 ANCHOR              % OCCUPIED
                                     COMPLETED/     OWNED     OWNED     TOTAL      AS OF
PROPERTY AND LOCATION                RENOVATED    (SQ. FT.)  (SQ.FT)  (SQ.FT.)    12/31/97
-----------------------------------  ----------   ---------  -------  ---------  ----------
<S>                                  <C>          <C>        <C>      <C>        <C>
LAS VEGAS, NEVADA
Cheyenne Commons ..................       1992      362,758        0    362,758     99.7
  LAS VEGAS, NV
Sahara Pavilion North .............       1989      333,679        0    333,679     97.3
  LAS VEGAS, NV
Rainbow Promenade .................  1995/1997      228,279        0    228,279     99.0
  LAS VEGAS, NV
Sahara Pavilion South .............       1990      160,682        0    160,682     99.3
  LAS VEGAS, NV
Green Valley Town &
  Country..........................       1990      130,722        0    130,722    100.0
  HENDERSON, NV
Winterwood Pavilion ...............       1990      127,975        0    127,975     96.1
  LAS VEGAS, NV
                                                  ---------  -------  ---------    -----
TOTAL/WEIGHTED AVERAGE.............               1,344,095        0  1,344,095     98.6
                                                  ---------  -------  ---------    -----
PACIFIC NORTHWEST
Sunset Square .....................       1989      352,523   11,943    364,466     97.5
  BELLINGHAM, WA
Tacoma Central ....................  1987/1994      134,868  165,519    300,387     99.4
  TACOMA, WA
Tanasbourne Village(8) .                  1990      210,692    1,209    211,901    100.0
  HILLSBORO, OR
Olympia Square ....................       1988      167,721        0    167,721     95.3
  OLYMPIA, WA
Claremont Village .................  1955/1994       88,706        0     88,706     95.6
  EVERETT, WA
Canyon Ridge Plaza ................       1995       81,678  181,300    262,978     92.7
  KENT, WA
Olympia West Center ...............  1980/1995       69,212    3,800     73,012     91.5
  OLYMPIA, WA
                                                  ---------  -------  ---------    -----
TOTAL/WEIGHTED AVERAGE.............               1,105,400  363,771  1,469,171     97.0
                                                  ---------  -------  ---------    -----
OTHER MARKETS
Maysville Marketsquare .             1991/1993      126,507   89,612    216,119    100.0
  MAYSVILLE, KY
Ocoee Plaza .......................       1990       52,242        0     52,242     89.6
  OCOEE, FL
Sports Unlimited ..................       1990       51,542   40,000     91,542    100.0
  MEMPHIS, TN
Country Club Center ...............       1988       46,850   63,000    109,850    100.0
  ALBUQUERQUE, NM
                                                  ---------  -------  ---------    -----
TOTAL/WEIGHTED AVERAGE.............                 277,141  192,612    469,753     98.0
                                                  ---------  -------  ---------    -----
PORTFOLIO
TOTAL/WEIGHTED AVERAGE.............               4,532,707  793,943  5,326,650     97.5
                                                  ---------  -------  ---------    -----
                                                  ---------  -------  ---------    -----

<CAPTION>

                                                    ANNUALIZED BASE RENT IN PLACE AT 12/31/97(1)
                                        TOTAL      ----------------------------------------------
                                      NUMBER OF                 ANN. BASE
                                     TENANTS AS    ANN. BASE   RENT/LEASED
PROPERTY AND LOCATION                OF 12/31/97   RENT(1)($)  SQ.FT.(4)($)    MAJOR RETAILERS
-----------------------------------  -----------   ----------  -----------   --------------------
<S>                                  <C>           <C>         <C>           <C>
LAS VEGAS, NEVADA
Cheyenne Commons ..................       45       4,189,339      11.58      Wal-Mart, 24 Hour
  LAS VEGAS, NV                                                              Fitness, Ross Dress
                                                                             For Less
Sahara Pavilion North .............       68       4,114,576      12.67      Vons, Longs Drugs,
  LAS VEGAS, NV                                                              TJMaxx, Sheplers,
                                                                             Border's Books
Rainbow Promenade .................       25       3,210,448      14.21      United Artists
  LAS VEGAS, NV                                                              Theatres, Linens N'
                                                                             Things, Office Max,
                                                                             Barnes & Noble, Cost
                                                                             Plus
Sahara Pavilion South .............       23       2,218,479      13.91      Sports Authority,
  LAS VEGAS, NV                                                              Office Max,
                                                                             Michael's Arts &
                                                                             Crafts
Green Valley Town &
  Country..........................       37       1,759,455      13.46      Lucky/Sav-On
  HENDERSON, NV                                                              Superstore
Winterwood Pavilion ...............       24       1,065,959       8.67      Vons, Heilig-Meyer
  LAS VEGAS, NV                                                              Furniture
                                         ---       ----------     -----
TOTAL/WEIGHTED AVERAGE.............      222       16,558,256     12.49
                                         ---       ----------     -----
PACIFIC NORTHWEST
Sunset Square .....................       39       2,678,815       7.79      K-Mart, Ennen's
  BELLINGHAM, WA                                                             Food, Fabricland,
                                                                             Rite Aid
Tacoma Central ....................       21       2,080,582      15.52      Target(3), Top Food
  TACOMA, WA                                                                 & Drug(3), Future
                                                                             Shop, Office Depot,
                                                                             TJ Maxx, Cineplex
                                                                             Odeon
Tanasbourne Village(8) .                  40       2,576,071      12.23      Safeway, Rite Aid,
  HILLSBORO, OR                                                              Jo-Ann Fabrics, Pier
                                                                             1 imports
Olympia Square ....................       37       1,938,000      12.12      Albertsons, Ross
  OLYMPIA, WA                                                                Dress For Less
Claremont Village .................       12       1,156,276      13.63      QFC Supermarket
  EVERETT, WA
Canyon Ridge Plaza ................       14         778,925      10.29      Target(3), Top
  KENT, WA                                                                   Foods(3), Ross Dress
                                                                             For Less
Olympia West Center ...............        5       1,166,639      18.42      Barnes & Noble, Good
  OLYMPIA, WA                                                                Guys, Petco, Boaters
                                                                             World
                                         ---       ----------     -----
TOTAL/WEIGHTED AVERAGE.............      168       12,375,308     11.54
                                         ---       ----------     -----
OTHER MARKETS
Maysville Marketsquare .                  19         873,003       6.90      Wal-Mart(3), Kroger
  MAYSVILLE, KY                                                              Company, J.C. Penney
Ocoee Plaza .......................       11         331,084       7.07      Food Lion, Family
  OCOEE, FL                                                                  Dollar
Sports Unlimited ..................       13         614,805      11.93      Sports Unlimited(3),
  MEMPHIS, TN                                                                Rich-Well Bedding
                                                                             Co., Hancock Fabrics
Country Club Center ...............       17         563,172      12.02      Furr's Foods(3)
  ALBUQUERQUE, NM
                                         ---       ----------     -----
TOTAL/WEIGHTED AVERAGE.............       60       2,382,064       8.77
                                         ---       ----------     -----
PORTFOLIO
TOTAL/WEIGHTED AVERAGE.............      749       51,142,588     11.57
                                         ---       ----------     -----
                                         ---       ----------     -----
</TABLE>

----------------------------------

(1) Annualized base rent for all leases in place in which tenants are in
    occupancy at December 31, 1997, calculated as follows: total base rent,
    calculated in accordance with GAAP, to be received during the entire term of
    each lease, divided by the terms in months of such leases, multiplied by 12.

(2) The company owns a 91.5% interest in Chino Town Square and 50% interest in
    Melrose Village Plaza. Table reflects 100% of Property data.

(3) These retailers own their space and are not tenants of the Company.

(4) Annualized base rent divided by the owned GLA occupied at December 31, 1997.

                                       11
<PAGE>
NATIONAL, REGIONAL AND LOCAL TENANT SUMMARY

    The following table sets forth certain information regarding the Company's
national, regional and local tenants at each Property at December 31, 1997:

<TABLE>
<CAPTION>
                                          NATIONAL TENANTS(1)           REGIONAL TENANTS(1)            LOCAL TENANTS(1)
                                     -----------------------------   --------------------------   --------------------------
                                     % OF PROPERTY   % OF PROPERTY      % OF      % OF PROPERTY      % OF      % OF PROPERTY
                                        LEASED           ANN.         PROPERTY      ANN. BASE      PROPERTY        ANN.
PROPERTY                                  GLA        BASE RENT(2)    LEASED GLA      RENT(2)      LEASED GLA   BASE RENT(2)
-----------------------------------  -------------   -------------   ----------   -------------   ----------   -------------
<S>                                  <C>             <C>             <C>          <C>             <C>          <C>
NORTHERN CALIFORNIA
  Chico Crossroads.................      98.62%          97.67%            0%             0%          1.38%         2.33%
  Monterey Plaza...................      78.86           64.11          1.66           3.02          19.48         32.87
  Brookvale Center.................      88.46            78.3             0              0          11.54         21.69
  Laguna Village...................      85.10           82.98          4.34           5.26          10.56         11.76
  Lakewood Shopping Center.........      81.49           70.91          3.07           5.92          15.44         23.17
  Fairmont Shopping Center.........      62.37           44.59             0              0          37.63         55.41
  Rosewood Village.................       9.97           14.68         43.02          35.54          47.01         49.78
                                         -----           -----         -----          -----       ----------      ------
WEIGHTED AVERAGE...................      81.42%          70.22%         3.37%          4.76%         15.21%        25.02%
SOUTHERN CALIFORNIA
  Chino Town Square................      82.61%          75.65%         6.22%          9.33%         11.17%        15.02%
  Melrose Village Plaza............      79.43           72.36          1.13           1.56          19.44         26.08
  Tustin Heights...................      82.37           70.49          6.31           7.38          11.32         22.13
  Laurentian Center................      47.94           47.27         21.06          19.34          31.00         33.39
  Palmdale Center..................      86.76           69.99             0              0          13.24         30.01
  Vineyard Village East............      57.52           42.51         42.48          57.49              0             0
  Foothill Center..................          0               0             0              0         100.00        100.00
  Arlington Courtyard..............      12.12           21.27         50.89          37.44          36.99         41.29
                                         -----           -----         -----          -----       ----------      ------
WEIGHTED AVERAGE...................      75.28%          67.87%         9.13%         10.84%         15.59%        21.29%
LAS VEGAS, NEVADA
  Cheyenne Commons.................      89.76%          81.69%         0.69%          1.47%          9.55%        16.84%
  Sahara Pavilion North............      70.18           58.61         10.82          12.02          19.00         29.37
  Rainbow Promenade................      90.98           85.30          1.77           3.15           7.25         11.55
  Sahara Pavilion South............      80.76           75.38          6.43           7.33          12.81         17.29
  Green Valley Town & Country......      49.08           37.30          3.59           5.43          47.33         57.27
  Winterwood Pavilion..............      69.43           59.71         13.85          10.05          16.72         30.24
                                         -----           -----         -----          -----       ----------      ------
WEIGHTED AVERAGE...................      78.19%          69.17%         5.54%          6.17%         16.27%        24.16%
PACIFIC NORTHWEST
  Sunset Square....................      63.77%          48.98%        29.42%         39.33%          6.81%        11.69%
  Tacoma Central...................      67.76           50.47         25.92          41.91           6.32          7.62
  Tanasbourne Village..............      62.35           51.05         12.34          18.55          25.31         30.40
  Olympia Square...................      74.02           64.05         14.18          21.25          11.80         14.70
  Claremont Village................      69.08           72.13          4.91           5.39          26.01         22.48
  Canyon Ridge Plaza...............      82.39           80.45         11.01          11.95           6.60          7.60
  Olympia West Center..............      71.95           75.13         28.05          24.87              0             0
                                         -----           -----         -----          -----       ----------      ------
WEIGHTED AVERAGE...................      67.76%          58.76%        20.07%         26.31%         12.17%        14.93%
OTHER
  Maysville Marketsquare...........      88.81%          86.63%         4.11%          4.30%          7.08%         9.07%
  Ocoee Plaza......................      86.44           84.57             0              0          13.36         15.43
  Sports Unlimited.................      38.44           38.72         32.47          33.79          29.09         27.49
  Country Club Center..............      28.07           44.38          6.40           6.72          65.53         48.90
                                         -----           -----         -----          -----       ----------      ------
WEIGHTED AVERAGE...................      68.37%          63.99%         9.18%         11.88%         22.45%        24.13%
                                         -----           -----         -----          -----       ----------      ------
PORTFOLIO WEIGHTED AVERAGE.........      75.17%          66.52%         9.53%         11.94%         15.30%        21.54%
                                         -----           -----         -----          -----       ----------      ------
                                         -----           -----         -----          -----       ----------      ------
</TABLE>

------------------------------

(1) The Company defines national tenants as any tenant that operates in at least
    four metropolitan areas located in more than one region (i.e. northwest,
    northeast, midwest, southwest or southeast); regional tenants as any tenant
    that operates in two or more metropolitan areas located within the same
    region; local tenants as any tenant that operates stores only within the
    same metropolitan area as the shopping center.

(2) Annualized base rent for all leases in place at December 31, 1997 calculated
    as follows: total base rent, calculated in accordance with GAAP, to be
    received during the entire term of each lease, divided by the terms in
    months for such leases, multiplied by 12.

