<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K
(MARK ONE)

/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

       FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR


/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM  _______  TO  ______

                          COMMISSION FILE NUMBER 0-8725

                      PACIFIC REAL ESTATE INVESTMENT TRUST
                               A California Trust
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                   94-1572930
                      (I.R.S. EMPLOYER IDENTIFICATION NO.)

              1010 El Camino Real, Suite 210, Menlo Park, California 94025 
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (650) 327-7147
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

             SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
     Shares of Beneficial Interest, par value $10 per share ("Trust Shares")

       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 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. [X]

       No market for Trust Shares currently exists and therefore a market value
for such Trust Shares cannot be determined.

       The number of Trust Shares outstanding as of December 31, 1998 was
3,706,845, $10 par value per share.


<PAGE>


                                        TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----
PART I

   Item 1.   Business.......................................................  1

   Item 2.   Properties.....................................................  5

   Item 3.   Legal Proceedings..............................................  8

   Item 4.   Submission of Matters to a Vote of Security Holders............  8


PART II

   Item 5.   Market for Registrant's Trust Shares and Related
               Shareholder Matters..........................................  9

   Item 6.   Selected Financial Data........................................ 10

   Item 7.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations.......................... 11

   Item 8.   Consolidated Financial Statements and Supplementary Data....... 14

   Item 9.   Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure.......................... 27


PART III

   Item 10.  Directors and Executive Officers of Registrant................. 27

   Item 11.  Executive Compensation......................................... 28

   Item 12.  Security Ownership of Certain Beneficial Owners and
               Management................................................... 28

   Item 13.  Certain Relationships and Related Transactions................. 29


PART IV

   Item 14.  Exhibits, Financial Statement Schedules and Reports on
               Form 8-K..................................................... 30

   Signatures  ............................................................. 31


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

         (a)      Historical Development of Business:

         Pacific Real Estate Investment Trust (the "Trust") was organized
         pursuant to a Declaration of Trust on April 17, 1963. The Trust is a
         California real estate investment trust and qualifies as a real estate
         investment trust ("REIT") under the Internal Revenue Code of 1986, as
         amended ("Code").


         The Trust's total assets were $7 million at December 31, 1998 and $13
         million at December 31, 1997.

         (b)      Financial Information about Industry Segments:

         The Trust is currently involved in only one industry segment--real
         estate. The Trust operates and holds income producing real property for
         investment. All of these activities are included in the real estate
         industry segment. Therefore, all of the revenues, operating profits and
         assets reported in the Consolidated Financial Statements contained
         herein relate to this industry segment.

         (c)      Narrative Description of the Business:

OVERVIEW
         The Trust invests in real estate interests. At December 31, 1998, the
Trust owned (i) Wanlass Shopping Center, San Pablo, Ca. This is a strip shopping
center undergoing redevelopment; and (ii) a parcel of land that could be
developed as either a retail or an office building in Redding, CA.

POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES

         The Trust's objectives with respect to real estate investment, property
disposition, financing and certain other activities are determined by the
Trustees. On September 19, 1997, the Board of Trustees unanimously voted to seek
shareholder approval to dissolve the Trust and to terminate its business
activities. The reasons for this decision have all been identified and discussed
by the Trustees and made public in a Proxy Statement, which was mailed to all
shareholders of record on January 7, 1998. On February 4, 1998, the shareholders
of the Trust voted in favor of a resolution approving the dissolution of the
Trust, the orderly liquidation of the balance of the Trust's assets, and the
distribution of the net proceeds to the Shareholders.

SALE OF KINGS COURT SHOPPING CENTER, ONE NOTE RECEIVABLE AND THE SAN PABLO
COUNTY ROAD #20 PAD.

         On May 5, 1998, the trust sold to Edward Margherlo certain real
property located in San Pablo, California, the net cash proceeds to the Trust
were $36,000.

         On August 14, 1998, the Trust sold to Neptune Investment Company a note
receivable, which it held as a consequence of the development of a shopping
center in 1990, for $145,000. The sale amount was greater than the book carrying
value and it was determined based on negotiations between the parties and a
certain third party valuation.

         On August 24, 1998, the Trust sold all of its rights, title and
interest in Kings Court Shopping Center for $10,650,000 to Federal Realty
Partners, LP, a Delaware limited partnership.

WANLASS SHOPPING CENTER

         On August 18, 1998, the Trust purchased the fee title to the land at
the Wanlass Shopping Center for $1,780,000. This purchase was required under the
terms of the then existing ground lease between the Trust and the ground lessor.
The Trust will dispose of this property when the redevelopment is complete. This
is expected to occur during 1999.


                                       1
<PAGE>


         INVESTMENT POLICY. As a consequence of the Trust's decision to
liquidate, no future property acquisitions are contemplated. In connection with
the proposed dissolution of the Trust, the remaining real estate assets owned by
the Trust are intended to be sold or otherwise disposed of during 1999.

         FINANCING. The Trust has effectively restructured its asset portfolio
during 1998 in order to reduce its indebtedness and create liquidity through the
sale of the Trust's properties and assets. It intends to continue this policy in
pursuit of its overall objective of liquidation and dissolution.

         DISTRIBUTIONS. The Trust has made no dividend payments to shareholders
since December 1993. As a part of the Trust's plan for dissolution, the Trust
expects ultimately to make a final distribution dividend to its shareholders.

         WORKING CAPITAL RESERVES. The Trust maintains working capital reserves
in amounts that the Trustees determine to be adequate to meet the Trust's normal
capital needs.

         CONFLICTS OF INTEREST POLICIES. The Trust has adopted policies to
reduce potential conflicts of interest. Since the Trust does not presently
intend to either acquire or finance any real estate assets, these policies
chiefly affect circumstance of disposition of property. It is expected that all
remaining real property assets will be sold to third parties that have no
relationships with any of the Trustees, or the Trust's Advisor, or its property
managers.

         OTHER POLICIES. The Trust intends to operate in a manner that will
maintain its status as a Real Estate Investment Trust. It will not subject
itself to regulation under the Investment Company Act of 1940, as amended. The
Trust does not intend (i) to invest in either the securities of other issuers
for the purpose of exercising control over such issuers, (ii) to underwrite
securities of other issuers, or (iii) to actively trade in loans or other
investments.

         The Trust may make investments other than as previously described,
although it does not currently plan to do so. The Trust has authority to
repurchase or otherwise reacquire Trust Shares it has issued or may issue and it
may engage in such activities in the future. The Trustees have no present
intention of causing the Trust to repurchase any of the Trust Shares, and any
such action would be taken only in conformity with applicable federal and state
laws and the requirements for qualifying as a REIT under the Code and the
Treasury Regulations. The Trust has not issued securities in exchange for
property, nor has it reacquired any of its securities. The Trust may make loans
to third parties, including, without limitation, to officers and to joint
ventures in which the Trust decides to participate, although no third party
loans have been made either to officers or to joint ventures.

         At all times, the Trust intends to meet the requirements of the Code to
qualify as a REIT unless, because of changes in future economic, market or legal
conditions, or changes in the Code or in the Treasury Regulations, the Trustees
elect to revoke the Trust's REIT election.

MARKET CONDITIONS

         During recent years, the Trust has repeatedly sought access to
economically priced equity capital in order to create and maintain the value of
its real estate portfolio. These efforts were unsuccessful. This circumstance
impeded the Trust's ability to resume cash distributions and to establish
liquidity for its shareholders leading the Trustees, ultimately, to recommend a
plan of dissolution to the shareholders. This plan was adopted by the
shareholders on February 4, 1998.

         The Trust is not involved in research and development activities.


                                       2
<PAGE>

GOVERNMENT REGULATION

         ENVIRONMENTAL MATTERS. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
released on or in its property. Such laws impose such liability without regard
to whether the owner or operator knew of, or was responsible for, the release of
such hazardous substances. The presence of such substances, or the failure to
properly remediate such substances, when released, usually reduces the value and
adversely affects the ability to sell such real estate or to borrow using such
real estate as collateral.

         The Trust has notified a governmental authority of a spill from a
former dry cleaning shop at Kings Court Shopping Center and the Regional Water
Quality Control Board of Santa Clara County has issued a clean-up order to the
Trust. Currently, a plan of remediation has been prepared with a proposed plan
of action for clean up of the contamination. The remediation clean up is now
underway and is expected to last at least two years. This plan has been approved
by the pertinent regulatory agencies on an interim basis, pending review of
remediation and testing results. The cost to Kingsco for the clean up was
estimated to be $1,195,000, of which $1,153,000 has already been expended. The
Trust was not a partner of Kingsco at the time the contamination occurred, and
for payment of the clean up costs it intends to look to Kingsco's insurance
carriers at the time of the contamination, the other partners of Kingsco, and
the entities that caused the contamination. The Trust believes that the
representations and warranties made by the seller in the agreement pursuant to
which the Trust acquired its partnership interest give the Trust a cause of
action against the seller for the clean up costs. The Kings Court Shopping
Center was sold in August 1998. As part of the terms of the sale, the other
partners of Kingsco agreed to accept liability for the costs of the clean up. An
insurance company has agreed to pay clean up costs with reservation of rights to
recovery. Reimbursements received from the insurance company total $835,000.
Kingsco is negotiating a final settlement agreement with the insurance company.

         In another, unrelated, environmental audit of the gasoline service
station pad ("Exxon Pad") at Kings Court Shopping Center, the Phase One and
Phase Two Environmental Assessment Reports identified gasoline and possibly
other service station by-products in the soil underneath the station and its
pumps. Exxon Corporation has assumed financial and legal responsibility of the
hazardous materials and remediation of the Exxon Pad. The environmental firm
responsible for maintaining and analyzing the data from various monitoring wells
on the Pad continues to report to the Trust and to governmental authorities on a
quarterly basis. Remediation efforts are now underway and include both vapor
extraction and "pump and treat" activities, depending upon the location of the
materials in the soil and water.

         In August 1998, the Trust and Kingsco purchased insurance protection
from American Insurance Group to protect the Trust from cost overruns associated
with the clean up of both the dry cleaners and the Exxon contamination.

         The Trust has also become aware of a spill from a former dry cleaning
establishment at El Portal Shopping Center. This spill probably occurred prior
to the Trust's ownership of the property. Nationwide Life Insurance Company
foreclosed the property in 1997, and subsequently sold the center. The Trust
still retains legal liability for toxic pollution as a potentially responsible
party. The Contra Costa County Regional Water Quality Control Board has approved
a clean-up remediation plan proposed by the Trust. The cost of clean up is not
expected to exceed $100,000. This sum has been paid to Nationwide Life Insurance
Company, in exchange for a release of liability in favor of the Trust from the
subsequent buyer of the property and the former lender. The residual legal
liability to the Trust is considered to be insignificant

         The Trust owns a parcel of land, in San Pablo, California (the Wanlass
property) which has been contaminated with a gasoline spill from an adjacent
property. The source of contamination has been identified and Atlantic-Richfield
Company, Inc. has issued a letter of indemnification for the Trust's benefit
respecting all financial and legal liability arising from this contamination.

         At Monterey Plaza Shopping Center, which the Trust sold in April 1997,
the Phase One Environmental Assessment Report identified the possibility of oil
and grease contamination in the soil as well as possible residues of pesticides,
herbicides and insecticides due to prior agricultural use of the property. The
property was originally acquired by the Trust from the State of California. The
Trust believes that the State of California would be liable for any such
contamination under the controlling statutes. These possible hazardous waste
contaminations are not considered to be of material significance to the Trust.

                                       3
<PAGE>


         Compliance with federal, state and local laws and regulations relating
to the protection of the environment could have a significant impact on the
financial position of the Trust. However, other than disclosed herein, the
Trustees are not currently aware of any environmental conditions at its
properties that would have a material adverse effect on the Trust.

         AMERICANS WITH DISABILITIES ACT. The Trust's properties are subject to
the Americans with Disabilities Act of 1990, as amended (the "ADA"). The ADA has
separate compliance requirements for "public accommodations" and "commercial
facilities" and generally requires that public facilities such as retail
shopping centers be made accessible to people with disabilities. These
requirements became effective in 1992. Compliance with the ADA requirements will
require capital improvements at the Trust's properties. Noncompliance could
result in imposition of fines by the United States government or an award of
damages to private litigants. However, the Trust does not believe that the costs
of compliance will be material.

MANAGEMENT

         The search for a suitable portfolio restructuring was pursued by the
Trust's investment advisor, Collier Investments (the "Advisor"), a
proprietorship owned by Charles R. Collier. Under the terms of an Investment
Advisory Agreement between the Trust and the Advisor, the Advisor agreed to use
its best efforts to present to the Trust portfolio restructuring opportunities
consistent with the investment policies and objectives of the Trust. In addition
to relying on the advice of the Advisor, the Trustees occasionally employ the
services of independent professional consultants. The Advisor receives no
compensation for his services.

         The Trust employs no full-time executives or administrative staff. None
of the Trust's officers or Trustees is compensated for services. An independent
contractor, Menlo Management Company, performs the leasing and management of the
Trust's properties and administration of the Trust itself. Menlo Management is
owned by Robert C. Gould who is also Vice President and a trustee of the Trust
(see Related Party Transactions). California Bavarian Company, a privately held
California corporation, provides shareholder communication and liaison support
services to the Trust on a contractual basis for a monthly service fee.
California Bavarian Company is not related to the Trust. However its director,
Mark D. Mordell, is an agent of the Trust and he is compensated.

         The  Trust has five  Trustees  who meet as  needed  and who are not  
compensated.  The  Trustees  include: Wilcox  Patterson,  who serves as 
President;  Harry E.  Kellogg,  who serves as Secretary  and  Treasurer;  
John H. Hoefer and Robert C. Gould,  who serve as Vice  Presidents  and 
William S. Royce.  Each of the Trustees and Advisor are investors in the 
Trust.

COMPETITION
         The Trust's one remaining shopping center is under redevelopment in San
Pablo, California. This property is situated amidst developed commercial and
retail areas. There are other competing neighborhood strip shopping centers
located nearby. This factor will have a bearing on the Trust's ability to rent
its property to tenants on economic terms and to impose effective mechanisms to
control operating costs and resultant net income. The Trust must compete for
tenants and services with other property owners. Moreover, the extent and
increasing rates of changes in community demographics, public policy, retail
usage patterns, merchandising practices, consumer tastes and financial strength
of tenants, amongst other considerations, can all adversely affect the
property's competitive position in varying ways.

INSURANCE
         The Trust typically maintains comprehensive liability, fire, extended
coverage and rental loss insurance with respect to its properties, and generally
requires tenants to reimburse the Trust for their pro rata share of the Trust's
insurance premiums and to maintain their own general liability insurance with
respect to the properties with policy terms and insured limits customarily
carried for similar properties. There are, however, certain types of losses
(such as from wars, flood, riots or earthquakes) which may be uninsurable or
insurable only at rates which, in the Trust's opinion, are prohibitive.

         (d)      Foreign Operations

         The Trust does not engage in any foreign operations or derive revenues
from foreign sources.


                                       4
<PAGE>
ITEM 2.  PROPERTIES

DESCRIPTION OF THE TRUST'S PROPERTIES

         The following table sets forth-certain information relating to the
Trust's properties as of and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
                                                                EFFECTIVE
                            PERCENTAGE    GROSS    1998 ANNUAL ANNUAL RENT          PERCENT
NAME/LOCATION                OWNERSHIP  LEASABLE     MINIMUM   PER SQUARE  PERCENT LEASED &      ANCHORS AND
                             INTEREST AREA (SQ. FT) RENT (1)      FOOT     LEASED  OCCUPIED   PRINCIPAL TENANTS
----------------------------------------------------------------------------------------------------------------
<S>                         <C>         <C>        <C>            <C>       <C>        <C>    <C>
Wanlass Shopping Center     100% (2)    20,338     $115,000       5.65      91%        91%     Mechanics Bank and
San Pablo, California                                                                          Kragen Auto
----------------------------------------------------------------------------------------------------------------
Parcel of land              100%(3)     20,000                                                   N/A
Redding, California
</TABLE>
(1)      Annual minimum rent excludes (a) percentage rents, (b) additional rent
         payable by tenants such as common area maintenance, real estate taxes
         and other expense reimbursements, and (c) future contractual rent
         escalations or Consumer Price Index adjustments. Percentage rents are
         paid over and above base rents, and are calculated as a percentage of a
         tenant's gross sales above a predetermined threshold. The amount of
         percentage rents received to date by the Trust has not been material to
         the Trust's operations. Figures for total annual minimum rent in the
         above table have been calculated based on rental payments for the
         calendar year 1998.
(2)      The Trust acquired title to the Wanlass Shopping Center on August 18,
         1998. The then existing lease contained a provision requiring the Trust
         to purchase the property freehold upon the death of one of the ground
         lessors or at any time after May 1, 1998. The Trust completed the
         acquisition on August 18, 1998. The property is currently under
         redevelopment.
(3)      The parcel of land in Redding, California is undeveloped land only.