                                       12
<PAGE>
ANCHOR AND NON-ANCHOR TENANT SUMMARY

    The following table sets forth certain information regarding anchor and
non-anchor tenants at December 31, 1997:

<TABLE>
<CAPTION>
                                                         ANCHOR TENANTS(1)         NON-ANCHOR TENANTS(1)
                                                     --------------------------  --------------------------
                                                                      % OF                        % OF
                                                     % OCCUPIED   PROPERTY ANN.  % OCCUPIED   PROPERTY ANN.
PROPERTY                                                 GLA      BASE RENT(2)       GLA      BASE RENT(2)
---------------------------------------------------  -----------  -------------  -----------  -------------
<S>                                                  <C>          <C>            <C>          <C>
NORTHERN CALIFORNIA
  Chico Crossroads.................................       85.18%        75.86%        14.82%        24.14%
  Monterey Plaza...................................       56.48         29.90         43.52         70.10
  Brookvale Center.................................       75.74         49.93         24.26         50.07
  Laguna Village...................................       84.05         81.89         15.95         18.11
  Lakewood Shopping Center.........................       55.82         35.79         44.18         64.21
  Fairmont Shopping Center.........................       51.02         28.31         48.98         71.69
  Rosewood Village.................................           0             0        100.00        100.00
                                                          -----         -----    -----------       ------
WEIGHTED AVERAGE...................................       66.73%        47.90%        33.27%        52.10%
SOUTHERN CALIFORNIA
  Chino Town Square................................       61.48%        52.58%        38.52%        47.42%
  Melrose Village Plaza............................       58.12         44.50         41.88         55.50
  Tustin Heights...................................       68.50         46.97         31.50         53.03
  Laurentian Center................................       37.98         32.61         62.02         67.39
  Palmdale Center..................................       76.70         47.63         23.30         52.37
  Vineyard Village East............................       57.52         42.51         42.48         57.49
  Foothill Center..................................           0             0        100.00        100.00
  Arlington Courtyard..............................           0             0        100.00        100.00
                                                          -----         -----    -----------       ------
WEIGHTED AVERAGE...................................       59.11%        46.29%        40.89%        53.71%
LAS VEGAS NEVADA
  Cheyenne Commons.................................       68.16%        47.07%        31.84%        52.93%
  Sahara Pavilion North............................       49.83         31.16         50.17         68.84
  Rainbow Promenade................................       65.78         56.62         34.22         43.38
  Sahara Pavilion South............................       59.51         39.50         40.49         60.50
  Green Valley Town & Country......................       37.56         21.46         62.44         78.54
  Winterwood Pavilion..............................       55.90         34.14         44.10         65.86
                                                          -----         -----    -----------       ------
WEIGHTED AVERAGE...................................       58.07%        40.41%        41.93%        59.59%
PACIFIC NORTHWEST
  Sunset Square....................................       75.21%        55.27%        24.79%        44.73%
  Tacoma Central...................................       66.34         62.51         33.66         37.49
  Tanasbourne Village..............................       47.68         31.19         52.32         68.81
  Olympia Square...................................       47.56         31.69         52.44         68.31
  Claremont Village................................       46.68         46.75         53.32         33.25
  Canyon Ridge Plaza...............................       35.94         23.97         64.06         76.03
  Olympia West Center..............................       56.65         61.20         43.35         38.80
                                                          -----         -----    -----------       ------
WEIGHTED AVERAGE...................................       58.43%        45.66%        41.57%        54.34%
OTHER
  Maysville Marketsquare...........................       62.72%        57.58%        37.28%        42.42%
  Ocoee Plaza......................................       53.42         51.35         46.58         48.65
  Sports Unlimited.................................       29.56         31.02         70.44         68.98
  Country Club Center..............................           0             0        100.00        100.00
                                                          -----         -----    -----------       ------
WEIGHTED AVERAGE...................................       44.01%        36.24%        55.99%        63.76%
                                                          -----         -----    -----------       ------
PORTFOLIO WEIGHTED AVERAGE.........................       59.30%        44.09%        40.70%        55.91%
                                                          -----         -----    -----------       ------
                                                          -----         -----    -----------       ------
</TABLE>

------------------------
(1) Anchors defined as single tenants which lease 15,000 square feet or more;
    non-anchors defined as tenants which lease less than 15,000 square feet.
(2) Annualized base rent for all leases in place in which tenants are in
    occupancy at December 31, 1997 calculated as follows: total base rent,
    calculated in accordance with GAAP, to be received during the entire term of
    each lease, divided by the terms in months for such leases, multiplied by
    12.

                                       13
<PAGE>
MAJOR TENANTS

    At December 31, 1997, 98% of the total GLA was leased to 749 tenants. The
Company's largest tenant, Wal-Mart, accounted for 5.57% of the total annualized
base rent in place at December 31, 1997. Including Wal-Mart, all tenants which
individually accounted for 1.0% or more of the annualized base rent at December
31, 1997 collectively accounted for 22.8% of the total annualized base rent and
the 721 remaining tenants accounted for 77.2% of the total annualized base rent.

    The following table summarizes certain information regarding tenants which
individually accounted for 1.0% or more of the annualized base rent at December
31, 1997:

<TABLE>
<CAPTION>
                                                                              ANNUALIZED BASE RENT IN PLACE AT
                                                                                          12/31/97
                                                      LEASED                 -----------------------------------
                                                     GLA AS OF                             ANNUAL     % OF TOTAL
                                       NUMBER OF     12/31/97   % OF TOTAL   TOTAL ANN.  BASE RENT/    ANNUAL.
TENANT                                  LEASES       (SQ. FT.)  LEASED GLA   BASE RENT     SQ.FT.     BASE RENT
-----------------------------------  -------------   ---------  ----------   ----------  ----------   ----------
<S>                                  <C>             <C>        <C>          <C>         <C>          <C>
Wal-Mart...........................         3          316,588     7.58%     $2,836,372    $ 8.96        5.57%
24 Hour Fitness....................         3           97,143     2.33       1,373,011     14.13        2.70
United Artists Theatre.............         2           88,196     2.11       1,361,109     15.43        2.67
Lucky..............................         4          173,119     4.15       1,275,795      7.37        2.51
Barnes & Noble.....................         3           70,573     1.69         999,250     14.16        1.96
Ennen's Foods......................         1           67,070     1.61         589,855      8.79        1.16
Vons/Safeway.......................         2           94,737     2.27         583,779      6.16        1.15
Quality Food Center................         1           39,603     0.95         540,598     13.65        1.06
HomeBase...........................         1          103,904     2.49         535,432      5.15        1.05
Ross Dress for Less................         3           72,487     1.74         513,327      7.08        1.01
PayLess Drugs......................         3           74,562     1.79         512,586      6.87        1.01
Office Max.........................         2           51,050     1.22         507,855      9.95        1.00
                                           --
                                                     ---------    -----      ----------  ----------     -----
TOTAL..............................        28        1,249,032    29.91%     $11,628,969   $ 9.31       22.84%
                                           --
                                           --
                                                     ---------    -----      ----------  ----------     -----
                                                     ---------    -----      ----------  ----------     -----
</TABLE>

                                       14
<PAGE>
LEASE EXPIRATIONS

    The following schedules set forth certain information regarding lease
expirations for the Properties for each of the ten years beginning with 1998,
assuming that none of the tenants exercise renewal options or termination
rights, if any, at or prior to the scheduled expirations.

                           LEASE EXPIRATION ANALYSIS
                                   ALL LEASES
<TABLE>
<CAPTION>
                                                        NUMBER OF   SQUARE FOOTAGE     % OF TOTAL
                                     LEASE EXPIRATION    LEASES          UNDER         PORTFOLIO
TENANT                                     YEAR         EXPIRING    EXPIRING LEASES   EXPIRING GLA
-----------------------------------  ----------------   ---------   ---------------   ------------
<S>                                  <C>                <C>         <C>               <C>
1..................................        1998             98           269,122          6.11
2..................................        1999             95           376,916          8.58
3..................................        2000            139           353,307          8.03
4..................................        2001             98           313,099          7.11
5..................................        2002            128           388,732          8.83
6..................................        2003             39           216,321          4.91
7..................................        2004             12            84,597          1.92
8..................................        2005             19           161,014          3.66
9..................................        2006             18           240,650          5.47
10.................................        2007             16           128,843          2.93
11 and after.......................        2008             75         1,869,933         42.47
                                                           ---      ---------------      -----
TOTAL/WEIGHTED
  AVERAGE..........................                        737         4,402,534         100.0
                                                           ---      ---------------      -----
                                                           ---      ---------------      -----

<CAPTION>

                                      ANNUALIZED BASE RENT IN PLACE AT
                                                  12/31/97
                                     -----------------------------------
                                                 % OF TOTAL
                                                 PORTFOLIO       ANN.
                                     TOTAL ANN.     ANN.      BASE RENT/
TENANT                               BASE RENT   BASE RENT     SQ. FT.
-----------------------------------  ----------  ----------   ----------
<S>                                  <C>         <C>          <C>
1..................................   3,294,626      6.47       $12.24
2..................................   3,475,550      6.82         9.22
3..................................   5,210,965     10.23        14.75
4..................................   4,303,475      8.45        13.74
5..................................   5,739,220     11.27        14.76
6..................................   2,489,720      4.89        11.51
7..................................     991,975      1.95        11.73
8..................................   2,089,911      4.10        12.98
9..................................   2,952,922      5.80        12.27
10.................................   1,685,777      3.31        13.06
11 and after.......................  18,704,652     36.72        10.00
                                     ----------  ----------   ----------
TOTAL/WEIGHTED
  AVERAGE..........................  50,938,793    100.00       $11.57
                                     ----------  ----------   ----------
                                     ----------  ----------   ----------
</TABLE>

                               ALL ANCHOR LEASES
<TABLE>
<CAPTION>
                                                         NUMBER OF    SQUARE FOOTAGE     % OF TOTAL
                                     LEASE EXPIRATION     LEASES           UNDER         PORTFOLIO
TENANT                                     YEAR          EXPIRING     EXPIRING LEASES   EXPIRING GLA
-----------------------------------  ----------------   -----------   ---------------   ------------
<S>                                  <C>                <C>           <C>               <C>
1..................................        1998               3             66,398           2.54
2..................................        1999               5            188,945           7.24
3..................................        2000               3             66,375           2.54
4..................................        2001               3             84,078           3.22
5..................................        2002               3             74,225           2.84
6..................................        2003               4             99,652           3.82
7..................................        2004               2             42,119           1.61
8..................................        2005               3             63,462           2.43
9..................................        2006               3            150,352           5.76
10.................................        2007               3             63,584           2.44
11 and after.......................        2008              43          1,711,346          65.56
                                                             --
                                                                      ---------------      ------
TOTAL/WEIGHTED AVERAGE.............                          75          2,610,536         100.00
                                                             --
                                                             --
                                                                      ---------------      ------
                                                                      ---------------      ------

<CAPTION>
                                         ANNUALIZED BASE RENT IN PLACE AT 12/31/97
                                     -------------------------------------------------
                                                               % OF TOTAL
                                                 % OF ANCHOR   PORTFOLIO       ANN.
                                     TOTAL ANN.     ANN.          ANN.      BASE RENT/
TENANT                               BASE RENT    BASE RENT    BASE RENT     SQ. FT.
-----------------------------------  ----------  -----------   ----------   ----------
<S>                                  <C>         <C>           <C>          <C>
1..................................     522,814       2.3         1.03        $7.87
2..................................     701,443       3.1         1.38         3.71
3..................................     523,022       2.3         1.03         7.88
4..................................     562,135       2.5         1.10         6.69
5..................................     725,406       3.2         1.42         9.77
6..................................     779,071       3.6         1.53         7.82
7..................................     300,414       1.3         0.59         7.13
8..................................     670,687       3.0         1.32        10.57
9..................................   1,691,004       7.6         3.32        11.26
10.................................     526,128       2.3         1.03         8.27
11 and after.......................  15,456,624      68.8        30.34         9.03

                                     ----------     -----        -----        -----
TOTAL/WEIGHTED AVERAGE.............  22,458,748       100        44.09        $8.60

                                     ----------     -----        -----        -----
                                     ----------     -----        -----        -----
</TABLE>

                                       15
<PAGE>
                             ALL NON-ANCHOR LEASES
<TABLE>
<CAPTION>
                                                        NUMBER OF    SQUARE FOOTAGE     % OF TOTAL
                                     LEASE EXPIRATION     LEASES          UNDER         PORTFOLIO
TENANT                                     YEAR          EXPIRING    EXPIRING LEASES   EXPIRING GLA
-----------------------------------  ----------------   ----------   ---------------   ------------
<S>                                  <C>                <C>          <C>               <C>
1..................................        1998              95           202,724          11.31
2..................................        1999              90           187,971          10.49
3..................................        2000             136           286,932          16.01
4..................................        2001              95           229,021          12.78
5..................................        2002             125           314,507          17.55
6..................................        2003              35           116,669           6.51
7..................................        2004              10            42,476           2.37
8..................................        2005              16            97,552           5.44
9..................................        2006              15            90,298           5.04
10.................................        2007              13            65,259           3.64
11 and after.......................        2008              32           158,587           8.85
                                                            ---      ---------------      ------
TOTAL/WEIGHTED AVERAGE.............                         662         1,791,996         100.00
                                                            ---      ---------------      ------
                                                            ---      ---------------      ------

<CAPTION>
                                         ANNUALIZED BASE RENT IN PLACE AT 12/31/97
                                     -------------------------------------------------
                                                               % OF TOTAL
                                                  % OF NON-    PORTFOLIO       ANN.
                                     TOTAL ANN.  ANCHOR ANN.      ANN.      BASE RENT/
TENANT                               BASE RENT    BASE RENT    BASE RENT     SQ. FT.
-----------------------------------  ----------  -----------   ----------   ----------
<S>                                  <C>         <C>           <C>          <C>
1..................................   2,771,812       9.7         5.44        $13.67
2..................................   2,774,107       9.7         5.45         14.76
3..................................   4,687,963      16.5         9.20         16.34
4..................................   3,741,340      13.1         7.34         16.34
5..................................   5,013,814      17.6         9.84         15.94
6..................................   1,710,649       6.0         3.36         14.66
7..................................     691,561       2.4         1.36         16.28
8..................................   1,419,223       5.0         2.78         14.55
9..................................   1,261,919       4.4         2.48         13.96
10.................................   1,159,649       4.1         2.28         17.77
11 and after.......................   3,248,008      11.4         6.38         20.48
                                     ----------     -----        -----      ----------
TOTAL/WEIGHTED AVERAGE.............  28,480,045       100        55.91        $15.89
                                     ----------     -----        -----      ----------
                                     ----------     -----        -----      ----------
</TABLE>

------------------------

Note: Number of leases expiring does not include 13 tenants on a month-to-month
agreement, whose combined occupancy does not exceed 22,000 sq.ft.

CAPITAL EXPENDITURES

    The following table sets forth information relating to historical capital
expenditures of the Company's Properties:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                    ---------------------------------------------
                                                        1997            1996            1995
                                                    -------------   -------------   -------------
<S>                                                 <C>             <C>             <C>
Total capital expenditures(1)(2)..................  $      12,956   $      18,545   $       7,082
Average number of square feet(3)..................      3,581,287       2,770,216       2,446,630
Capital expenditures per square foot..............  $        .004   $        .007   $        .003
</TABLE>

------------------------

(1) Includes capital expenditures other than leasing commissions and tenant
    improvements.

(2) The 1997 amount excludes approximately $110,000 incurred to renovate
    Foothill Center.

(3) Represents the average aggregate amount of square feet owned by the Company
    during the year.