         WANLASS SHOPPING CENTER. Wanlass Shopping Center is a strip shopping
center located in San Pablo, California. The property has a total of 20,338
square feet of gross leasable space. It was acquired as a leasehold investment
by the Trust in 1995 in connection with the plan to redevelop the adjacent El
Portal Shopping Center, which at that time was owned by the Trust. However this
planned redevelopment has been abandoned. The Wanlass property is able to stand
alone as a retail investment, once certain physical improvements are made and
retail tenants installed. The acquisition was completed in August 1998. The
estimated net realizable value of the center was $2,800,000 at December 31,
1998. There is currently no Trust indebtedness or financing secured by the
property. The anchor tenants are Mechanics Bank and Kragen Auto Parts.

         The percentage of the center that is both leased and occupied at
December 31, 1998 was 91%. Tenants leasing and occupying 10% or more of the
rentable space as of December 31, 1998 were:
<TABLE>
<CAPTION>
                                                   PERCENT OF
                                 GROSS LEASABLE   TOTAL GROSS        ANNUALIZED
                                  AREA (SQ. FT)     LEASABLE          BASE RENT         END OF LEASE TERM
TENANT                                                AREA
-------------------------------------------------------------------------------------------------------------
<S>                                  <C>              <C>            <C>            <C>
Kragen Auto                          9,123            45%            $ 93,000               May 2008
                                                                                     (2 options for 5 years)
Mechanics Bank                       6,000            30%            $ 33,000            September 2006
                                                                                    (2 options for 10 years)
</TABLE>
PARCEL OF LAND IN REDDING, CA. In 1996, the Trust agreed to purchase a 20,000
square foot parcel of land it formerly leased, capable of supporting a 5,000
square foot commercial building, located at the periphery of Westwood Village
Shopping Center in Redding, CA. The Limited Partnership which owned the land
agreed to sell the parcel to the Trust in exchange for a payment equal to the
current estimated value of the land at $200,000 plus a lease termination fee of
$240,000, based on the Trust's residual rental commitment, discounted to present
value. The land acquisition and the lease termination fee were accrued in 1996
and paid in 1997. The value of this land is presently estimated at $125,000 net
of expenses of the sale. The property is presently being marketed for sale.

                                       5
<PAGE>


VESTING OF TITLE TO PROPERTIES

     The Trust owns fee title to its real estate assets.

PROPERTY CONDITION

     All of the buildings are suitable and adequate for the purposes for which
they were designed, are being used for those purposes, where leased and
occupied, and are in a good state of repair. The Wanlass Shopping Center is a
redevelopment property.

         The parcel of land in Redding is raw land capable of supporting a 5,000
square foot commercial building.

         Routine ongoing requirements of building upkeep and tenant replacements
will necessitate capital expenditures during the future. The precise extent of
such expenditures cannot yet be determined.

PROPERTY SALES

         The Trust sold Kings Court Shopping Center for $10,650,000 to Federal
Realty Partners, L.P., a Delaware limited partnership, on August 24, 1998. The
net cash proceeds to the Trust were $4,260,000 less closing costs from the
transaction.

         The Trust assigned to Neptune Investment Company a note receivable for
$145,000. The sale amount was greater than the book carrying value and it was
determined based on negotiations between the parties and certain third party
valuations.

         The Trust sold to Edward Margherlo certain real property located on
County Road #20 in San Pablo, California. The net cash proceeds to the Trust
were $36,000.

PRINCIPAL TENANTS

         Principal tenants at the Trust's properties include, Mechanics Bank and
CSK Auto Parts Inc. (Kragen Auto Parts), which lease properties representing
approximately 74% of the Trust's gross leasable area and 75% of its base rental
revenues.

     Information with respect to the Trust's two largest tenants as of 
December 31, 1998 is set forth in the following table:

<TABLE>
<CAPTION>
                                    GROSS
                 NUMBER OF      LEASABLE AREA   PERCENTAGE OF  BASE RENT/YEAR    PERCENTAGE OF
TENANT            LEASES          (SQ. FT)          TOTAL                            TOTAL
-----------------------------------------------------------------------------------------------
<S>                  <C>            <C>             <C>          <C>                 <C>
Mechanics Bank       1              6,000           30%          33,000              29%
Kragen Auto          1              9,123           45%          93,000              81%(1)

</TABLE>
------------
(1)      Kragen Auto rent commenced June 1, 1998.


                                       6
<PAGE>

OCCUPANCY RATES FOR PAST FIVE YEARS

         The following table shows year-end rates for the past five fiscal years
for rentable space both leased and occupied, expressed as a percentage of total
rentable square footage for the Wanlass Shopping Center:

<TABLE>
<CAPTION>
Property
                                      1994            1995           1996            1997           1998
----------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>            <C>             <C>           <C>
Wanlass Shopping Center(1)             na              Na             28%             38%           91%
</TABLE>

(1)      Wanlass Shopping Center was ground leased in May 1995 and purchased in 
         August 1998.

AVERAGE EFFECTIVE ANNUAL BASE RENT PER SQUARE FOOT FOR PAST FIVE YEARS

         The following table shows average effective annual base rent per square
foot for the Wanlass Shopping Center for the past five years:

<TABLE>
<CAPTION>
Property                             1994            1995           1996            1997            1998
-----------------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>           <C>             <C>             <C>
Wanlass Shopping Center (under        na              na            1.99            2.97            5.65
redevelopment)
</TABLE>

(1)      Wanlass Shopping Center was ground leased in May 1995 and purchased in 
         August 1998.

Lease Expirations

         The following table shows lease expirations for the next ten years for
existing tenants at the Wanlass Shopping Center as of December 31, 1998,
assuming that none of the tenants exercises renewal options:

<TABLE>
<CAPTION>
                                                                                    Percent of
                                  Approximate    Percent of Total                     Gross       Average Annual
                                  Lease Area in    Leased Square     Annualized     Annual Rent   Base Rent/year
                    Number of      Square Feet        Footage      Base Rent/year Represented by  Per Square Foot
Lease Expiration     Leases      Under Expiring   Represented by  Under Expiring     Expiring     Under Expiring
      Year          Expiring         Leases      Expiring Leases       Leases        Leases           Leases
------------------------------------------------------------------------------------------------------------------
<S>                <C>          <C>              <C>              <C>             <C>             <C>
      1999              0              0               0.00%           $ 0            0.00%           $0.00
      2000              2            1,064             6.13%          15,600          9.95%           14.66
      2001              0              0               0.00%            0             0.00%            0.00
      2002              1             264              1.52%           1,980          1.26%            7.50
      2003              1             900              5.19%          13,426          8.56%           14.92
      2004              0              0               0.00%            0             0.00%            0.00
      2005              0              0               0.00%            0             0.00%            0.00
      2006              1            6,000            34.58%          32,825          20.93%           5.47
      2007              0              0               0.00%            0             0.00%            0.00
      2008              1            9,123            52.58%          93,024          59.31%          10.20
   AFTER 2008           0              0              00.00%            0             00.00%           0.00
                        -              -              ------            -             ------          ----
      TOTAL            6             17,351          100.00%        $156,855         100.00%          $9.04
</TABLE>

LEASES

         The Trust typically seeks to structure the leases on its properties as
"triple net" leases that impose on the tenant pro rata obligations for real
property taxes and assessments, cost of repairs and maintenance of common areas
and premiums for insurance.

                                       7
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

       The Trust is not presently involved in any litigation and, to its
knowledge, no material litigation is threatened against the Trust or its
properties, other than routine litigation arising out of the ordinary course of
business, some of which is expected to be covered by the Trust's liability
insurance and all of which collectively is not expected to have a material
adverse effect on the business or financial condition of the Trust.


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

       On February 4, 1998, the shareholders of the Trust voted in favor of (i)
the election of Trustees; (ii) approval of the appointment of Deloitte & Touche
LLP as independent auditors; and (iii) the dissolution of the Trust, the orderly
liquidation of the balance of the Trust's assets, and the distribution of the
net proceeds to the Shareholders.




                                       8
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S TRUST SHARES AND RELATED SHAREHOLDER
         MATTERS

MARKET VALUE OF TRUST SHARES

       There is no established public trading market for Trust Shares. The
Trust's most recent offering circular expired on December 15, 1992, and no new
Trust Shares have been sold since such date.

        Shareholders wishing to liquidate their interests in the Trust must
independently locate buyers for their Trust Shares. At this time, the Trust
cannot predict when or at what price these Trust Shares will be liquidated.

       As of December 31, 1998, there were 3,706,845 Trust Shares issued and
outstanding, which were held of record by approximately 3,600 shareholders.


DISTRIBUTION POLICY

         Historically, the Trust's policy has been to pay dividends to its
shareholders in an amount approximating 100% of its cash flows from operations
(i.e., net operating income plus depreciation and amortization). On February 25,
1993, the payment of regular dividends was suspended. Apart from one dividend
payment in December 1993, dividends have remained suspended through December 31,
1998. The Trust is applying the funds that would otherwise have been distributed
to its shareholders to fund capital expenditures necessary to develop, maintain
and dispose of its properties.


                                       9
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         The following represents selected financial data for the Trust for the
five years ended December 31, 1998. Acquisitions and dispositions which occurred
during the periods presented below materially affect the comparability of the
data. The data should be read in conjunction with the consolidated financial
statements included elsewhere herein.

<TABLE>
<CAPTION>

FOR THE YEAR ENDED DECEMBER 31:        1998           1997           1996            1995            1994
-------------------------------  --------------- -------------- -------------- --------------- ----------
<S>                               <C>            <C>            <C>            <C>             <C>
Operating Data:                    Liquidation   Going-Concern  Going-Concern   Going-Concern   Going-Concern
                                      Basis          Basis          Basis           Basis           Basis

Rental revenues................   $  1,288,000   $  2,802,000   $   5,780,000  $   9,183,000   $   12,417,000
                                  ------------   ------------   -------------  -------------   --------------
Operating income (loss)........   $  4,521,000   $   (219,000)  $     216,000  $   2,031,000   $   (3,870,000)
Property acquisition expenses,
prepayment penalty,
reincorporation expenses and                      
expenses of prospective offering                     (147,000)       (230,000)      (214,000)      (1,430,000)
Interest income/(expense)--net          33,000       (704,000)     (2,759,000)    (4,727,000)      (7,197,000)
Gain (loss) on lease termination                                     (240,000)                      3,577,000
Gain (loss) on options.........                                                     (213,000)         994,000
                                  ------------   ------------   -------------  -------------   --------------
Income (loss) before minority
Interest in joint venture......      4,554,000     (1,070,000)     (3,013,000)    (3,123,000)      (7,926,000)
Less minority interest in joint
Venture's operations...........     (3,201,000)      (392,000)       (414,000)      (325,000)        (328,000)
                                  ------------   ------------   -------------  -------------   --------------
Net income (loss)..............   $  1,353,000   $ (1,462,000)  $  (3,427,000) $  (3,448,000)  $   (8,254,000)
                                  ------------   ------------   -------------  -------------   --------------
Basic and diluted income (loss)
per share of beneficial interest  $       0.37   $      (0.39)  $       (0.92) $       (0.93)  $        (2.23)
Cash dividends per share of
Beneficial interest............   $       0.00   $       0.00   $        0.00  $        0.00   $         0.00


AS OF DECEMBER 31:
Balance Sheet Data:                  Liquidation    Liquidation  Going-Concern   Going-Concern   Going-Concern
                                        Basis          Basis          Basis           Basis           Basis

Total assets...................   $    7,096,000 $   13,385,000 $   46,183,000 $  62,875,000   $   95,287,000
Mortgages and other loans payable $              $    1,271,000 $   33,400,000 $  48,008,000   $   75,770,000
Weighted average number of
shares outstanding.............        3,706,845      3,706,845      3,706,845     3,706,845        3,706,845

</TABLE>

                                       10
<PAGE>


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

         The following discussion should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements and the Notes thereto
appearing elsewhere herein.

RESULTS OF OPERATIONS

         COMPARISON OF YEAR ENDED DECEMBER 31, 1998 (LIQUIDATION BASIS) TO YEAR
ENDED DECEMBER 31, 1997 (GOING CONCERN BASIS)

         On February 4, 1998, the shareholders of the Trust voted in favor of a
resolution approving the dissolution of the Trust, the orderly liquidation of
the balance of the Trust's assets, and the distribution of the net proceeds to
the Shareholders.

         Net income for the year ended December 31, 1998 was $1,353,000 as
compared to a net loss of $1,462,000 for the year ended December 31, 1997, an 
increase in the net income of $2,815,000.

         Rental revenues decreased from $2,802,000 to $1,288,000, a decrease of
$1,514,000, or 54%, as a result of the sale of Kings Court Shopping Center in
1998 and Monterey Plaza Shopping Center in 1997.

         Operating expenses decreased from $732,000 in 1997 to $554,000 in 1998,
a decrease of $178,000, or 24%. Property taxes decreased from $189,000 in 1997
to $66,000 in 1998, a decrease of $123,000, or 65%. Property management fees
decreased from $106,000 in 1997 to $52,000 in 1998, a decrease of $54,000, or
51%. Each of these decreases resulted from the sale of Kings Court Shopping
Center in August 1998 and Monterey Plaza Shopping Center in April 1997.

         Depreciation and amortization decreased from $745,000 in 1997 to $0 in
1998, a decrease of $745,000 or 100%. This decrease is due to the change to
liquidation accounting in 1998 compared to going concern basis in 1997.

         General and administrative expenses increased from $437,000 in 1997 to
$602,000 in 1998, an increase of $165,000 or 38% due to the purchase of
additional insurance related to the liquidation.

         Loss on impairment of value in the amount of $477,000 was recognized in
1998. $75,000 was due to the reduction in the carrying value of the parcel of
land in Redding California and $402,000 was the result of reduction in the
carrying value of the Wanlass Shopping Center.

         Gain on the sale of property of $4,984,000 in 1998 represents the gain
on the sale of Kings Court Shopping Center and the County Road #20 pad in San
Pablo in 1998. Loss on the sale of property of $812,000 in 1997 represents the
loss on the sale of Monterey Plaza Shopping Center and the Trust's five notes
receivable.

         Interest income decreased by $215,000, or 65%, from $333,000 in 1997 to
$118,000 in 1998, the net change was primarily the result of the sale of the
Trust's five notes receivable in April 1997.

         Interest expense decreased by $952,000, or 92%, from $1,037,000 in 1997
to $85,000 in 1998, due to the pay off of the Kings Court mortgage debt in 1998
and the assumption of related mortgage debt by the sale of Monterey Plaza
Shopping Center in 1997.

         In connection with a potential merger or joint venture activity, the
Trust incurred expenses of $147,000 in 1997.

         The aggregate lease-up rate for the Trust's remaining property was
approximately 87% at December 31, 1998 and 90% for two of the Trust's properties
at December 31, 1997.


                                       11
<PAGE>


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

         During 1997, the Trust continued its efforts to recapitalize through a
variety of ways, including joint venture or merger with a compatible real estate
partner. The problems at El Portal Shopping Center and the HomeBase vacancy at
Monterey Plaza, as well as the toxic pollution at Kings Court Shopping Center
have hindered this process. In order to meet its debt obligations and reduce its
debt expense, the Trust sold its Lakeshore Plaza Shopping Center in March 1995,
Menlo Center in February 1996 and Monterey Plaza Shopping Center in April 1997.
On February 4, 1998, the shareholders of the Trust voted in favor of a
resolution approving the dissolution of the Trust, the orderly liquidation of
the balance of the Trust's assets, and the distribution of the net proceeds to
the Shareholders.

         Net loss for the year ended December 31, 1997 was $1,462,000 as
compared to a net loss of $3,427,000 for the year ended December 31, 1996, a
decrease in the loss of $1,965,000.

         Rental revenues decreased from $5,780,000 to $2,802,000, a decrease of
$2,978,000, or 52%, as a result of the sale of both Menlo Center in 1996 and
Monterey Plaza Shopping Center in 1997 and the placement of El Portal Shopping
Center into receivership in October 1996.

         Operating expenses decreased from $1,619,000 in 1996 to $732,000 in
1997, a decrease of $887,000, or 55%. Property taxes decreased from $483,000 in
1996 to $189,000 in 1997, a decrease of $294,000, or 61%. Property management
fees decreased from $197,000 in 1996 to $106,000 in 1997, a decrease of $91,000,
or 46%. Depreciation and amortization decreased from $2,062,000 in 1996 to
$745,000 in 1997, a decrease of $1,317,000 or 64%. Each of these decreases
resulted from the sale of Monterey Plaza Shopping Center in April 1997, Menlo
Center in February 1996 and the placement of El Portal Shopping Center into
receivership in October 1996.