OTHER ASSETS

    The Company owns a 50% interest in a general partnership that owns an
interest in a 93,400 square foot medical office complex located in Encinitas,
California. The Company also holds notes receivable with a net book value as of
December 31, 1997 of $2,981,000. Certain of these notes with a net book value of
$1,926,540 are secured by various deeds of trust and partnership interests or
other security on three shopping centers, all of which are located in Northern
California. The notes have a weighted monthly interest rate of approximately
8.72% and have maturity dates in June 2000.

                                       16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

    The Company is a party to legal proceedings that arise in the normal course
of business, which matters are generally covered by insurance. The resolution of
these matters cannot be predicted with certainty. However, in the opinion of
management, based upon currently available information, liability under such
proceedings, either individually or in the aggregate, will not have a materially
adverse affect on the Company's consolidated financial statements taken as a
whole.

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

    During the fourth quarter of 1997, no matters were submitted to a vote of
stockholders of the Company.

                                    PART II

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

    The Company's Common Stock began trading on the New York Stock Exchange
("NYSE") on August 8, 1997, under the symbol "PNP." On March 13, 1998 the
Company had approximately 47 stockholders of record and approximately 2,711
beneficial owners. The following table sets forth for the periods indicated the
high and low sales prices as reported by the NYSE and the distributions declared
by the Company.

<TABLE>
<CAPTION>
                                                                                   DISTRIBUTIONS
                                                               HIGH        LOW       DECLARED
                                                             ---------  ---------  -------------
<S>                                                          <C>        <C>        <C>
Third Quarter, 1997 (from August 8, 1997)..................  $   20.75  $   19.75    $   .2128
Fourth Quarter, 1997.......................................  $   22.00  $  19.875    $   .3625
</TABLE>

    The fourth quarter 1997 dividend on an annualized basis amounts to $1.45 per
share. All distributions will be made by the Company at the discretion of the
Board of Directors and will depend upon the earnings of the Company, its
financial condition and such other factors as the Board of Directors deem
relevant. In order to qualify for the beneficial tax treatment accorded to real
estate investment trusts under the Code, the Company is required to make
distributions to holders of its shares in an amount at least equal to 95% of the
Company's "real estate investment trust taxable income," as defined in Section
857 of the Code.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

    The following table sets forth selected financial data for the Company on a
historical basis. The following data should be read in connection with
management's discussion and analysis of financial condition and results of
operations and the consolidated financial statements and notes thereto located
elsewhere in this report.

                                       17
<PAGE>
                    SELECTED CONSOLIDATED FINANCIAL DATA(1)

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                 -----------------------------------------------------
                                                   1997       1996       1995       1994       1993
                                                 ---------  ---------  ---------  ---------  ---------
                                                 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S>                                              <C>        <C>        <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA
Total revenue..................................  $  46,452  $  35,105  $  29,735  $  26,748  $  28,124
Operating and G&A expenses.....................     13,939     12,126     11,656     12,473     10,840
Total revenue less operating and G&A
  expenses.....................................     32,513     22,979     18,079     14,275     17,284
Depreciation and amortization..................      8,928      7,693      6,340      6,129      6,255
Interest expense...............................     14,057     14,671     12,262     11,405     10,880
Income (loss) before extraordinary item........      9,356        449       (615)    (3,216)       158
Net income (loss)..............................      8,313        449       (615)    (3,216)       158
Per share data:
  Income before extraordinary item(2)..........       0.55     --         --         --         --
  Net income (2)...............................       0.49     --         --         --         --
  Distributions................................       0.58     --         --         --         --
</TABLE>

<TABLE>
<CAPTION>
                                                             AS OF DECEMBER 31,
                                            -----------------------------------------------------
                                              1997       1996       1995       1994       1993
                                            ---------  ---------  ---------  ---------  ---------
<S>                                         <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA
Properties, net...........................  $ 455,514  $ 264,017  $ 251,423  $ 214,554  $ 168,280
Total assets..............................    487,220    293,186    275,690    247,101    190,551
Notes payable.............................    108,316    192,915    191,302    160,465    138,181
Line of credit payable....................     62,450     --         --         --         --
Advances from related party...............     --         32,113     16,482     10,790     --
Minority interest.........................      1,521      1,539      1,347      1,373       (100)
Shareholders' equity......................    301,055     --         --         --         --
Owner's equity............................     --         61,808     61,359     61,974     47,696
</TABLE>

------------------------

(1) The financial data as of and for the periods prior to August 13, 1997
    represents the combined financial data of Pan Pacific Development
    Properties. See Note 1 to the Company's 1997 consolidated financial
    statements.

(2) The 1997 data is calculated as if the shares were outstanding for the entire
    year based on the diluted number of shares assumed to be outstanding (see
    Note 2(i) to the consolidated financial statements). The years prior to 1997
    had no outstanding shares of common stock and therefore the information is
    not relevant or included here.

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

OVERVIEW

    The following discussion should be read in connection with the consolidated
financial statements of Pan Pacific Retail Properties, Inc. and subsidiaries
(the "Company"), and the notes thereto, appearing elsewhere in this report.

    The Company receives income primarily from rental revenue (including
recoveries from tenants) from shopping center properties. As a result of the
Company's acquisition and development program, the financial data show increases
in total revenue from period to period, largely attributable to: (i) the
acquisitions; (ii) a property placed into operation during the period; and (iii)
the benefit of a full period of rental and other revenue from a property placed
into operation in the preceding period.

                                       18
<PAGE>
    The Company believes that overhead costs will decrease as a percentage of
revenue as the Company achieves economies of scale through increases in its
portfolio's revenue base. For example, during the year ended December 31, 1997,
the Company owned properties comprising a weighted average GLA of 3,581,000
square feet. Total expenses, excluding interest, depreciation and amortization
for the year ended December 31, 1997 were $13,939,000 or $3.89 per square foot.
By comparison, during the year ended December 31, 1996, the Company owned
properties comprising a weighted average GLA of 2,770,000 square feet. Total
expenses, excluding interest, depreciation and amortization, for the year ended
December 31, 1996 were $12,126,000 or $4.38 per square foot.

    The Company expects that the more significant part of its revenue growth in
the next year or two will come from additional acquisitions and rent increases
from re-leasing and re-tenanting initiatives.

RESULTS OF OPERATIONS

    COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER
     31, 1996.

    Total revenue increased by $11,347,000 or 32.3% to $46,452,000 for the year
ended December 31, 1997 as compared to $35,105,000 for the year ended December
31, 1996.

    Rental revenue increased by $8,767,000 or 30.9% to $37,117,000 from
$28,350,000 for the year ended December 31, 1997, compared to the year ended
December 31, 1996. The increase in rental revenue resulted principally from the
acquisition of Chico Crossroads in February 1997, Monterey Plaza in April 1997,
Fairmont Shopping Center in May 1997, Lakewood Shopping Center in June 1997,
Green Valley Town & Country in August 1997, Rainbow Promenade in September 1997,
Claremont Village, Olympia West Center and Tacoma Central in November 1997 and
Tustin Heights and Palmdale Center in December 1997 (collectively, the "1997
Acquisitions"). In addition, the inclusion in operations of Laguna Village Phase
I in May 1996 and Phase II in the third quarter of 1997 added to this increase.
Rental revenue also increased as a result of increased occupancy levels,
primarily at Canyon Ridge Plaza, Sahara Pavilion North, Chino Town Square and
Tanasbourne Village.

    Recoveries from tenants increased by $1,828,000 or 29.4% to $8,042,000 for
the year ended December 31, 1997, compared to $6,214,000, for the year ended
December 31, 1996. This increase resulted primarily from the 1997 Acquisitions.
In addition, 1997 included a full period of recoveries for Laguna Village Phase
I. Recoveries from tenants were 87.4% of property operating expenses and
property taxes for the year ended December 31, 1997 as compared to 85.0% of the
same expenses for the same period in 1996.

    Property expenses include property operating expenses, property taxes and
property management fees. Property operating expenses increased by $946,000 or
18.7% from $5,070,000 to $6,016,000 for the year ended December 31, 1997,
compared to the year ended December 31, 1996. The increase in property operating
expenses was primarily attributable to the 1997 Acquisitions. In addition, 1997
included a full year of property operating expenses for Laguna Village Phase I
and a full quarter of operating expenses for Laguna Village Phase II. Property
taxes increased by $943,000 or 42.0% for the year ended December 31, 1997,
compared to the year ended December 31, 1996. The increase in property taxes was
primarily the result of the completion of Laguna Village Phase I in 1996, the
transfer of Laguna Village Phase II to operations at September 30, 1997 and the
1997 Acquisitions.

    Depreciation and amortization increased by $1,235,000 or 16.1% to $8,928,000
from $7,693,000 for the year ended December 31, 1997 compared to the year ended
December 31, 1996. This was primarily due to the May 1996 completion of Laguna
Village Phase I, the completion of Laguna Village Phase II in September 1997 and
the 1997 Acquisitions.

    Interest expense decreased by $614,000 or 4.2% to $14,057,000 from
$14,671,000 for the year ended December 31, 1997, compared to the year ended
December 31, 1996, primarily as a result of decreased interest expense relating
to the repayment of debt of approximately $134,000,000 in August 1997 in

                                       19
<PAGE>
connection with the Company's initial public offering. This decrease was
partially offset by interest expense related to the debt assumed pursuant to the
acquisition of Monterey Plaza in April 1997 which was subsequently repaid in
August 1997, the interest expense associated with the new unsecured credit
facility, the net impact of the December 1996 refinancing of variable rate debt
to fixed rate debt and construction loan interest related to the development of
Laguna Village Phase I.

    General and administrative expenses increased by $695,000 or 21.5% to
$3,923,000 from $3,228,000 for the year ended December 31, 1997, compared to the
year ended December 31, 1996. This increase was primarily attributable to annual
salary increases and costs associated with additional staffing necessitated by
the 1997 Acquisitions. Expenses for tax and audit services were also increased
as a result of new public reporting requirements. These increases were partially
offset by a decrease in the management fee paid to Revenue Properties Company
Limited ("RPC") as that fee is no longer being charged effective with the
completion of the initial public offering. As a percentage of total revenue,
general and administrative expenses were 8.4% and 9.2% for the years ended
December 31, 1997 and 1996, respectively. The Company expects that general and
administrative expenses will continue to decrease as a percentage of total
revenue in future periods due to economies of scale which the Company
anticipates should be realized as additional properties are acquired.

    Other expenses, net, consist primarily of loan guaranty fees and the
expensing of due diligence costs for acquisitions that are not completed. Other
expenses decreased by $846,000 or 55.2% to $687,000 from $1,533,000 for the year
ended December 31, 1997, compared to the year ended December 31, 1996. The
decrease was primarily due to loan guaranty fees paid to RPC which are no longer
being charged as the debt which was guaranteed was paid off in August 1997 in
connection with the initial public offering. This decrease was partially offset
by the expensing of due diligence costs in 1997 related to potential
acquisitions which were not consummated.

    As part of the Formation Transactions (see footnote 1 to the consolidated
financial statements located elsewhere in this report), $134,217,000 of notes
payable were repaid. In connection with the early pay off of these notes, an
extraordinary loss of $1,043,000 was recorded which includes prepayment
penalties and the write off of unamortized financing costs and loan premium.

    The following table compares the operating data for the properties ("Same
Store Properties") that were owned and in operation for the entirety of both
years ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                     1997           1996
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Revenue:
  Rental.......................................................  $  26,755,000  $  26,088,000
  Recoveries from tenants......................................      6,265,000      5,842,000
  Income from unconsolidated partnerships......................        409,000        109,000
  Other........................................................        458,000        432,000
                                                                 -------------  -------------
                                                                 $  33,887,000  $  32,471,000
Operating expenses:
  Property operating, property taxes and property management
    fees.......................................................      6,420,000      6,138,000
                                                                 -------------  -------------
Operating income...............................................  $  27,467,000  $  26,333,000
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>

    Operating income for the Same Store Properties for the year ended December
31, 1997 increased over the same period in the prior year by $1,134,000 or 4.3%.
This increase was attributable to increased rental revenue due to increased
occupancy levels primarily at Canyon Ridge Plaza, Cheyenne Commons, Sahara
Pavilion North, Chino Town Square and Tanasbourne Village. In addition, there
were approximately $153,000 of lease termination fees received at Canyon Ridge
Plaza and Sahara Pavilion North in 1997. Property operating expenses for these
Same Store Properties increased by $282,000 or 4.6% for the

                                       20
<PAGE>
year ended December 31, 1997, over the same period in the prior year due
primarily to increased property tax expense and center enhancement costs such as
painting, new awnings, signage and landscaping at Cheyenne Commons as well as
increased bad debt expense at Sunset Square.

    COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER
     31, 1995.

    Total revenue increased by $5,370,000 or 18.1% to $35,105,000 for the year
ended December 31, 1996, as compared to $29,735,000 for the year ended December
31, 1995.

    Rental revenue increased $4,881,000 or 20.8% to $28,350,000 for the year
ended December 31, 1996, as compared to $23,469,000 for the year ended December
31, 1995. The increase in rental revenue resulted primarily from a full year of
rental revenue from Cheyenne Commons, which was acquired in September 1995, the
completion of Canyon Ridge in December 1995, the completion of Laguna Village
Phase I in May 1996 and the acquisition of the remaining 98% ownership interest
in Laurentian Center effective January 1996.

    Recoveries from tenants increased to $6,214,000 for the year ended December
31, 1996, an increase of $736,000 or 13.4%, as compared to $5,478,000 for the
year ended December 31, 1995. This increase resulted principally from a full
year of recoveries from tenants of Cheyenne Commons and Canyon Ridge, partial
year recoveries from the tenant in Laguna Village Phase I and the acquisition of
the remaining ownership interests in Laurentian Center. Recoveries from tenants
for 1996 represent 85.0% of property operating expenses and property taxes as
compared to 81.2% for 1995. This increase was due to the sale in 1995 of the
Richardson Mall, a mixed use residential property located in Hartford,
Connecticut. Increases in vacant space prior to this disposition decreased
significantly the rate of recovery of expenses relating to this property.

    The Company recognized a gain of $501,000 in 1995 on the sale of the
Richardson Mall. There was no comparable gain in 1996.

    Property expenses include property operating expenses, property taxes and
property management fees. Property operating expenses for the year ended
December 31, 1996 increased to $5,070,000, an increase of $308,000 or 6.5%, from
$4,762,000 for the year ended December 31, 1995. This increase was primarily
attributable to a full year of ownership in 1996 of Cheyenne Commons, the
completion in 1996 of Laguna Village Phase I and Canyon Ridge and their
subsequent operations, as well as the acquisition of the ownership interests in
Laurentian Center. Property taxes increased by $263,000 or 13.3% to $2,244,000
for the year ended December 31, 1996, compared to $1,981,000 for the year ended
December 31, 1995. The increase in property taxes was primarily the result of a
full year of ownership of Cheyenne Commons, the completion of Laguna Village
Phase I and Canyon Ridge and their subsequent operations, and the acquisition of
the remaining ownership interests in Laurentian Center.