         General and administrative expenses decreased from $520,000 in 1996 to
$437,000 in 1997, a decrease of $83,000 or 16% due to cost saving measures.

         Loss on impairment of value of $1,455,000 was recognized in 1996 due to
the reduction in carry value of El Portal Shopping Center by $987,000 and the
write down of the Trust's interest in the Westwood Village note of $468,000.

         Loss on the sale of property of $812,000 in 1997 represents the loss on
the sale of Monterey Plaza Shopping Center and the Trust's five notes
receivable. Gain on the sale of property of $772,000 in 1996 represents the gain
on the sale of Menlo Center, which was sold on February 29, 1996.

         Interest income decreased by $312,000, or 48%, from $645,000 in 1996 to
$333,000 in 1997, the net change was primarily the result of the sale of the
Trust's five notes receivable in April 1997.

         Interest expense decreased by $2,367,000, or 70%, from $3,404,000 in
1996 to $1,037,000 in 1997, due to the assumption of related mortgage debt by
the sale of Monterey Plaza Shopping Center in 1997 and Menlo Center in 1996 and
the pay-down of short-term debt, as well as the placement of El Portal Shopping
Center in receivership in October 1996.

         In connection with the potential merger or joint venture activities
(which were ultimately abandoned), the Trust incurred expenses of $147,000 in
1997 compared to $230,000 in 1996.

         Lease termination in 1996 is due to a lease termination in regards to
the purchase of a parcel of land, which is formerly leased at the Westwood 
Village Shopping Center located in Redding, California. The Trust purchased 
the land for $200,000 in 1997.

         The aggregate lease-up rate for two of the Trust's properties was
approximately 90% at December 31, 1997 and 94% at December 31, 1996. At Kings
Court the lease-up rate was 100%, while actual occupancy rate was 78% because
the Longs store is under construction until September 1998. At Wanlass, the
lease up rate was 79%, while the actual occupancy rate was 38% because Kragen
Auto is under construction until February 1998. The aggregate occupancy rate for
the Trust's overall shopping center portfolio at December 31, 1997 was 58%.


                                       12
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         Cash flow used by operating activities was $164,000 in 1998, compared
to $603,000 in 1997 and cash flow provided by operating activity was $364,000 in
1996. The net change in 1998 compared to 1997 was primarily due to the change in
expense levels resulting from property dispositions and the sale of the Kings
Court Shopping Center. The net change in 1997 compared to 1996 was primarily due
to the timing differences in the receipt of rents and payments of trade
payables, change in expense levels resulting from property dispositions and the
loss on the sale of Monterey Plaza in 1997 compared to the gain on the sale of
Menlo Center in 1996.

         Cash flow provided by investing activities was $1,759,000 in 1998, as
compared to cash flow provided by investing activities in 1997 of $11,232,000
and $4,577,000 provided in 1996. The decrease in cash flow in 1998 compared to
1997 is primarily the result of the sale of Kings Court Shopping Center in 1998
compared to the sale of Monterey Plaza Shopping Center in 1997, and the
acquisition of the Wanlass Property in 1998. The increase in cash flow in 1997
compared to 1996 is primarily the result of the sale of Monterey Plaza Shopping
Center in 1997 and the sale of Menlo Center in 1996.

         Cash flow used by financing activities was $1,511,000 in 1998 as
compared to $8,161,000 used in 1997 and $4,238,000 used in 1996. The decrease in
1998 compared to 1997 is primarily due to a smaller amount of re-payment of
short-term notes and a larger amount of re-payment of mortgage debt. The
increase in 1997 is due to a larger amount of re-payment of short-term notes
payable as the result of the sale of Monterey Plaza Shopping Center compared to
the assumption of a smaller amount of mortgage debt and short-term notes payable
as the result of the sale of Menlo Center in 1996.

         There has been no public market for Trust Shares, nor have there been
any known market makers.

JOINT VENTURE INTEREST

         On August 24, 1998, the Trust sold all of its rights, title and
interest in Kings Court Shopping Center to Federal Realty Partners, LP, a 
Delaware limited partnership.

         The Trust is the managing general partner of the Kingsco partnership
and was the manager of the Kings Court Shopping Center operations, including any
leasing, renovation, sale or financing activities, until the sale of Kings Court
Shopping Center to Federal Realty Partners, LP. The term of the partnership
continues until September 30, 2039. The Trust intends to withdraw from the
partnership during 1999. Cash flows and expenses of the partnership are
allocated in accordance with the partners' respective percentage interests, with
the Trust's allocation being equal to its 40% interest. Menlo Management Company
managed the shopping center on behalf of the Trust; the Trust did not receive
any portion of the management fee paid to Menlo Management Company for such
management services.

OTHER CAPITAL EXPENDITURES

         At the present time, there are no material deferred capital maintenance
obligations outstanding for Wanlass Shopping Center. In addition leasehold
improvements and lease commissions are expected to be incurred in connection
with leasing activity.


                                       13
<PAGE>


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      PACIFIC REAL ESTATE INVESTMENT TRUST

                                TABLE OF CONTENTS


                                                                          Page

Independent Auditors' Report                                                15


Consolidated Financial Statements:

      Statements of Net Assets at December 31, 1998 and 1997 
        (liquidation basis)                                                 16

      Statements of Operations for the Years Ended December 31, 1998
        (liquidation basis), 1997 (going-concern basis) and 1996 
        (going-concern basis)                                               17

      Statements of Changes in Net Assets for the Years Ended
        December 31, 1998 (liquidation basis), 1997 (liquidation basis) 
        and 1996 (going-concern basis)                                      18

      Statements of Cash Flows for the Years Ended December 31, 1998
        (liquidation basis), 1997 (going-concern basis) and 1996 
        (going-concern basis)                                               19

      Notes to Consolidated Financial Statements                            20



       Financial statements and supplemental financial statement schedules not
included have been omitted because of the absence of conditions under which they
are required or because the information is included elsewhere in this report.


                                        14
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Trustees and Shareholders of Pacific Real Estate Investment Trust:

       We have audited the accompanying consolidated statement of net assets
(liquidation basis) of Pacific Real Estate Investment Trust (the "Trust") and
its joint venture as of December 31, 1998 and 1997. Additionally, we have
audited the accompanying consolidated statement of operations, changes in net
assets and cash flows for the years ended December 31, 1998 (liquidation basis),
1997 (going-concern basis) and 1996 (going-concern basis). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

       As discussed in Note 1 to the financial statements, the shareholders of
the Trust approved a plan of liquidation on February 4, 1998. As a result, the
Trust has changed its basis of accounting from the going-concern basis to the
liquidation basis effective December 31, 1997.

       In our opinion, such consolidated financial statements present fairly, in
all material respects, the net assets in liquidation of the Trust and its joint
venture as of December 31, 1998 and December 31, 1997 and the results of their
operations and their cash flows for the years ended December 31, 1998
(liquidation basis), December 31, 1997 (going-concern basis), and December 31,
1996 (going-concern basis) in conformity with generally accepted accounting
principles.


DELOITTE & TOUCHE LLP
San Francisco, California
January 22, 1999


                                       15
<PAGE>


                      PACIFIC REAL ESTATE INVESTMENT TRUST

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

                      CONSOLIDATED STATEMENTS OF NET ASSETS
                 DECEMBER 31, 1998 AND 1997 (LIQUIDATION BASIS)

<TABLE>
<CAPTION>

                           ASSETS
                                                                          1998                    1997
                                                                    ----------------        ---------------
<S>                                                                 <C>                     <C>
Investment in commercial properties:
       Land................................................         $     1,650,000         $       200,000
       Buildings and improvements..........................               1,275,000              11,210,000
       Deferral of estimated appreciation on commercial
       properties..........................................                                      (3,280,000)
                                                                    ----------------        ---------------

       Commercial properties - net.........................               2,925,000               8,130,000
Property in development....................................                                         868,000
Notes receivable (net of allowance of $16,000 in 1998 and
$28,000 in 1997)...........................................                                         148,000
Cash ......................................................               3,563,000               3,479,000
Accounts receivable (net of allowance of $42,000 in 1998 and
1997)......................................................                  30,000                  75,000
Other assets...............................................                 578,000                 685,000
                                                                    ----------------        ---------------
         Total.............................................         $     7,096,000         $    13,385,000
                                                                    ----------------        ---------------

                         LIABILITIES
Liabilities:
      Mortgage loans.......................................         $                       $     1,271,000
      Security deposits....................................                   1,000                  52,000
      Accounts payable and other liabilities...............                  69,000                 630,000
      Reserve for estimated costs during the period of
      liquidation..........................................                 244,000                  40,000
                                                                    ----------------        ---------------

         Total liabilities.................................         $       314,000         $     1,993,000
                                                                    ----------------        ---------------
Minority interest in joint venture.........................                                       5,963,000
                                                                    ----------------        ---------------

Net assets ................................................         $     6,782,000         $     5,429,000
                                                                    ----------------        ---------------
                                                                    ----------------        ---------------

</TABLE>


            See notes to consolidated financial statements.


                                       16
<PAGE>


                      PACIFIC REAL ESTATE INVESTMENT TRUST


                      CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE YEARS ENDED DECEMBER 31, 1998 (LIQUIDATION BASIS),
            1997 (GOING-CONCERN BASIS) AND 1996 (GOING-CONCERN BASIS)

<TABLE>
<CAPTION>
                                                                      1998              1997              1996
                                                             --------------    --------------    --------------
<S>                                                           <C>               <C>               <C>
Rental revenues...................................... .       $  1,288,000      $  2,802,000      $  5,780,000
                                                             --------------    --------------    -------------
Operating expenses (including related party amounts of 
$168,000, $250,000 and $478,000 in 1998, 1997 and 1996, 
respectively):
      Operating.......................................             554,000           732,000        1,619,000
      Property tax....................................              66,000           189,000          483,000
      General and administrative......................             602,000           437,000          520,000
      Depreciation and amortization...................                               745,000        2,062,000
      Property management fees........................              52,000           106,000          197,000
      Loss on impairment of value.....................             477,000                          1,455,000
      Loss (gain) on sale of property.................          (4,984,000)          812,000         (772,000)
                                                             --------------    --------------    -------------
         Total operating expense (income).............          (3,233,000)        3,021,000        5,564,000
                                                             --------------    --------------    -------------
Operating income (loss)...............................           4,521,000          (219,000)         216,000
                                                             --------------    --------------    -------------
Other income/(expense):
      Interest income.................................             118,000           333,000          645,000
      Interest expense................................             (85,000)       (1,037,000)      (3,404,000)
      Reincorporation/merger expenses.................                              (147,000)        (230,000)
      Loss on lease termination.......................                                               (240,000)
                                                             --------------    --------------    -------------
         Total other income (expense)--net.............             33,000          (851,000)      (3,229,000)
                                                             --------------    --------------    -------------

Income (loss) before minority interest................           4,554,000        (1,070,000)      (3,013,000)
Minority interest in joint venture....................          (3,201,000)         (392,000)        (414,000)
                                                             --------------    --------------    -------------
Net income (loss).....................................        $  1,353,000      $ (1,462,000)     $(3,427,000)
                                                             --------------    --------------    -------------
                                                             --------------    --------------    -------------

Basic and diluted loss per share of beneficial interest      $       0.37      $       (0.39)     $    (0.92)
                                                             --------------    --------------    -------------
                                                             --------------    --------------    -------------
</TABLE>

              See notes to consolidated financial statements. 


                                       17
<PAGE>


                      PACIFIC REAL ESTATE INVESTMENT TRUST


               CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS 
            FOR THE YEARS ENDED DECEMBER 31, 1998 (LIQUIDATION BASIS),
             1997 (LIQUIDATION BASIS) AND 1996 (GOING-CONCERN BASIS)

<TABLE>
<CAPTION>
                                         BENEFICIAL INTEREST              ADDITIONAL        ACCUMULATED
                                         ---------------------------    
                                           SHARES           AMOUNT      PAID-IN CAPITAL      DEFICIT        NET ASSETS
                                         -----------   -------------   -----------------   -------------   ------------
<S>                                       <C>            <C>              <C>              <C>
Balance January 1, 1996............
                                          3,706,845      37,068,000        11,009,000      (37,328,000)
Net Loss...........................                                                         (3,427,000)
                                         -----------    ------------     -------------    --------------
Balance December 31, 1996..........       3,706,845      37,068,000        11,009,000      (40,755,000)     $7,322,000
Net Loss...........................                                                         (1,462,000)     (1,462,000)
                                         -----------    ------------     -------------    --------------   ------------
Balance December 31, 1997
(going-concern basis)..............       3,706,845     $37,068,000      $ 11,009,000     $(42,217,000)      5,860,000
                                         -----------    ------------     ------------     --------------   ------------
Adjustment to liquidation basis....                                                                           (431,000)
                                                                                                           ------------
Balance December 31, 1997
(liquidation basis)................                                                                          5,429,000
                                                                                                           ------------
Net Income.........................                                                                          1,353,000
                                         -----------                                                       ------------
Balance December 31, 1998
(liquidation-basis)................       3,706,845                                                         $6,782,000
                                         -----------                                                       ------------

</TABLE>

                See notes to consolidated financial statements.


                                       18
<PAGE>

                      PACIFIC REAL ESTATE INVESTMENT TRUST

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        FOR THE YEARS ENDED DECEMBER 31, 1998 (LIQUIDATION BASIS), 1997
              (GOING-CONCERN BASIS) AND 1996 (GOING-CONCERN BASIS)
<TABLE>
<CAPTION>
                                                               1998                 1997                1996
                                                     ---------------      ---------------     ---------------
<S>                                                   <C>                  <C>                 <C>
Cash Flow from Operating Activities:
     Net income (loss).........................       $   1,353,000        $  (1,462,000)      $  (3,427,000)
     Adjustments to reconcile net income (loss)
     to net cash provided (used) by operating
     activities:                                                                 630,000           1,716,000
       Depreciation............................
       Amortization of note receivable discount                                  (18,000)            (15,000)
       Amortization of deferred costs..........                                  115,000             343,000
       Minority interest in joint venture's               3,201,000              392,000             414,000
       operations..............................
       Provision for doubtful receivables......                                   54,000              77,000
       Loss (gain) on sale of property.........          (4,984,000)             812,000            (772,000)
       Loss on lease termination...............                                                      240,000
       Loss on impairment of value.............
                                                            477,000                                1,455,000
       Increase in reserve for estimated costs
       during the period of liquidation........             204,000
       Changes in operating assets and
       liabilities:                                        (567,000)          (1,247,000)           117,000
        Accounts payable and other liabilities.
        Security deposits......................                                  (16,000)            10,000
        Deferred lease commissions.............                                 (118,000)          (105,000)
        Deferred financing costs...............                                                     (25,000)
        Accounts receivable....................              45,000              263,000            293,000
        Other assets...........................             107,000               (8,000)            43,000
                                                      ---------------      --------------      ------------
Net cash provided (used) by operating activities           (164,000)            (603,000)           364,000
Cash Flow from Investing Activities: 
       Decrease (Increase) in restricted cash..                                1,154,000
       Construction of properties..............            (594,000)            (718,000)          (347,000)
       Property acquisitions...................          (1,780,000)            (200,000)
       Collection or sale of notes receivable..             148,000              108,000             88,000
       Additions to notes receivable...........                                  (73,000)            (9,000)
       Proceeds from sale of Menlo Center......                                                   4,845,000
       Proceeds from sale of Monterey Plaza....                               10,961,000
       Proceeds from the sale of Kings Court &
       pad.....................................           3,985,000
                                                      ---------------      --------------      ------------
Net cash provided in investing activities......           1,759,000           11,232,000         4,577,000
                                                      ---------------      --------------      ------------
Cash Flow from Investing Activities:           
       Proceeds from short-term notes..........             300,000              215,000           910,000
       Re-payment of mortgage loans............          (1,271,000)            (101,000)         (388,000)
       Re-payment of short-term notes..........            (300,000)          (7,915,000)       (4,400,000)
       Distributions to joint venture partner..            (240,000)            (360,000)         (360,000)
                                                      ---------------      --------------      ------------
Net cash used by financing activities..........          (1,511,000)          (8,161,000)       (4,238,000)
                                                      ---------------      --------------      ------------
     Increase in cash..........................              84,000            2,468,000           703,000
       Cash, January 1.........................           3,479,000            1,011,000           308,000
                                                      ---------------      --------------      ------------
       Cash, December 31.......................       $   3,563,000         $  3,479,000      $  1,011,000
                                                      ---------------      --------------      ------------
</TABLE>

NON CASH INVESTING AND FINANCING:

     Assumption of mortgage note payable by buyers of Menlo Center for
     $10,730,000 in 1996 and Monterey Plaza Shopping Center for $18,371,000 in
     1997.