    Depreciation and amortization increased by $1,353,000 or 21.3% to $7,693,000
from $6,340,000 primarily due to the 1996 acquisition and the full year effect
of the properties acquired or developed during 1995.

    Interest expense for the year ended December 31, 1996 increased by
$2,409,000 or 19.6% to $14,671,000, as compared to $12,262,000 for the year
ended December 31, 1995, primarily as a result of the increase in mortgage loans
incurred to acquire Cheyenne Commons, to finance the development of Laguna
Village Phase I and Canyon Ridge and the loan assumed in the acquisition of the
ownership interests in Laurentian Center. Interest rates on variable rate debt
were relatively unchanged for 1996 as compared to 1995.

                                       21
<PAGE>
    General and administrative expenses decreased by $392,000 or 10.8% for the
year ended December 31, 1996, compared to the year ended December 31, 1995,
primarily due to a reduction in payroll costs related to the relocation of the
Company's administrative offices in the spring of 1995. General and
administrative expenses as a percentage of total revenue decreased to 9.2%
during 1996 from 12.2% during 1995 as the Company was able to utilize its
personnel and other overhead costs over a greater revenue base.

    Other expenses, net, consist primarily of loan guaranty fees, miscellaneous
income and expenses, and the write off of capitalized leasing commissions and
tenant improvements. Other expenses amounted to $1,533,000 for the year ended
December 31, 1996, an increase of $286,000 when compared to other expenses of
$1,247,000 for the year ended December 31, 1995. The change resulted from (i)
reduced interest income and (ii) increased write off of capitalized leasing
commissions and tenant improvements in 1996 resulting from lease terminations in
that year.

    The following table compares the operating data for the properties ("Same
Store Properties") that were owned and in operation for the entirety of both
years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                     1996           1995
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Revenue:
  Rental.......................................................  $  22,094,000  $  21,901,000
  Recoveries from tenants......................................      5,139,000      5,223,000
  Income (loss) from uncombined partnerships...................        109,000        (32,000)
  Other........................................................        345,000        305,000
                                                                 -------------  -------------
                                                                 $  27,687,000  $  27,397,000
Operating expenses:
  Property operating, property taxes and property management
    fees.......................................................      6,087,000      5,985,000
                                                                 -------------  -------------
Operating income...............................................  $  21,600,000  $  21,412,000
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>

    Operating income for the Same Store Properties for the year ended December
31, 1996 increased over the prior year by $188,000. This increase was
attributable to increased rental revenue due to increased occupancy levels at
Rosewood Village. In addition, a lease termination fee of approximately $171,000
was received at Tanasbourne Village. Also, Winterwood Pavilion had an increase
of approximately $56,000 in percentage rent. Operating expenses for these Same
Store Properties increased by $102,000 for the year ended December 31, 1996 over
the prior year primarily due to an increase in property tax expense of
approximately $50,000 at Olympia Square, increased center enhancement costs such
as painting, new awnings and signage at Sunset Square of approximately $30,000
and an increase in marketing, landscaping and general maintenance expenses at
Sahara Pavilion South of approximately $35,000.

FUNDS FROM OPERATIONS

    The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 (the "White Paper") defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Management considers Funds from Operations an appropriate measure of
performance of an equity REIT because it is predicated on cash flow analyses.
The Company computes Funds from Operations in accordance with standards
established by the White Paper. The Company's computation of Funds from
Operations may, however, differ from the methodology for calculating Funds from
Operations utilized by other equity REITs and, therefore, may not be comparable
to such other REITs. Funds from Operations should not be considered

                                       22
<PAGE>
as an alternative to net income (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make distributions.

    The following table presents the Company's actual and pro forma Funds from
Operations for the years ended December 31, 1997 and 1996 (see footnote 13 to
the consolidated financial statements located elsewhere in this report):

<TABLE>
<CAPTION>
                                               DECEMBER 31, 1997       DECEMBER 31, 1996
                                             ----------------------  ---------------------
                                               ACTUAL    PRO FORMA    ACTUAL    PRO FORMA
                                             ----------  ----------  ---------  ----------
<S>                                          <C>         <C>         <C>        <C>
Net income.................................  $8,313,000  $17,537,000 $ 449,000  $16,361,000
Add:
  Extraordinary loss.......................   1,043,000      --         --          --
  Depreciation and amortization............   8,928,000   9,484,000  7,693,000   8,738,000
  Depreciation of unconsolidated
    partnerships...........................     208,000     208,000    214,000     214,000
  Depreciation of non-real estate corporate
    assets.................................    (204,000)   (204,000)  (174,000)   (174,000)
                                             ----------  ----------  ---------  ----------
Funds from Operations......................  $18,288,000 $27,025,000 $8,182,000 $25,139,000
                                             ----------  ----------  ---------  ----------
                                             ----------  ----------  ---------  ----------
Weighted average number of shares of common
  stock outstanding (assuming dilution)....  16,866,173      --         --          --
Number of shares of common stock assumed to
  be outstanding...........................      --      16,814,012     --      16,814,012
</TABLE>

CASH FLOWS

    COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER
     31, 1996.

    Net cash provided by operating activities increased by $8,749,000 to
$15,242,000 for the year ended December 31, 1997, as compared to $6,493,000 for
the year ended December 31, 1996. The increase was primarily the result of an
increase in net income.

    Net cash used in investing activities increased by $147,474,000 to
$166,276,000 for the year ended December 31, 1997, compared to $18,802,000 for
the year ended December 31, 1996. The increase was primarily the result of
additions to properties for the 1997 Acquisitions. The increase was also
attributable to contributions to unconsolidated partnerships. In the comparable
period in 1996, the use of cash for investing activities was primarily for the
purpose of acquiring the remaining ownership interests in Laurentian Center and
additions to property under development.

    Net cash provided by financing activities increased by $127,833,000 to
$142,799,000 for the year ended December 31, 1997, compared to $14,966,000 for
the year ended December 31, 1996. The increase resulted from amounts drawn on
the Company's unsecured line of credit, net proceeds of the Offering including
the full exercise of the underwriters' over-allotment option and increases in
advances from RPC (see footnote 1 to the consolidated financial statements
located elsewhere in this report) prior to the Offering for certain of the 1997
Acquisitions. These increases were partially offset by notes payable payments
reflecting the paydown of a significant amount of portfolio debt in connection
with the Offering.

    COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER
     31, 1995.

    Net cash provided by operating activities increased by $1,037,000 to
$6,493,000 for the year ended December 31, 1996, compared to $5,456,000 for the
year ended December 31, 1995. The increase was primarily the result of an
increase in net income, an increase in accrued expenses and other liabilities
and a decrease in restricted cash. These increases were partially offset by a
decrease in accounts payable and an increase in accrued rent receivable.

                                       23
<PAGE>
    Net cash used in investing activities decreased by $24,013,000 to
$18,802,000 for the year ended December 31, 1996, compared to $42,815,000 for
the year ended December 31, 1995. The decrease was primarily the result of the
acquisition of Cheyenne Commons in 1995 for approximately $36,000,000, partially
offset by the acquisition of the remaining interest in Laurentian Center,
increased construction activity at Laguna Village Phase I, and the collection of
notes receivable in 1996.

    Net cash provided by financing activities decreased by $11,717,000 to
$14,966,000 for the year ended December 31, 1996, compared to $26,683,000 for
the year ended December 31, 1995. The decrease was primarily the result of a
reduction in the indebtedness incurred in 1996, partially offset by an increase
in amounts advanced from RPC in 1996.

LIQUIDITY AND CAPITAL RESOURCES

    The Company believes the Offering and the Formation Transactions (see
footnote 1 to the consolidated financial statements located elsewhere in this
report) that were completed in August 1997 improved its financial position
through changes to its capital structure, principally the substantial reduction
in its overall debt and its debt-to-equity ratio. In connection with the
Formation Transactions, the Company repaid all of its existing floating rate
mortgage debt. As a result, the total principal amount of outstanding secured
debt after the Formation Transactions and the acquisition of Green Valley Town &
Country was reduced by approximately $146,000,000. This will result in a
significant reduction in interest expense as a percentage of total revenue
(18.5% on a pro forma basis for the year ended December 31, 1997 as compared to
30.3% actual for the year ended December 31, 1997). Thus, cash from operations
required to fund debt service requirements will decrease substantially.

    The total market capitalization of the Company at December 31, 1997, was
approximately $530,166,000, based on the market closing price at December 31,
1997 of $21.375 per share and the debt outstanding of approximately $170,766,000
(exclusive of accounts payable and accrued expenses). As a result, the Company's
debt to total market capitalization ratio was approximately 32.2% at December
31, 1997. The Company believes that its low leverage capital structure combined
with its Unsecured Credit Facility enhances the Company's ability to take
advantage of acquisition opportunities as well as to provide funds for general
corporate purposes.

    The Company had approximately $87,550,000 available under the $150,000,000
Unsecured Credit Facility at December 31, 1997. The initial borrowing under the
credit facility of $13,600,000 occurred when the Rainbow Promenade asset was
acquired on September 9, 1997 for approximately $31,300,000. The balance of the
purchase price was funded with available cash provided by operations and the net
proceeds from the full exercise of the underwriters' over-allotment option.
Subsequent borrowings were made under the credit facility in November and
December 1997 for the acquisitions of six additional properties. At the
Company's option, amounts borrowed under the Unsecured Credit Facility bear
interest at either LIBOR plus 1.50% or a reference rate. The weighted average
interest rate at December 31, 1997 was 7.68%. The Company anticipates that the
Unsecured Credit Facility will continue to be used primarily to acquire
additional properties and for general corporate purposes.

    The Company's mortgage indebtedness outstanding at December 31, 1997
requires balloon payments of $88,888,000 in 2000, $4,004,000 in 2004, $7,395,000
in 2005, $52,748,000 in 2007 and $2,697,000 in 2008 and subsequent years. The
balloon payment due in the year 2000 includes the balance drawn on the Unsecured
Credit Facility at December 31, 1997 of $62,450,000. It is likely that the
Company will not have sufficient funds on hand to repay these balloon amounts at
maturity. Therefore, the Company expects to refinance such debt either through
additional debt financings secured by individual properties or groups of
properties, by unsecured private or public debt offerings or by additional
equity offerings. The Unsecured Credit Facility, which matures in 2000, is
renewable.

    The Company expects to make distributions from cash available for
distributions, which the Company believes will exceed historical cash available
for distributions due to the reduction in debt service resulting

                                       24
<PAGE>
from the repayment of indebtedness described above. Amounts accumulated for
distribution will be invested by the Company primarily in short-term investments
such as collateralized securities of the United States government or its
agencies, high-grade commercial paper and bank deposits or will be used to pay
down outstanding balances on the Unsecured Credit Facility, if any. On October
6, 1997, the Board of Directors of the Company declared the first dividend of
$0.2128 per share to be paid October 31, 1997 to shareholders of record on
October 22, 1997. The dividend was for the prorated period from August 8, 1997
to September 30, 1997. On December 5, 1997, the Board of Directors of the
Company declared a dividend of $0.3625 per share for the fourth quarter 1997 to
be paid January 19, 1998 to shareholders of record on December 29, 1997.

    The Company expects to meet its short-term liquidity requirements generally
through its current working capital and net cash provided by operations. The
Company believes that its net cash provided by operations will be sufficient to
allow the Company to make the distributions necessary to enable the Company to
continue to qualify as a REIT. The Company also believes that the foregoing
sources of liquidity will be sufficient to fund its short-term liquidity needs
for the foreseeable future.

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

INFLATION

    Substantially all of the leases provide for the recovery of real estate
taxes and operating expenses incurred by the Company. In addition, many of the
leases provide for fixed base rent increases or indexed escalations (based on
the consumer price index or other measures) and percentage rent. The Company
believes that inflationary increases in expenses will be substantially offset by
the expense reimbursements, contractual rent increases and percentage rent
described above.

    The Unsecured Credit Facility bears interest at a variable rate, which will
be influenced by changes in short-term interest rates, and will be sensitive to
inflation.

IMPACT OF ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT ADOPTED BY THE COMPANY

    In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), was issued and is effective
for fiscal years beginning after December 15, 1997. This statement requires
companies to classify items of other comprehensive income by their nature in an
income statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position.

    In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"), was issued and is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for segment reporting in the
financial statements.

    In February 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Retirement Benefits" ("SFAS No.
132"), was issued and is effective for fiscal years beginning after December 15,
1997. This statement standardizes disclosure requirements for pensions and other
post retirement benefits. It does not change the measurement or recognition
provisions for those benefit plans.

    The Company anticipates that the adoption of SFAS Nos. 130, 131 and 132 will
not result in disclosures that will be materially different from those presently
required.

                                       25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The financial statements and supplementary data required by Regulation S-X
are included in this Annual Report on Form 10-K commencing on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    Not applicable.

                                    PART III

    Certain information required by Part III is omitted from this annual report
on Form 10-K in that the Company will file a definitive proxy statement within
120 days after the end of its fiscal year pursuant to Regulation 14A for its
Annual Meeting of Stockholders to be held in June, 1998 (the "Proxy Statement")
and the information included therein is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information contained in the section captioned "Proposal I; Election of
Directors" of the Proxy Statement is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

    The information contained in the section captioned "Executive Compensation"
of the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information contained in the section captioned "Principal and Management
Stockholders" of the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information contained in the section captioned "Certain Relationships
and Related Transactions" of the Proxy Statement is incorporated herein by
reference.

                                       26
<PAGE>
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a) Financial Statements and Schedules

    The following consolidated financial information is included as a separate
section of this Annual Report on Form 10-K.

        1.  Consolidated Financial Statements:

<TABLE>
<CAPTION>
                                                                          PAGE(S)
                                                                          -------
            <S>                                                           <C>
            Independent Auditors' Report................................    F-1
            Consolidated Balance Sheets as of December 31, 1997 and
              1996......................................................    F-2
            Consolidated Statements of Operations for the years ended
              December 31, 1997, 1996 and 1995..........................    F-3
            Consolidated Statements of Equity for the years ended
              December 31, 1997, 1996 and 1995..........................    F-4
            Consolidated Statements of Cash Flows for the years ended
              December 31, 1997, 1996 and 1995..........................    F-5
            Notes to Consolidated Financial Statements..................    F-7
</TABLE>

        2.  Consolidated Financial Statement Schedule:

<TABLE>
            <S>                                                           <C>
            Schedule III--Properties and Accumulated Depreciation.......   F-18
</TABLE>

        3.  Exhibits

<TABLE>
<CAPTION>
 EXHIBIT NO.                                        DESCRIPTION
-------------  --------------------------------------------------------------------------------------
<C>            <S>
       3.1     Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1
                 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715)
                 and incorporated herein by reference)
       3.2     Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 to the
                 Company's Registration Statement on Form S-11 (Registration No. 333-28715) and
                 incorporated herein by reference)
       4.1     Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to the Company's
                 Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated
                 herein by reference)
      10.1     The 1997 Stock Option and Incentive Plan of Pan Pacific Retail Properties, Inc.
                 (previously filed as Exhibit 10.1 to the Company's Registration Statement on Form
                 S-11 (Registration No. 333-28715) and incorporated herein by reference)
      10.2     Form of Officers and Directors Indemnification Agreement (previously filed as Exhibit
                 10.2 to the Company's Registration Statement on Form S-11 (Registration No.
                 333-28715) and incorporated herein by reference)
      10.3     Form of Employment Agreement between the Company and Mr. Stuart A. Tanz (previously
                 filed as Exhibit 10.3 to the Company's Registration Statement on Form S-11
                 (Registration No. 333-28715) and incorporated herein by reference)
      10.4     Form of Employment Agreement between the Company and Mr. David L. Adlard (previously
                 filed as Exhibit 10.4 to the Company's Registration Statement on Form S-11
                 (Registration No. 333-28715) and incorporated herein by reference)
</TABLE>

                                       27
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT NO.                                        DESCRIPTION
-------------  --------------------------------------------------------------------------------------
<C>            <S>
      10.5     Form of Employment Agreement between the Company and Mr. Jeffrey S. Stauffer
                 (previously filed as Exhibit 10.5 to the Company's Registration Statement on Form
                 S-11 (Registration No. 333-28715) and incorporated herein by reference)
      10.6     Form of Miscellaneous Rights Agreement (previously filed as Exhibit 10.6 to the
                 Company's Registration Statement on Form S-11 (Registration No. 333-28715) and
                 incorporated herein by reference)
      10.7     Form of Non-Competition Agreement (previously filed as Exhibit 10.7 to the Company's
                 Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated
                 herein by reference)
      10.8     Purchase and Sale Agreement for Green Valley Town & Country Shopping Center
                 (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form
                 S-11 (Registration No. 333-28715) and incorporated herein by reference)
      10.9     Credit Agreement with Bank of America NT&SA (previously filed as Exhibit 10.8 to the
                 Company's filing of Form 10-Q for the quarter ended June 30, 1997 and incorporated
                 herein by reference)
      10.10    Purchase and Sale Agreement for Rainbow Promenade (previously filed as Exhibit 10.9 to
                 the Company's filing of Form 10-Q for the quarter ended June 30, 1997 and
                 incorporated herein by reference)
      10.11    Purchase and Sale Agreement for Claremont Village Shopping Center (previously filed as
                 Exhibit 10.9 to the Company's filing of Form 10-Q for the quarter ended September
                 30, 1997 and incorporated herein by reference)
      10.12    Purchase and Sale Agreement for Olympia West Plaza Shopping Center (previously filed
                 as Exhibit 10.10 to the Company's filing of Form 10-Q for the quarter ended
                 September 30, 1997 and incorporated herein by reference)
      10.13    Purchase and Sale Agreement for Tacoma Central Shopping Center (previously filed as
                 Exhibit 10.11 to the Company's filing of Form 10-Q for the quarter ended September
                 30, 1997 and incorporated herein by reference)
      21.1     Subsidiaries of the Registrant (previously filed as Exhibit 21.1 to the Company's
                 Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated
                 herein by reference)
      27.1     Financial Data Schedule (electronically filed with the Securities and Exchange
                 Commission only)
      27.2     Restated Financial Data Schedules for periods ended September 30, 1997 and September
                 30, 1996 (electronically filed with the Securities and Exchange Commission only)
</TABLE>

    (b) Reports on Form 8-K.

        1.  A Form 8-K was filed on November 26, 1997 for purposes of reporting
    the acquisition of three shopping centers located in the pacific northwest
    that occurred on November 12, 1997. No financial statements or pro forma
    financial information were filed as it was impracticable to do so at the
    time. An amended 8-K which included the financial statements and pro forma
    financial information was filed on January 26, 1998.

        2.  A Form 8-K/A was filed on November 21, 1997 for purposes of
    providing financial statements and pro forma financial information
    pertaining to the acquisition of a shopping center which was reported on
    Form 8-K on September 23, 1997.

                                       28
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) 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 on March 17, 1998.

<TABLE>
  <S>  <C>                                         <C>  <C>
       PAN PACIFIC RETAIL PROPERTIES, INC.

  By:              /s/ STUART A. TANZ              By:             /s/ DAVID L. ADLARD
        ---------------------------------------          ---------------------------------------
                     Stuart A. Tanz                                  David L. Adlard
         PRESIDENT AND CHIEF EXECUTIVE OFFICER                 EXECUTIVE VICE PRESIDENT AND
                                                                 CHIEF FINANCIAL OFFICER

  By:             /s/ LAURIE A. SNEVE
        ---------------------------------------
                  Laurie A. Sneve, CPA
             VICE PRESIDENT AND CONTROLLER
</TABLE>

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

<TABLE>
<CAPTION>
          SIGNATURE                        TITLE                    DATE
------------------------------  ---------------------------  -------------------

<C>                             <S>                          <C>
      /s/ STUART A. TANZ        Director, Chairman, Chief
------------------------------    Executive Officer and        March 17, 1998
        Stuart A. Tanz            President

   /s/ JEFFREY S. STAUFFER      Senior Vice President,
------------------------------    Operations and               March 17, 1998
     Jeffrey S. Stauffer          Development

     /s/ DAVID L. ADLARD        Executive Vice President,
------------------------------    Chief Financial Officer,     March 17, 1998
       David L. Adlard            Treasurer and Secretary

     /s/ LAURIE A. SNEVE
------------------------------  Vice President and             March 17, 1998
     Laurie A. Sneve, CPA         Controller

     /s/ RUSSELL E. TANZ
------------------------------  Director                       March 17, 1998
       Russell E. Tanz

      /s/ MARK J. RIEDY
------------------------------  Director                       March 17, 1998
        Mark J. Riedy
</TABLE>

                                       29
<PAGE>
<TABLE>
<CAPTION>
          SIGNATURE                        TITLE                    DATE
------------------------------  ---------------------------  -------------------

<C>                             <S>                          <C>
    /s/ BERNARD M. FELDMAN
------------------------------  Director                       March 17, 1998
      Bernard M. Feldman

     /s/ MELVIN S. ADESS
------------------------------  Director                       March 17, 1998
       Melvin S. Adess
</TABLE>

                                       30
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Pan Pacific Retail Properties, Inc.:

    We have audited the accompanying consolidated balance sheets of Pan Pacific
Retail Properties, Inc. and subsidiaries (see Note 1) as of December 31, 1997
and 1996, and the related consolidated statements of operations, equity and cash
flows for each of the years in the three-year period ended December 31, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited the accompanying financial statement schedule III. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pan Pacific
Retail Properties, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule III, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

                                          KPMG Peat Marwick LLP

San Diego, California

February 12, 1998, except as to Note 15(d),
  which is as of February 18, 1998, and as to
  Notes 15(e) and (f), which are as of March 17,
  1998

                                      F-1
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

                          CONSOLIDATED BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                       DECEMBER     DECEMBER
                                                                          31,          31,
                                                                         1997         1996
                                                                      -----------  -----------
                                                                                    (NOTE 1)
<S>                                                                   <C>          <C>
ASSETS:
Operating properties, at cost:
  Land..............................................................   $ 139,959    $  82,792
  Buildings and improvements (including related party development
    and acquisition fees of $1,235 and $1,182, respectively)........     313,483      173,250
  Tenant improvements...............................................      32,148       32,051
                                                                      -----------  -----------
                                                                         485,590      288,093
  Less accumulated depreciation and amortization....................     (30,076)     (26,857)
                                                                      -----------  -----------
                                                                         455,514      261,236
Property under development, at cost.................................      --            2,781
                                                                      -----------  -----------
                                                                         455,514      264,017
Investments in unconsolidated partnerships..........................       9,921        2,502
Cash and cash equivalents...........................................      --            8,235
Restricted cash.....................................................         661          697
Accounts receivable (net of allowance for doubtful accounts of $125
  and $72, respectively)............................................       1,626        1,074
Accrued rent receivable (net of allowance for doubtful accounts of
  $847 and $666, respectively)......................................       7,620        5,995
Notes receivable....................................................       2,981        3,457
Deferred lease commissions (including unamortized related party
  amounts of $2,236 and $2,275, respectively, and net of accumulated
  amortization of $2,023 and $3,368, respectively)..................       2,683        2,399
Prepaid expenses....................................................       3,860        3,283
Other assets........................................................       2,354        1,527
                                                                      -----------  -----------
                                                                       $ 487,220    $ 293,186
                                                                      -----------  -----------
                                                                      -----------  -----------

LIABILITIES AND EQUITY:
Notes payable.......................................................   $ 108,316    $ 192,915
Line of credit payable..............................................      62,450       --
Advances from related party.........................................      --           32,113
Accounts payable (including related party amounts of $11 and $79,
  respectively).....................................................       2,183        1,279
Accrued expenses and other liabilities (including related party
  amounts of $3,822 and $440, respectively).........................       5,600        3,532
Dividends payable...................................................       6,095       --
                                                                      -----------  -----------
                                                                         184,644      229,839
Minority interest...................................................       1,521        1,539
                                                                      -----------  -----------
Shareholders' equity:
Common stock par value $.01 per share, 100,000,000 authorized
  shares, 16,814,012 shares issued and outstanding at December 31,
  1997..............................................................         168       --
Paid in capital in excess of par value..............................     395,313       --
Accumulated deficit.................................................     (94,426)      --
                                                                      -----------  -----------
                                                                         301,055       --
Owner's equity......................................................      --           61,808
                                                                      -----------  -----------
                                                                       $ 487,220    $ 293,186
                                                                      -----------  -----------
                                                                      -----------  -----------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

                 CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                       FOR THE YEARS ENDED DECEMBER 31,
                                                    --------------------------------------
                                                       1997          1996          1995
                                                    ----------    ----------    ----------
<S>                                                 <C>           <C>           <C>
REVENUE:
  Base rent.......................................  $   36,839    $   28,111    $   23,315
  Percentage rent.................................         278           239           154
  Recoveries from tenants.........................       8,042         6,214         5,478
  Gain on sale of real estate.....................      --            --               501
  Income (loss) from unconsolidated
    partnerships..................................         409           109           (32)
  Other...........................................         884           432           319
                                                    ----------    ----------    ----------
                                                        46,452        35,105        29,735
                                                    ----------    ----------    ----------
EXPENSES:
  Property operating..............................       6,016         5,070         4,762
  Property taxes..................................       3,187         2,244         1,981
  Property management fees........................         126            51            46
  Depreciation and amortization...................       8,928         7,693         6,340
  Interest........................................      14,057        14,671        12,262
  General and administrative......................       3,923         3,228         3,620
  Other expenses, net.............................         687         1,533         1,247
                                                    ----------    ----------    ----------
                                                        36,924        34,490        30,258
                                                    ----------    ----------    ----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE, MINORITY
  INTEREST AND EXTRAORDINARY ITEM.................       9,528           615          (523)
  Income tax expense..............................         (19)         (122)          (87)
  Minority interest...............................        (153)          (44)           (5)
                                                    ----------    ----------    ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM...........       9,356           449          (615)
  Extraordinary loss on early extinguishment of
    debt..........................................      (1,043)       --            --
                                                    ----------    ----------    ----------
NET INCOME (LOSS).................................  $    8,313    $      449    $     (615)
                                                    ----------    ----------    ----------
                                                    ----------    ----------    ----------
Basic earnings per share:
  Income before extraordinary item................  $     0.56    $   --        $   --
  Extraordinary item..............................  $    (0.06)   $   --        $   --
  Net income......................................  $     0.49    $   --        $   --
Diluted earnings per share:
  Income before extraordinary item................  $     0.55    $   --        $   --
  Extraordinary item..............................  $    (0.06)   $   --        $   --
  Net income......................................  $     0.49    $   --        $   --
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

                   CONSOLIDATED STATEMENTS OF EQUITY (NOTE 1)

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                      RETAINED
                                                                   COMMON STOCK         ADDITIONAL    EARNINGS
                                                 OWNER'S     -------------------------   PAID-IN    (ACCUMULATED
                                                 EQUITY         SHARES       AMOUNT      CAPITAL      DEFICIT)      TOTAL
                                              -------------  ------------  -----------  ----------  ------------  ----------
<S>                                           <C>            <C>           <C>          <C>         <C>           <C>
Balance at December 31, 1994................   $    61,974        --        $  --       $   --       $   --       $   61,974
Net loss....................................          (615)       --           --           --           --             (615)
                                              -------------  ------------       -----   ----------  ------------  ----------
Balance at December 31, 1995................        61,359        --           --           --           --           61,359
Net income..................................           449        --           --           --           --              449
                                              -------------  ------------       -----   ----------  ------------  ----------
Balance at December 31, 1996................        61,808        --           --           --           --           61,808
Net proceeds from the initial public
  offering..................................       --           8,050,000          80      143,204       --          143,284
Capital contribution from PPD (note 1)......       (61,808)     8,764,012          88      252,109      (93,066)      97,323
Net income..................................       --             --           --           --            8,313        8,313
Cash dividends paid and declared............       --             --           --           --           (9,673)      (9,673)
                                              -------------  ------------       -----   ----------  ------------  ----------
Balance at December 31, 1997................   $   --          16,814,012   $     168   $  395,313   $  (94,426)  $  301,055
                                              -------------  ------------       -----   ----------  ------------  ----------
                                              -------------  ------------       -----   ----------  ------------  ----------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