     Establishment of an impound account for approximately $1,000,000 for a
     Monterey Plaza Shopping Center tenant during 1996, which was funded by
     another tenant (see Note 1).

            See notes to consolidated financial statements.

                                       19
<PAGE>


                      PACIFIC REAL ESTATE INVESTMENT TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES.

             ORGANIZATION AND PLAN OF LIQUIDATION

         Pacific Real Estate Investment Trust (the "Trust") is a trust organized
under the laws of the State of California. The Trust is an investment vehicle
whose purpose is to acquire, hold for investment, and ultimately sell, interests
in neighborhood and community shopping centers and commercial property in
selected Northern California metropolitan areas. The Trust has qualified and
intends to continue to qualify as a real estate investment trust under
provisions of the Internal Revenue Code.

         On February 4, 1998, the Trust's shareholders approved a Plan of
Dissolution. As a result, the Trust's financial statements as of December 31,
1998 and December 31, 1997 have been prepared on a liquidation basis.
Accordingly, assets have been valued at estimated net realizable value and
liabilities include estimated costs associated with carrying out the plan of
liquidation. Prior to December 31, 1997, the financial statements are presented
on a going-concern (historical cost) basis.

         The net adjustment at December 31, 1997, required to convert from the
going-concern basis to the liquidation basis of accounting, was a decrease in
carrying value of $431,000, which is comprised of the following increases
(decreases) in the carrying value of net amounts as of that date:

<TABLE>

<S>                                                          <C>
Estimated appreciation of commercial
properties..................................                 $     3,280,000

Deferral of estimated appreciation of
commercial properties.......................                      (3,280,000)

Record estimated liabilities associated
with carrying out the liquidation...........                         (40,000)
Write-off of deferred costs.................                        (391,000)
                                                             ---------------
Adjustment to liquidation basis.............                 $      (431,000)
                                                             ---------------

</TABLE>

During 1998 an additional $204,000 was reserved for estimated cost during the
period of liquidation.

             CONSOLIDATION

         The consolidated financial statements include the Trust and a joint
venture ("Kingsco") in which the Trust has a 40% interest. The Trust sold its
interest in Kings Court Shopping Center in August 1998. The joint venture is
consolidated in the accompanying financial statements as the Trust has control
over the joint venture's operations, including all leasing, renovation, sale or
refinancing activities. All significant intercompany transactions and balances
have been eliminated.

             ACCOUNTING ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


                                       20
<PAGE>


             PROPERTIES

         For going-concern basis prior to December 31, 1997, properties are
stated at the lower of depreciated cost or estimated net realizable value from
the operation and ultimate sale of such properties. Acquisition fees and
interest incurred during construction periods are capitalized. Property and
improvements acquired by the Trust in connection with its acquisition of a
controlling interest in a joint venture are stated at amounts agreed upon among
the partners at the date of acquisition, which approximated market value at such
date. Depreciation is computed by the straight-line method over estimated useful
lives, ranging from three to forty years. Properties and the related accumulated
depreciation are removed from the accounts at the time of sale. The related gain
or loss is included in the statement of operations. The determination of
estimated realizable value involves subjective judgment because the actual
market value of real estate can be determined only by negotiation between the
parties in a sales transaction.

         For liquidation basis as of December 31, 1998 and 1997, properties are
stated at estimated net realizable value. Any related appreciated gain is
deferred until realized. At December 31, 1998, the value of the Wanlass Shopping
Center was $2,800,000 and the value of the developable pad in Redding, CA, was
$125,000. At December 31, 1997, the estimated net realizable value of the Kings
Court Shopping Center was $11,210,000, the Wanlass Shopping Center was $868,000
and the developable pad in Redding, CA, was $200,000.

             DEFERRED LEASE COMMISSIONS

         For going-concern basis, deferred lease commissions are amortized on a
straight-line basis over the lives of the related leases, which range from two
to forty years. For liquidation basis, deferred costs are expensed as incurred.

             DEFERRED FINANCING COSTS

         For going-concern basis, deferred financing costs represent loan fees
and points paid to obtain certain mortgage financing. These amounts are
amortized on a straight-line basis over the lives of the related loans, which
range from six to ten years. For liquidation basis, deferred costs are expensed
as incurred.

             OTHER ASSETS

         Other assets are primarily composed of expected reimbursements related
to the clean up of a toxic spill at Kings Courts Shopping Center (see Note 16)
and, prior to liquidation basis reporting, rental revenues in excess of amounts
currently billed.

             INCOME TAXES

         The Trust qualifies as a real estate investment trust under the
Internal Revenue Code. As such, no provision for income taxes has been made in
the accompanying financial statements.

             FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of receivables and short-term notes payable are
reasonable estimates of fair value due to the short period of time until their
expected maturity. The carrying amount of mortgage loans is a reasonable
estimate of fair value based on the borrowing rates currently available to the
Trust for loans with similar terms and average maturities.

             BASIC AND DILUTED INCOME (LOSS) PER SHARE OF BENEFICIAL INTEREST

         Basic and diluted income (loss) per share of beneficial interest, are
computed by dividing net loss by the weighted average number of shares
outstanding of 3,706,845 in 1998, 1997 and 1996.


                                       21
<PAGE>


2. INVESTMENT ADVISOR, PROPERTY MANAGEMENT AND SHAREHOLDER-SUPPORT SERVICES
   AGREEMENTS

         The Trust has entered into certain transactions with Collier Investment
(the "Advisor"), which is both the investment advisor to the Trust and its real
estate broker. Menlo Management Company, which manages the Trust's properties,
was formerly affiliated with the Advisor. Robert C. Gould, an officer and
Trustee of the Trust, is the owner of Menlo Management Company. California
Bavarian Company, a privately held California corporation, provides shareholder
communication and liaison support services to the Trust on a contractual basis
for a monthly service fee. California Bavarian Company is not related to the
Trust. However its director, Mark D. Mordell, is an agent of the Trust and he is
compensated.

         The amended investment advisory agreement provides that, commencing
January 1, 1994, the Trust pays to the Advisor an annual base advisory fee equal
to 0.2% of the average gross invested assets of the Trust (as defined in the
advisory agreement). The Advisor also may receive real estate brokerage
commissions at negotiated rates in connection with the purchase, sale or
refinancing of the Trust's properties. In July 1994, the Advisor offered to
reduce the annual base advisory fee by 50% retroactive to January 1, 1994. As of
June 1, 1997, the Investment Advisor provides his service at no cost to the
Trust. The Investment Advisor also voluntarily waived real estate brokerage
commissions in connection with the sale of Lakeshore Plaza Shopping Center,
which was sold on March 13, 1995, the sale of Menlo Center, which was sold on
February 29, 1996, the sale of Monterey Plaza Shopping Center, which sold on
April 25, 1997, and the sale of Kings Court Shopping Center, which was sold on
August 24, 1998.

         The investment advisory agreement also provides for a yearly incentive
compensation payment to the Advisor equal to the sum of: (1) 10% of net realized
capital gains, excluding any depreciation, less accumulated realized capital
losses, if any; plus (2) 7.5% of the amount, if any, by which net income, before
depreciation but excluding capital gains, exceeded a minimum base yield of 8.6%
per annum on average net worth (as defined in the agreement) during the
preceding calendar year. Net income for this purpose is after deduction of the
regular fee, whether or not such fees were paid. No incentive compensation fees
were paid to the Advisor in 1998, 1997 or 1996.

         The Trust has a property management agreement with Menlo Management
Company to manage the Trust's properties for a percentage of gross rentals
ranging from 4% to 5% for each property. In addition, for each property, Menlo
Management Company receives leasing commissions based on a percentage of the
total lease rental revenues, with certain minimum commission charges. Menlo
Management Company is the lessee of office space in one of the Trust's
properties, which was sold in 1996. The Trustees believe that the terms of the
lease and property management agreements are comparable to terms the Trust would
obtain from non-related parties.

         Menlo Management Company receives fees for administrative services
provided to the Trust and development, planning and negotiating services in
connection with development work at the Trust's properties.