                 CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                              FOR THE YEARS
                                                                                           ENDED DECEMBER 31,
                                                                                     -------------------------------
                                                                                       1997       1996       1995
                                                                                     ---------  ---------  ---------
<S>                                                                                  <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................................  $   8,313  $     449  $    (615)
Adjustments to reconcile net income (loss) to net cash provided by operating
  activities:
  Depreciation and amortization....................................................      8,928      7,693      6,340
  Amortization of prepaid financing costs..........................................        453        264        174
  Extraordinary loss on early extinguishment of debt...............................      1,043     --         --
  Loss (income) from unconsolidated partnerships...................................       (409)      (109)        32
  Gain on sale of real estate......................................................     --         --           (501)
  Minority interests...............................................................        153         44          5
  Changes in assets and liabilities:
    Decrease (increase) in restricted cash.........................................         36        629     (1,070)
    Decrease (increase) in accounts receivable.....................................       (552)       358       (293)
    Increase in accrued rent receivable............................................     (1,625)    (1,627)      (910)
    Increase in deferred lease commissions.........................................       (906)      (536)      (101)
    Decrease (increase) in prepaid expenses........................................       (823)      (575)        96
    Increase in other assets.......................................................     (1,424)      (129)      (244)
    Increase (decrease) in accounts payable........................................        904       (701)     2,476
    Increase in accrued expenses and other liabilities.............................      1,151        733         67
                                                                                     ---------  ---------  ---------
      Net cash provided by operating activities....................................     15,242      6,493      5,456
                                                                                     ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions of and additions to operating properties............................   (157,650)   (12,860)   (37,173)
  Additions to property under development..........................................     (3,245)    (6,634)    (5,033)
  Proceeds from sale of real estate................................................     --         --            979
  Increase (decrease) in construction accounts payable.............................        917       (579)      (925)
  Contributions to unconsolidated partnerships.....................................     (7,010)      (290)      (111)
  Increase in other assets.........................................................     --           (265)    --
  Acquisitions of and increases in notes receivable................................     (4,651)      (608)      (778)
  Collections of notes receivable..................................................      5,363      2,434        226
                                                                                     ---------  ---------  ---------
      Net cash used in investing activities........................................   (166,276)   (18,802)   (42,815)
                                                                                     ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Line of credit proceeds..........................................................     62,450     --         --
  Notes payable proceeds...........................................................     --         11,666     33,797
  Notes payable payments...........................................................   (123,539)   (10,053)    (2,960)
  Advances from (repayments to) related party......................................     65,210     15,270     (4,031)
  Prepaid financing costs..........................................................       (216)    (1,170)       (92)
  Acquisition of minority interest.................................................       (170)    --         --
  Contributions from minority interest.............................................     --            148     --
  Distributions to minority interest...............................................     --         --            (31)
  Payment of prepayment penalties..................................................     (1,035)    --         --
  Net proceeds from initial public offering........................................    143,284     --         --
  Refunds from (payments to) loan escrow...........................................        393       (895)    --
  Dividends paid...................................................................     (3,578)    --         --
                                                                                     ---------  ---------  ---------
      Net cash provided by financing activities....................................    142,799     14,966     26,683
                                                                                     ---------  ---------  ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS..........................................     (8,235)     2,657    (10,676)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................................      8,235      5,578     16,254
                                                                                     ---------  ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.........................................  $  --      $   8,235  $   5,578
                                                                                     ---------  ---------  ---------
                                                                                     ---------  ---------  ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest (net of amounts capitalized of $229, $412 and $1,017,
    respectively)..................................................................  $  14,206  $  15,744  $  29,353
  Income taxes paid................................................................  $      19  $     222  $      87
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
  Transfer from property under development to operating properties.................  $   5,907  $   9,327  $   8,959
  Transfer from property under development to prepaid financing costs..............  $  --      $     116  $  --
  Transfer from property under development to deferred lease commissions...........  $     119  $     197  $  --
  Notes payable assumed upon acquisition of operating properties...................  $  37,421  $  --      $  --
  Wrap-around note receivable and note payable assumed.............................  $   1,519  $  --      $  --
  Transfer of notes receivable to operating properties through a deed in lieu of
    foreclosure....................................................................  $   1,283  $  --      $  --
  Additions to loan fees and accounts payable......................................  $  --      $     158  $  --
  Reclassification of advances from related party to shareholders' equity..........  $  97,323  $  --      $  --
  Dividends payable................................................................  $   6,095  $  --      $  --
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

1. ORGANIZATION AND BASIS OF PRESENTATION

    Pan Pacific Realty Corporation was incorporated in the state of Maryland on
April 16, 1997 (inception) and subsequently changed its name to Pan Pacific
Retail Properties, Inc. (together with its subsidiaries, the "Company"). The
Company was formed to continue to operate and expand the shopping center
business conducted by Pan Pacific Development (U.S.) Inc. ("PPD"), a
wholly-owned subsidiary of Revenue Properties Company Limited ("Revenue
Properties"), and its subsidiaries related to the ownership, leasing and
management of its neighborhood and community shopping centers and a medical
office building ("Pan Pacific Development Properties"). All of the accounts of
PPD unrelated to these activities have been excluded from these consolidated
financial statements. As of December 31, 1997, the Company owned a portfolio
comprised of 33 properties located primarily in the western region of the United
States. Commencing with its taxable year ended December 31, 1997, the Company
believes it qualifies as a real estate investment trust ("REIT") under Sections
856 through 860 of the Internal Revenue Code.

    On August 13, 1997, the Company completed an initial public offering of
8,050,000 shares of common stock at $19.50 per share (including 1,050,000 shares
issued as a result of the full exercise of the over-allotment option by the
underwriters on September 8, 1997) (the "Offering"). The aggregate proceeds to
the Company, net of underwriters' discount, advisory fee and offering costs were
approximately $143,284,000.

    The following transactions occurred simultaneously with the completion of
the Offering (collectively, the "Formation Transactions"):

    - Certain properties were transferred by PPD entities to the Company and
      certain PPD entities were merged with and into the Company.

    - PPD advanced cash of $26,486,000 to the Company (the "PPD Contribution").

    - The Company obtained a $150,000,000 unsecured credit facility (the
      "Unsecured Credit Facility") which has been and is expected to be used to
      finance additional shopping center acquisitions and for other corporate
      purposes.

    - A portion of the estimated net proceeds of the Offering and the PPD
      Contribution were used by the Company to repay indebtedness of the Company
      and to pay transaction costs, including fees and expenses associated with
      the Unsecured Credit Facility.

    The transfer of certain properties and the merger of certain PPD entities
with and into the Company was accounted for as a combination of affiliated
entities under common control in a manner similar to a pooling-of-interests.
Under this method, the assets, liabilities and equity were carried over at their
historical book values and their operations have been recorded on a combined
historical basis. A deficit of $93,066,000 was accumulated by Pan Pacific
Development Properties prior to the Formation Transactions. The
pooling-of-interests method of accounting also requires the reporting of results
of operations, for the period in which the combination occurred, as though the
entities had been combined as of either the beginning of the period or
inception. Accordingly, the results of operations for the year ended December
31, 1997 comprise those of the combined entities from August 13, 1997 through
December 31, 1997. Prior to the combination, the Company had no significant
operations; therefore, the combined operations for the periods prior to August
13, 1997 represent primarily the operations of Pan Pacific Development

                                      F-6
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Properties. The combination did not require any material adjustments to conform
to accounting policies of the separate entities.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(a) PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries (Note 1). All material intercompany
transactions and balances have been eliminated. At December 31, 1997, the
Company consolidated Chino Town Square of which the Company's ownership interest
is 91.5%. The Company has recorded a minority interest for the portion not owned
by the Company. In August 1997, the Company acquired the remaining 10% minority
interest in Tanasbourne Village.

(b) CASH AND CASH EQUIVALENTS

    For purposes of reporting cash flows, highly liquid investments with an
original maturity of three months or less are considered cash equivalents.

(c) INCOME RECOGNITION

    Rental revenue is recognized on a straight-line basis over the terms of the
leases, less a general allowance for doubtful accounts relating to accrued rent
receivable for leases which may be terminated before the end of the contracted
term.

(d) CAPITALIZATION OF COSTS

    The Company capitalizes direct carrying costs such as interest, property
taxes and other related costs to property under development. The Company also
capitalizes certain acquisition related costs to the carrying costs of the
property acquired. These costs are being depreciated over the estimated useful
lives of the properties. The capitalized costs associated with unsuccessful
acquisitions are charged to expense when the acquisition is abandoned.

(e) DEPRECIATION AND AMORTIZATION

    Depreciation on buildings and improvements is provided using a forty-year
straight-line basis. Tenant improvements and costs incurred in obtaining leases
are depreciated on a straight-line basis over the lives of the respective
leases.

    Prepaid loan fees are amortized over the lives of the loans and the related
amortization expense is included as a component of interest expense.

(f) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

    The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

                                      F-7
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows, undiscounted and without
interest, expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.

(g) INCOME TAXES

    As of April 16, 1997, the Company elected to be taxed as a REIT pursuant to
the Internal Revenue Code, as amended. In general, a corporation that
distributes at least 95% of its REIT taxable income to shareholders in any
taxable year and complies with certain other requirements (relating primarily to
the nature of its assets and the sources of its revenue) is not subject to
federal income taxation to the extent of the income which it distributes.
Management believes that the Company has qualified and intends for it to
continue to qualify as a REIT in the future. As discussed more fully in Note 8,
management also does not expect that the Company will pay income taxes on
"built-in gains" on certain of its assets. Based on these considerations,
management does not believe that the Company will be liable for income taxes at
the federal level or in most of the states in which it operates in future years.

    Where required, deferred income taxes are accounted for using the asset and
liability method. Under this method, deferred income taxes are recognized for
temporary differences between the financial reporting bases of assets and
liabilities and their respective tax bases and for operating loss and tax credit
carryforwards based on enacted tax rates expected to be in effect when such
amounts are realized or settled. However, deferred tax assets are recognized
only to the extent that it is more likely than not that they will be realized
based on consideration of available evidence, including tax planning strategies
and other factors.

(h) CREDIT RISK

    The Company predominantly operates in one industry segment, real estate
ownership, management and development. No single tenant accounts for 10% or more
of rental revenue. Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of temporary cash
investments and receivables. The Company places its temporary cash investments
with financial institutions which the Company believes are of high credit
quality. Concentration of credit risk with respect to receivables is limited due
to the large number of tenants comprising the Company's customer base, and their
dispersion across many geographical areas. At December 31, 1997 and 1996, the
Company had no significant concentration of credit risk.

(i) NET INCOME PER SHARE

    The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128") effective for the year ended December 31,
1997. SFAS No. 128 simplifies the standards for computing earnings per share
("EPS") and makes them comparable to international earnings per share standards.

                                      F-8
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
    Basic EPS is computed by dividing earnings available to common stockholders
during the period by the weighted average number of common shares outstanding
during each period. Diluted EPS is computed by dividing the amount of earnings
for the period available to common stockholders during the period by the
weighted average number of shares that would have been outstanding assuming the
issuance of common shares for all dilutive potential common shares outstanding
during the reporting period, net of shares assumed to be repurchased using the
treasury stock method.

    The following is a reconciliation of the denominator for the basic EPS
computation to the denominator of the diluted EPS computation (all net income is
available to common stockholders for the period presented):

<TABLE>
<CAPTION>
                                                                               FOR THE YEAR
                                                                                   ENDED
                                                                             DECEMBER 31, 1997
                                                                             -----------------
<S>                                                                          <C>
Weighted average shares used for the basic EPS computation (deemed
  outstanding the entire year).............................................       16,814,012
Incremental shares from the assumed exercise of dilutive stock options.....           52,161
                                                                             -----------------
Weighted average shares used for the diluted EPS computation...............       16,866,173
                                                                             -----------------
                                                                             -----------------
</TABLE>

    Earnings per share calculations for 1996 and 1995 are not applicable as
there were no shares outstanding during these years.

(j) STOCK OPTION PLAN

    The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the annual pro forma disclosures
required by SFAS No. 123.

(k) USE OF ESTIMATES

    Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reporting of revenue and expenses during the reporting period to prepare

                                      F-9
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

(l) RECLASSIFICATIONS

    Certain reclassifications of 1996 amounts have been made in order to conform
to 1997 presentation.

3. PROPERTY UNDER DEVELOPMENT

    At December 31, 1996, property under development included the construction
of Laguna Village Phase II, a shopping center located in Sacramento, California,
of which $1,342,323 was land.

    Laguna Village Phase II was substantially completed and transferred from
property under development to operating properties during the third quarter of
1997.

4. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS

    The accompanying consolidated financial statements include investments in
two partnerships in which the Company does not own a controlling interest. The
Company owns 50% general partner interests in Melrose Village Plaza and North
Coast Health Center. These investments are reported using the equity method.

    Summarized combined financial information for the partnerships is presented
below:

<TABLE>
<CAPTION>
                                                             AS OF DECEMBER 31,
                                                            --------------------
                                                              1997       1996
                                                            ---------  ---------
<S>                                                         <C>        <C>
Properties................................................  $  19,364  $  19,706
Other assets..............................................        550        806
                                                            ---------  ---------
Total assets..............................................  $  19,914  $  20,512
                                                            ---------  ---------
                                                            ---------  ---------
Notes payable.............................................  $  --      $  15,100
Other liabilities.........................................         72        568
Equity....................................................     19,842      4,844
                                                            ---------  ---------
                                                            $  19,914  $  20,512
                                                            ---------  ---------
                                                            ---------  ---------
</TABLE>

<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED
                                                               DECEMBER 31,
                                                      -------------------------------
                                                        1997       1996       1995
                                                      ---------  ---------  ---------
<S>                                                   <C>        <C>        <C>
Revenue.............................................  $   4,046  $   4,064  $   3,726
Expenses............................................      3,228      3,846      3,790
                                                      ---------  ---------  ---------
Net income (loss)...................................  $     818  $     218  $     (64)
                                                      ---------  ---------  ---------
                                                      ---------  ---------  ---------
</TABLE>

                                      F-10
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

5. NOTES PAYABLE AND LINE OF CREDIT

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                             ----------------------
                                                                                1997        1996
                                                                             ----------  ----------
<S>                                                                          <C>         <C>
Notes payable consist of the following:

  Bank notes payable, secured by a mortgage and deeds of trust, bearing
    interest at 8.17% with monthly principal and interest payments of $404,
    due in January 2007....................................................  $   53,836  $   54,185

  Bank note payable, secured by a deed of trust, bearing interest at 8.00%
    with monthly principal and interest payments of $230, due in March
    2000...................................................................      27,726      28,250

  Bank note payable, secured by a deed of trust, bearing interest at 7.92%
    with monthly principal and interest payments of $210, due in October
    2005(a)................................................................      --          27,023

  Bank note payable, secured by a deed of trust, bearing interest at 7.63%
    with monthly principal and interest payments of $137, due in March
    2006(a)................................................................      --          18,186

  Bank note payable, secured by a deed of trust, bearing interest at 8.25%
    with monthly principal and interest payments of $102, due in October
    2005(a)................................................................      --          12,579

  Bank note payable, secured by a deed of trust, bearing interest at 7.75%
    with monthly principal and interest payments of $37, due in 2004.......       4,652       4,729

  Bank note payable, secured by a deed of trust, bearing interest at 7.88%
    with monthly principal and interest payments of $27, due in 1999(a)....      --           2,565

  Bank note payable, secured by a deed of trust, bearing interest at 8.52%
    with monthly principal and interest payments of $35, due in January
    2007...................................................................       4,472       4,499

  Bank note payable, secured by a deed of trust, bearing interest at LIBOR
    + 3.25% with fixed principal payments of $131 and accrued interest on
    outstanding balances payable monthly, due and paid in 1997(a)..........      --           1,313

  Bank notes payable, one note for $4,300, secured by a deed of trust, and
    one note for $4,746, secured by a construction deed of trust, bearing
    interest at LIBOR + 2.00% with interest only payments made monthly and
    quarterly, respectively, due in 1998(a)................................      --           9,046

  Bank notes payable, secured by deeds of trust, bearing interest at LIBOR
    + 1.50% with interest only payments made monthly, due and paid in 1997
    and 1998(a)............................................................      --          30,540

  Bank notes payable, secured by deeds of trust, bearing interest at 7.80%
    with monthly principal and interest payments of $107, due in December
    2005(b)................................................................      11,569      --

  Bank notes payable, secured by deeds of trust, bearing interest at 7.88%
    with monthly principal and interest payments of $56, due in February
    2018(b)................................................................       6,061      --
                                                                             ----------  ----------

                                                                             $  108,316  $  192,915
                                                                             ----------  ----------
                                                                             ----------  ----------
</TABLE>

                                      F-11
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

5. NOTES PAYABLE AND LINE OF CREDIT (CONTINUED)
    Principal payments under these notes payable are due as follows:

<TABLE>
<S>                                                                 <C>
1998..............................................................  $   1,685
1999..............................................................      1,825
2000..............................................................     27,843
2001..............................................................      1,420
2002..............................................................      1,538
2003 and subsequent...............................................     74,005
                                                                    ---------
                                                                    $ 108,316
                                                                    ---------
                                                                    ---------
</TABLE>

------------------------

(a) Note payable retired in connection with the Company's initial public
    offering (see Note 1).

(b) Note payable assumed upon acquisition of property.

    As part of the Formation Transactions, $134,217,000 of notes payable were
repaid. In connection with the early pay off of these notes, an extraordinary
loss of $1,043,000 was recorded which includes prepayment penalties, unamortized
financing costs and loan premium.

    The Company also has a $150,000,000 Unsecured Credit Facility which bears
interest, at the Company's option, at either LIBOR plus 1.50% or a reference
rate and expires in August 2000. At December 31, 1997, the amount drawn on this
line of credit was $62,450,000 and the interest rate was 7.68%. The credit
facility requires a quarterly fee of .25% per annum on the unused amount of the
available commitment if less than half of the commitment has been used. The
quarterly unused fee decreases to .125% per annum once more than half of the
commitment has been drawn.

6. FINANCIAL INSTRUMENTS

    The following methods and assumptions were used to estimate fair value of
each class of financial instruments:

 i) Cash and cash equivalents, restricted cash, accounts receivable, a note
    receivable, accounts payable and accrued expenses and other liabilities

    The carrying amounts approximate fair values because of the short maturity
of these instruments.

 ii) A note receivable and advances from related party

    It was not practicable to estimate the fair value of these instruments due
    to the uncertainty of the timing of repayment.

 iii) Notes receivable

    The fair value of the notes receivable approximates the carrying amount
    based on market rates for the same or other instruments with similar risk,
    security and remaining maturities.

                                      F-12
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

6. FINANCIAL INSTRUMENTS (CONTINUED)
 iv) Notes and line of credit payable

    The fair value of notes payable and the line of credit payable is estimated
    based on the current rates offered for notes and lines of credit payable of
    similar risk and the same remaining maturities.

    The estimated fair value of the notes and line of credit payable at December
    31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
        1997                    1996
--------------------    --------------------
CARRYING      FAIR      CARRYING      FAIR
 AMOUNT      VALUE       AMOUNT      VALUE
--------    --------    --------    --------
<S>         <C>         <C>         <C>
$170,766    $170,742    $192,915    $195,446
</TABLE>

7. STOCK OPTION PLAN

    In August 1997, the Company established the 1997 Stock Option and Incentive
Plan (the "Plan") pursuant to which the Company's Board of Directors may grant
stock options to officers and key employees. The plan authorizes grants of
options to purchase up to 1,620,000 shares of authorized but unissued common
stock. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant. At the time of the Offering, the Company
issued to certain officers, directors and key employees, 900,000 common stock
options pursuant to the Plan. The stock options were granted with an exercise
price of $19.50, equal to the stock's fair market value at the date of grant.
The stock options have seven year terms and vest 33 1/3% per year over three
years from the date of grant, except for the options granted to the independent
directors which vested 33 1/3% immediately, with the remainder vesting ratably
over two years.

    At December 31, 1997, there were 720,000 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted during 1997 was $2.64 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: expected
dividend yield of 6.75%, risk-free interest rate of 6.5%, expected volatility of
22.05%, and an expected life of 5 years.

    The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                                   1997
                                                         ------------------------
                                                         AS REPORTED   PRO FORMA
                                                         -----------  -----------
<S>                                                      <C>          <C>
Net income.............................................   $   8,313    $   8,012
Diluted earnings per share.............................   $    0.49    $    0.48
</TABLE>

    Pro forma net income reflects options granted since adoption of the Plan.

                                      F-13
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

7. STOCK OPTION PLAN (CONTINUED)
    Stock option activity during the period is as follows:

<TABLE>
<CAPTION>
                                                                   NUMBER OF   WEIGHTED-AVERAGE
                                                                    SHARES      EXERCISE PRICE
                                                                  -----------  -----------------
<S>                                                               <C>          <C>
Balance at December 31, 1996....................................      --              --
  Granted.......................................................     900,000       $   19.50
  Exercised.....................................................      --              --
  Forfeited.....................................................      --              --
  Expired.......................................................      --              --
                                                                  -----------
Balance at December 31, 1997....................................     900,000
                                                                  -----------
                                                                  -----------
</TABLE>

    At December 31, 1997, the exercise price and weighted-average remaining
contractual life of outstanding options was $19.50 and 6.60 years, respectively.
At December 31, 1997, 13,336 of the options were exercisable.

8. INCOME TAXES

    The Company's income tax expense consists of the following:

<TABLE>
<CAPTION>
                                          FOR THE YEARS ENDED
                                             DECEMBER 31,
                                          -------------------
                                          1997   1996   1995
                                          -----  -----  -----
<S>                                       <C>    <C>    <C>
Current income taxes:
  Federal...............................  $--    $  49  $ 49
  State.................................     19     73    38
                                          -----  -----  -----
                                          $  19  $ 122  $ 87
                                          -----  -----  -----
                                          -----  -----  -----
</TABLE>

    The differences between income tax expense computed using statutory income
tax rates and the Company's effective income tax rate are as follows:

<TABLE>
<CAPTION>
                                             FOR THE YEARS ENDED DECEMBER 31,
                                          ---------------------------------------
                                             1997          1996          1995
                                          -----------   -----------   -----------
<S>                                       <C>           <C>           <C>
Federal income taxes....................  $     3,188   $       194   $      (188)
State income taxes, net of federal
  benefit...............................          572            34           (33)
Increase (decrease) in valuation
  allowance.............................       (2,519)         (228)          221
Dividends paid deduction................       (1,222)      --            --
Other...................................      --                122            87
                                          -----------         -----         -----
                                          $        19   $       122   $        87
                                          -----------         -----         -----
                                          -----------         -----         -----
</TABLE>

                                      F-14
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

8. INCOME TAXES (CONTINUED)
    At December 31, 1996, gross deferred tax assets were $31,279,000 and gross
deferred tax liabilities were $8,490,000. Deferred tax assets at December 31,
1996 are primarily related to differences between financial and tax bases of
properties ($6,363,000) and net operating losses carried forward ($24,916,000).
Deferred tax liabilities at December 31, 1996 are primarily related to
differences between financial and income tax reporting of depreciation
($6,433,000) and the recognition of rental revenue ($2,057,000).

    The Company has recorded a valuation allowance of $22,789,000 at December
31, 1996, which represents deferred tax assets which are not deemed more likely
than not to be realized. During the year ended December 31, 1996, the Company
recorded a decrease in the valuation allowance of $228,000.

    At December 31, 1997, the Company had unused net operating losses carried
forward for federal income tax purposes of approximately $12,000,000. The
Company went through a change in control for tax purposes during 1997 which
significantly restricts the use of the Company's net operating losses carried
forward in future years. The net operating losses carried forward expire at
various times through 2010.

    As discussed in Note 2(g), the Company elected to be taxed as a REIT,
effective April 16, 1997. Management believes that the Company qualified and
will continue to qualify as a REIT and therefore does not expect the Company
will be liable for income taxes on "built-in gains" on its assets at the federal
level or in most states in future years. Accordingly, for the year ended
December 31, 1997, no provision was recorded for federal or substantially all
state income taxes.

    In connection with the Company's incorporation and the Offering, certain
non-taxable mergers were consummated with PPD whereby several wholly owned
subsidiaries of PPD merged with and into the Company. To the extent the excess
fair value of the assets at the date of merger exceeded the aggregate adjusted
tax bases of those assets, a net unrecognized built-in gain was created for
income tax purposes.

    In connection with its election to be taxed as a REIT, the Company will also
elect to be subject to the "built-in gain" rules. Under these rules, taxes may
be payable at the time and to the extent that the net unrealized gains on the
Company's assets at the date of conversion to REIT status are recognized in
taxable dispositions of such assets in the ten-year period following conversion.
Such net unrealized gains were approximately $50,000,000 at December 31, 1997.
Management believes that the Company will not be required to make payments of
income taxes on built-in gains during the ten-year period due to the
availability of its net operating loss carryforward to offset built-in gains
which might be recognized, the potential for the Company to make nontaxable
dispositions, if necessary (e.g., like-kind exchanges of properties) and the
intent and ability of the Company to defer asset dispositions to periods when
related gains will not be subject to the built-in gains income taxes. However,
it may be necessary to recognize a liability for such income taxes in the future
if management's plans and intentions with respect to asset dispositions, or the
related tax laws, change.

                                      F-15
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

9. FUTURE LEASE REVENUE

    Total future minimum lease receipts under noncancellable operating tenant
leases in effect at December 31, 1997 are as follows:

<TABLE>
<S>                                                                    <C>
1998.................................................................  $  48,244
1999.................................................................     45,462
2000.................................................................     42,156
2001.................................................................     37,070
2002.................................................................     32,658
2003 and subsequent..................................................    201,491
                                                                       ---------
                                                                       $ 407,081
                                                                       ---------
                                                                       ---------
</TABLE>

10. RELATED PARTY TRANSACTIONS

(a) Included in general and administrative expenses are management fees totaling
    $481,000, $780,000 and $780,000 for the years ended December 31, 1997, 1996
    and 1995, respectively, which are a reimbursement of costs incurred by
    Revenue Properties for managing the development of the properties, directing
    corporate strategy, and consulting on operations. Effective August 13, 1997,
    at the closing of the Offering, these fees are no longer being incurred by
    the Company.

(b) The Company paid a consulting fee of $259,000, $420,000 and $360,000 for the
    years ended December 31, 1997, 1996 and 1995, respectively, to a sole
    proprietorship owned by a director of Revenue Properties. Effective August
    13, 1997, at the closing of the Offering, these fees are no longer being
    incurred by the Company.

(c) The Company incurred $529,000, $1,878,000 and $1,763,000 for the years ended
    December 31, 1997, 1996 and 1995, respectively, for loan guaranty fees
    charged by Revenue Properties. These fees are recorded as a component of
    other expenses, net. Effective August 13, 1997, at the closing of the
    Offering, these fees are no longer being incurred by the Company.

(d) Pursuant to the Offering, the Company issued shares of common stock in lieu
    of repayment of net advances from Revenue Properties of $97,323,000 at
    August 13, 1997. Subsequent to this date, no advances were received from
    Revenue Properties. The Company received net advances from Revenue
    Properties of $15,270,000 for the year ended December 31, 1996.

(e) Dividends paid to PPD during 1997 were $1,837,000. At December 31, 1997,
    $3,130,000 of dividends were payable to PPD.

11. EMPLOYEE BENEFIT PLAN

    The Company implemented an employee benefit plan in March, 1997. All
employees of the Company who meet certain minimum age and period of service
requirements are eligible to participate in a Section 401(k) plan as defined by
the Internal Revenue Code. The employee benefit plan allows eligible employees
to defer up to 15 percent of their annual compensation. The amounts contributed
by employees are immediately vested and non-forfeitable. The Company, at
management's discretion, may match employee

                                      F-16
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

11. EMPLOYEE BENEFIT PLAN (CONTINUED)
contributions. This cost is accrued as incurred. The Company's cost for the year
ended December 31, 1997 was approximately $63,000.

12. COMMITMENTS AND CONTINGENCIES

(a) The Company leases certain real estate and office equipment under operating
    leases expiring at various dates through 2002. Rental expense was $636,958,
    $618,018 and 646,318 for the years ended December 31, 1997, 1996 and 1995,
    respectively. Minimum rentals under noncancellable leases in effect at
    December 31, 1997 were as follows:

<TABLE>
<S>                                                                   <C>
1998................................................................  $     620
1999................................................................        568
2000................................................................        566
2001................................................................        565
2002................................................................        235
                                                                      ---------
                                                                      $   2,554
                                                                      ---------
                                                                      ---------
</TABLE>

(b) Various claims and legal proceedings arise in the ordinary course of
    business. The ultimate amount of liability from all claims and actions
    cannot be determined with certainty, but in the opinion of management, the
    ultimate liability from all pending and threatened legal claims will not
    materially affect the consolidated financial statements taken as a whole.

                                      F-17
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

13. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

    The accompanying unaudited pro forma information for the years ended
December 31, 1997 and 1996 are presented as if the Formation Transactions
(including the acquisition of Chico Crossroads, Monterey Plaza, Fairmont
Shopping Center, Lakewood Shopping Center, Green Valley Town & Country and
secured notes receivable), the Offering described in Note 1 to the financial
statements and the repayment of notes payable pursuant to the Offering had all
occurred on January 1, 1996. Such pro forma information is based upon the
historical financial statements of the Company and should be read in connection
with the financial statements and the notes thereto.

    This unaudited pro forma condensed information does not purport to represent
what the actual results of operations of the Company would have been assuming
such transactions had been completed as set forth above, nor do they purport to
predict the results of operations for future periods.

                      PRO FORMA CONDENSED INCOME STATEMENT
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                            YEAR ENDED         YEAR ENDED
                                                         DECEMBER 31, 1997  DECEMBER 31, 1996
                                                         -----------------  -----------------
                                                            (UNAUDITED)        (UNAUDITED)
<S>                                                      <C>                <C>
Total revenue..........................................      $  50,358          $  45,559
Net income.............................................      $  17,537          $  16,361
Basic and diluted earnings per share...................      $    1.04          $    0.97(a)
</TABLE>

------------------------

(a) assuming 16,814,012 shares outstanding

                                      F-18
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

        (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

    The following summarizes the condensed quarterly financial information for
the Company:

<TABLE>
<CAPTION>
                                                                  QUARTERS ENDED 1997
                                                    ------------------------------------------------
                                                                  SEPTEMBER
                                                    DECEMBER 31      30        JUNE 30    MARCH 31
                                                    -----------  -----------  ---------  -----------
<S>                                                 <C>          <C>          <C>        <C>
Revenue...........................................   $  14,516    $  12,105   $  10,599   $   9,232
Expenses..........................................       9,366        8,876       9,805       9,049
                                                    -----------  -----------  ---------  -----------
Income before extraordinary item..................       5,150        3,229         794         183
Extraordinary loss on early extinguishment of
  debt............................................      --            1,043      --          --
                                                    -----------  -----------  ---------  -----------
Net income........................................   $   5,150    $   2,186   $     794   $     183
                                                    -----------  -----------  ---------  -----------
                                                    -----------  -----------  ---------  -----------
Basic earnings per share:
  Income before extraordinary item................   $    0.31    $    0.19   $    0.05   $    0.01
  Net income......................................   $    0.31    $    0.13   $    0.05   $    0.01
</TABLE>

<TABLE>
<CAPTION>
                                                                  QUARTERS ENDED 1996
                                                    ------------------------------------------------
                                                                  SEPTEMBER
                                                    DECEMBER 31      30        JUNE 30    MARCH 31
                                                    -----------  -----------  ---------  -----------
<S>                                                 <C>          <C>          <C>        <C>
Revenue...........................................   $   9,682    $   8,725   $   8,567   $   8,131
Expenses..........................................       9,404        8,440       8,233       8,579
                                                    -----------  -----------  ---------  -----------
Net income (loss).................................   $     278    $     285   $     334   $    (448)
                                                    -----------  -----------  ---------  -----------
                                                    -----------  -----------  ---------  -----------
</TABLE>

15. SUBSEQUENT EVENTS

(a) On January 15, 1998, the Company commenced foreclosure proceedings related
    to a non-performing note receivable with a book value of approximately
    $610,000. Management expects resolution to this matter in May, 1998.

(b) On January 20, 1998, the Company purchased Bear Creek Plaza, a shopping
    center located in Medford, Oregon. The purchase price was $13,100,000. The
    purchase was financed primarily by a draw under the Company's line of
    credit.

(c) On January 21, 1998, the Company purchased San Dimas Marketplace, a shopping
    center located in San Dimas, California. The purchase price was $22,800,000.
    The purchase was financed primarily by a draw under the Company's line of
    credit.

(d) On February 18, 1998, the Company purchased a four-property portfolio,
    including Milwaukie Marketplace, Pioneer Plaza, Powell Valley Junction and
    Shute Park Plaza, all located in the state of Oregon. The purchase prices of
    Milwaukie Marketplace, Pioneer Plaza, Powell Valley Junction and Shute Park
    Plaza were $12,735,000, $7,455,000, $6,185,000 and $3,975,000, respectively.
    This four property portfolio was financed primarily by a draw under the
    Company's line of credit.

(e) During the period January 1, 1998 through March 17, 1998, the Company
    borrowed an additional $69,100,000 under the line of credit to acquire the
    properties noted above.

(f) On March 17, 1998, the Company's Board of Directors declared a dividend of
    $0.38 per share for the first quarter 1998 to be paid on April 17, 1998 to
    shareholders of record on March 31, 1998.

                                      F-19
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.
              SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1997
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                 COSTS CAPITALIZED
                                                               INITIAL COSTS                       SUBSEQUENT TO
                                                         --------------------------                 ACQUISITION
                                                                       BUILDINGS     -----------------------------------------
                                                                          AND                            CARRYING
DESCRIPTION                               ENCUMBRANCES     LAND     IMPROVEMENTS(2)   IMPROVEMENTS(2)      COSTS       LAND
----------------------------------------  -------------  ---------  ---------------  -----------------  -----------  ---------
<S>                                       <C>            <C>        <C>              <C>                <C>          <C>
PROPERTIES:
Arlington Courtyard, Riverside, CA......    $  --        $     401     $     753         $      89       $  --       $     401
Brookvale Center, Fremont, CA...........       --            9,492         3,164            --              --           9,492
Canyon Ridge Plaza, Kent, WA............       --            2,457        --                 6,705           1,275       2,641
Cheyenne Commons, Las Vegas, NV.........       --            8,540        26,810             1,175          --           8,540
Chico Crossroads, Chico, CA.............       --            3,600        17,063            --              --           3,600
Chino Town Square, Chino, CA............       27,726        8,801        10,297            25,547          --          21,320
Claremont Village, Everett, WA..........       --            2,320         6,987            --              --           2,320
Country Club Center, Rio Rancho, NM.....        3,278          566         2,514                38          --             566
Fairmont Shopping Center, Fairmont,
  CA....................................       --            3,420         8,003            --              --           3,420
Foothill Center, Rialto, CA.............       --              314         1,078            --              --             314
Green Valley Town & Country, Henderson,
  NV....................................       --            4,096        12,333            --              --           4,096
Laguna Village, Sacramento, CA..........       --            3,226        --                14,214           1,644       3,448
Lakewood Shopping Center, Lakewood,
  CA....................................       --            2,363         7,125            --              --           2,363
Laurentian Center, Ontario, CA..........        4,652        2,767         6,445               650          --           2,767
Maysville Marketsquare, Maysville, KY...        5,364        3,454         2,001             3,771              79       3,299
Monterey Plaza, San Jose, CA............       --            7,688        18,761            --              --           7,688
Ocoee Plaza, Ocoee, FL..................       --              651         2,911               278          --             651
Olympia Square, Olympia, WA.............       14,105        3,737        11,580             1,237          --           3,737
Olympia West Center, Olympia, WA........        6,061        2,735         8,295            --              --           2,735
Palmdale Center, Palmdale, CA...........       --            1,150         3,454            --              --           1,150

<CAPTION>

                                                         TOTAL COSTS
                                          -----------------------------------------
                                            BUILDINGS                  ACCUMULATED    DATE OF
                                               AND          TOTAL     DEPRECIATION   ACQUIS.(A)
DESCRIPTION                               IMPROVEMENTS    (1)(2)(3)      (2)(3)      CONSTR.(C)
----------------------------------------  -------------  -----------  -------------  ----------
<S>                                       <C>            <C>          <C>            <C>
PROPERTIES:
Arlington Courtyard, Riverside, CA......    $     842     $   1,243     $     167        1994(A)
Brookvale Center, Fremont, CA...........        3,164        12,656        --            1997(A)
Canyon Ridge Plaza, Kent, WA............        7,796        10,437           554        1992(A)
                                                                                         1995(C)
Cheyenne Commons, Las Vegas, NV.........       27,985        36,525         2,042        1995(A)
Chico Crossroads, Chico, CA.............       17,063        20,663           362        1997(A)
Chino Town Square, Chino, CA............       23,325        44,645         1,315        1992(A)
Claremont Village, Everett, WA..........        6,987         9,307            29        1997(A)
Country Club Center, Rio Rancho, NM.....        2,552         3,118           729        1992(A)
Fairmont Shopping Center, Fairmont,
  CA....................................        8,003        11,423           136        1997(A)
Foothill Center, Rialto, CA.............        1,078         1,392            21        1997(A)
Green Valley Town & Country, Henderson,
  NV....................................       12,333        16,429           117        1997(A)
Laguna Village, Sacramento, CA..........       15,636        19,084           507        1992(A)
                                                                                      1996/97(C)
Lakewood Shopping Center, Lakewood,
  CA....................................        7,125         9,488            96        1997(A)
Laurentian Center, Ontario, CA..........        7,095         9,862           799     1994/96(A)
Maysville Marketsquare, Maysville, KY...        6,006         9,305           906        1992(A)
                                                                                         1993(C)
Monterey Plaza, San Jose, CA............       18,761        26,449           315        1997(A)
Ocoee Plaza, Ocoee, FL..................        3,189         3,840           447        1992(A)
Olympia Square, Olympia, WA.............       12,817        16,554         2,818        1992(A)
Olympia West Center, Olympia, WA........        8,295        11,030            35        1997(A)
Palmdale Center, Palmdale, CA...........        3,454         4,604        --            1997(A)
</TABLE>

                                                                     (continued)

                                      F-20
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.
        SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED)
                               DECEMBER 31, 1997
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                 COSTS CAPITALIZED
                                                               INITIAL COSTS                       SUBSEQUENT TO
                                                         --------------------------                 ACQUISITION
                                                                       BUILDINGS     -----------------------------------------
                                                                          AND                            CARRYING
DESCRIPTION                               ENCUMBRANCES     LAND     IMPROVEMENTS(2)   IMPROVEMENTS(2)      COSTS       LAND
----------------------------------------  -------------  ---------  ---------------  -----------------  -----------  ---------
<S>                                       <C>            <C>        <C>              <C>                <C>          <C>
PROPERTIES:
Rainbow Promenade, Las Vegas, NV........       --            9,390        21,774            --              --           9,390
Rosewood Village, Santa Rosa, CA........        4,472        2,180         4,958               167          --           2,180
Sahara Pavilion North, Las Vegas, NV....       31,089       11,920        28,554               549          --          11,920
Sahara Pavilion South, Las Vegas, NV....       --            4,833        12,988             1,116          --           4,833
Sports Unlimited, Memphis, TN...........       --            1,204         3,780               322          --           1,204
Sunset Square, Bellingham, WA...........       --            6,100        18,647               393          --           6,100
Tacoma Central, Tacoma, WA..............       11,569        5,314        16,288            --              --           5,314
Tanasbourne Village, Ontario, CA........       --            5,573        13,861             1,574          --           5,573
Tustin Heights, Tustin, CA..............       --            3,675        10,776            --              --           3,675
Vineyard Village East, Ontario, CA......       --              649         2,716               135          --             649
Winterwood Pavilion, Las Vegas, NV......       --            4,573        13,015               512          --           4,573
                                          -------------  ---------  ---------------        -------      -----------  ---------
                                            $ 108,316    $ 127,189     $ 296,931         $  58,472       $   2,998   $ 139,959
                                          -------------  ---------  ---------------        -------      -----------  ---------
                                          -------------  ---------  ---------------        -------      -----------  ---------

<CAPTION>

                                                         TOTAL COSTS
                                          -----------------------------------------
                                            BUILDINGS                  ACCUMULATED    DATE OF
                                               AND          TOTAL     DEPRECIATION   ACQUIS.(A)
DESCRIPTION                               IMPROVEMENTS    (1)(2)(3)      (2)(3)      CONSTR.(C)
----------------------------------------  -------------  -----------  -------------  ----------
<S>                                       <C>            <C>          <C>            <C>
PROPERTIES:
Rainbow Promenade, Las Vegas, NV........       21,774        31,164           162        1997(A)
Rosewood Village, Santa Rosa, CA........        5,125         7,305         1,002        1992(A)
Sahara Pavilion North, Las Vegas, NV....       29,103        41,023         4,367        1992(A)
Sahara Pavilion South, Las Vegas, NV....       14,104        18,937         2,373        1992(A)
Sports Unlimited, Memphis, TN...........        4,102         5,306           883        1992(A)
Sunset Square, Bellingham, WA...........       19,040        25,140         4,048        1992(A)
Tacoma Central, Tacoma, WA..............       16,288        21,602            68        1997(A)
Tanasbourne Village, Ontario, CA........       15,435        21,008         2,692        1992(A)
Tustin Heights, Tustin, CA..............       10,776        14,451        --            1997(A)
Vineyard Village East, Ontario, CA......        2,851         3,500           309        1994(A)
Winterwood Pavilion, Las Vegas, NV......       13,527        18,100         2,777        1992(A)
                                          -------------  -----------  -------------
                                            $ 345,631     $ 485,590     $  30,076
                                          -------------  -----------  -------------
                                          -------------  -----------  -------------
</TABLE>

                                                                     (continued)

                                      F-21
<PAGE>
                      PAN PACIFIC RETAIL PROPERTIES, INC.
        SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED)
                               DECEMBER 31, 1997
                                 (IN THOUSANDS)

NOTES:

(1) The aggregate gross cost of the properties owned by Pan Pacific Retail
    Properties, Inc. for federal income tax purposes, approximated $507,923 as
    of December 31, 1997.

(2) Net of write offs of fully depreciated assets.

(3) The following table reconciles the historical cost and related accumulated
    depreciation and amortization of Pan Pacific Retail Properties, Inc. from
    January 1, 1995 through December 31, 1997:

<TABLE>
<CAPTION>
                                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                               ----------------------------------
<S>                                                                            <C>         <C>         <C>
COST                                                                              1997        1996        1995
-----------------------------------------------------------------------------  ----------  ----------  ----------
Balance, beginning of period.................................................  $  290,874  $  273,677  $  232,176
Additions during period (acquisition, improvements, etc.)....................     199,251      18,682      41,995
Interest capitalized.........................................................         229         412       1,017
Deductions during period (write off of tenant improvements and cost of real
  estate sold)...............................................................      (4,764)     (1,897)     (1,511)
                                                                               ----------  ----------  ----------
Balance, close of period.....................................................  $  485,590  $  290,874  $  273,677
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
ACCUMULATED DEPRECIATION AND AMORTIZATION
Balance, beginning of period.................................................  $   26,857  $   22,254  $   17,622
Additions during period (depreciation and amortization expense)..............       7,983       6,500       5,665
Deductions during period (write off of accumulated depreciation of tenant
  improvements and real estate sold).........................................      (4,764)     (1,897)     (1,033)
                                                                               ----------  ----------  ----------
Balance, close of period.....................................................  $   30,076  $   26,857  $   22,254
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
</TABLE>

                                      F-22