Fees paid or payable to the Advisor and Menlo Management Company in 1998, 1997
and 1996 were as follows:

<TABLE>

                                                          1998                 1997                 1996
                                                     -------------       -------------        --------------
<S>                                                  <C>                 <C>                  <C>
ADVISOR
Advisory fee..................................       $                   $      17,000        $       50,000
MENLO MANAGEMENT COMPANY
Property management fees......................              52,000             106,000               197,000
Administrative services.......................              66,000             101,000               150,000
Due diligence fee - Kings Court ..............              50,000                             
Loan fees.....................................                                  26,000                81,000
Lease commissions.............................              57,000              79,000                82,000
                                                     -------------       -------------        --------------
         Total................................       $     225,000       $     329,000        $      560,000
                                                     -------------       -------------        --------------
</TABLE>

                                       22
<PAGE>

3.       NOTES RECEIVABLE.

         Notes receivable consist of the following at December 31, 1998 and
December 31, 1997:

<TABLE>
                                                                     1998                 1997
                                                               --------------      --------------
               <S>                                             <C>                  <C>
               Unsecured loans (principally to tenants).       $      16,000        $     176,000
               Allowance for doubtful accounts..........             (16,000)             (28,000)
                                                               --------------      --------------
                        Total...........................       $           0        $     148,000
                                                               --------------      --------------
</TABLE>

4.       SHORT-TERM NOTES.

         The Trust had certain notes payable to private limited partnerships,
independent of the Trust, in which Menlo Management Company and/or Collier
Investments has a general partnership interest. Interest of $2,000, $268,000 and
$790,000 was paid on these notes in 1998, 1997 and 1996, respectively. At
December 31, 1998, the Trust has no outstanding balances with any private
partnerships.

5.       MORTGAGE LOANS.

         Kings Court Shopping Center paid in full its mortgage loan in August
1998 in connection with the sale of the center. Total interest paid in 1998,
1997 and 1996 was $83,000, $1,037,000 and $3,404,000.

6.       COMMERCIAL PROPERTY OPERATING LEASES.

         Space in the Trust's operating property is leased to tenants under
operating leases. The lease agreements provide for fixed minimum rentals and
generally include provisions for reimbursement of a portion of common area
maintenance expenses, property taxes, insurance, and percentage rents. Minimum
rentals under these leases at December 31, 1998 are as follows:

<TABLE>
                   <S>                      <C>
                   1999 .................   $  145,000
                   2000 .................      143,000
                   2001 .................      141,000
                   2002 .................      140,000
                   2003 .................      130,000
                   Thereafter ...........      593,000
                                           ------------
                        Total ...........   $1,292,000
                                           ------------
</TABLE>

         Rental revenues in 1998, 1997 and 1996 included $150,000, $220,000 and
$201,000 of contingent rentals based on individual tenants' sales volumes.

         For the years ending December 31, 1998, 1997 and 1996 rental revenues
representing 29% in 1998, 14% in 1997 and 31% in 1996, of total revenues were
earned from a single tenant at one of the Trust's properties.

7.       EL PORTAL SHOPPING CENTER.

         Between 1994 through 1996 El Portal suffered a complete reversal
arising from the loss or closure of all of its anchor tenants. The resultant
cash drain from the property prompted the Trust to suspend making any further
mortgage payments to the Trust Deed Non-Recourse Note Holder, Nationwide Life
Insurance Company. The unpaid balance of the mortgage loan was $4,438,000 at
December 31, 1996. The lender accordingly took the step of placing the property
in receivership as a part of its process to obtain fee title to the property.
This step was also prompted by the discovery in 1995 of a toxic spill emanating
from a former dry cleaner tenant, which probably occurred prior to the Trust's
acquisition of the property. The property was officially confirmed into
permanent receivership in January 1997, and the foreclosure process was
completed in October 1997, and as a result the remaining indebtedness was
extinguished. There is no residual equity in the El Portal Shopping Center and,
during 1996, the Trust wrote down the carrying value by $987,000 (see Note 14).


                                       23
<PAGE>


8.       SALE OF MENLO CENTER.

         The Trust sold Menlo Center on February 29, 1996. The sales price was
$16,200,000. The buyer assumed the existing financing in the amount of
$10,730,000. After payment of closing costs, transfer taxes, real estate
commissions and miscellaneous selling expenses, all totaling approximately
$445,000, the net proceeds of approximately $4,845,000 were used to repay
short-term debt and to provide working capital. Under the terms of the sale
contract, the Trust is obligated to subsidize the buyer's net operating income
to the extent necessary to assure the buyer of an 8.5% investment yield from the
operation of Menlo Center. The liability for this subsidy amounted to $37,000 in
1996. The Trust has no further liability under this obligation.

9.       SALE OF MONTEREY PLAZA.

         The Trust sold Monterey Plaza Shopping Center for $24,957,000 and the
Trust's five notes receivable for $4,606,000 to Pan Pacific Development (U.S.)
Inc. ("Pan Pacific") on April 25, 1997. After assumption of the existing loan
balance of approximately $18,371,000, the net cash proceeds to the Trust were
$11,192,000 less closing costs from the transaction and repayment of short-term
debt. As part of this transaction, Pan Pacific has become a co-obligor on the
Promissory Note secured by a First Deed of Trust on the leasehold estate at Mt.
Shasta Shopping Center. In September 1997, Pan Pacific paid the note in full and
the Deed of Trust has been reconveyed. As a result, the Trust has no further
obligation regarding this loan. In addition, as part of this transaction, Pan
Pacific assumed responsibility during 1997 for an impound account totaling
approximately $975,000 which was previously shown in restricted cash and
accounts payable and other liabilities. In connection with the sale of Monterey
Plaza Shopping Center, a loss of $812,000 was recorded. The Trust retains a
residual liability in respect of anticipated costs of roofing repair to the
Wal-Mart Store at Monterey Plaza Shopping Center. The residual liability is
approximately $45,000 and represents roof and skylight repairs and upgrades. At
December 31, 1998, Other Liabilities in the accompanying consolidated financial
statements include $45,000 for such costs.

10.      SALE OF KINGS COURT SHOPPING CENTER.

             On August 24, 1998, the Trust sold all of its rights, title and
interest in Kings Court Shopping Center for $10,650,000 to Federal Realty
Partners, L.P., a Delaware limited partnership. The net cash proceeds to the
Trust were $3,985,000 after closing costs of $275,000 from the transaction.

11.      SALE OF NOTE RECEIVABLE.

         The Trust assigned to Neptune Investment Company during 1998 a note
receivable for $145,000. There was an insignificant gain on this transaction and
the sale price was determined based on negotiations between the parties and a
certain third party valuation.

12.      SALE OF THE SAN PABLO PAD.

         The Trust sold to Edward Margherlo during 1998 certain real property
located on County Road #20 in San Pablo, California. The net cash proceeds to
the Trust of $36,000, was recorded as a gain because the asset had a zero net
book value.

13.      PURCHASE OF WANLASS SHOPPING CENTER

         On August 18, 1998, the Trust purchased for $1,780,000 the fee title to
the land at the Wanlass Shopping Center. This purchase was required under the
terms of the then existing ground lease between the Trust and the ground lessor.
The Trust will dispose of this property when the redevelopment is complete. This
is expected to occur during 1999.

14.      LOSS ON IMPAIRMENT OF VALUE.

         In 1998, loss on impairment of value for $477,000 comprised of the
following components: $75,000 was due to the reduction in the carrying value of
the parcel of land in Redding, CA (see Note 16); and $402,000 was the result of
reduction in the carrying value of the Wanlass Shopping Center. In 1996, loss on
impairment of value is comprised of the following components. First, El Portal
Shopping Center's carrying value was reduced by $987,000 


                                       24
<PAGE>
to $4,438,000 after depreciation (see Note 7). Second, the Trust's interest 
in the Westwood Village Note was written down by $468,000 to $600,000.

15.      REINCORPORATION/MERGER TRANSACTIONS.
         On January 10, 1997, the Trust entered into a definitive merger
agreement with Pan Pacific Development (U.S.) Inc. whereby both entities agreed
to contribute certain properties into a subsidiary of the Trust, Pacific Real
Estate Investment Trust, Inc. On March 25, 1997, the agreement was terminated
for failure of certain conditions. The Trust incurred expenses of $147,000 in
1997 and $230,000 in 1996.

16.      COMMITMENTS AND CONTINGENCIES.
         The Trust is no longer obligated on any land leases. Land lease expense
totaled $214,000 in 1998, $238,000 in 1997, and $381,000 in 1996.

         In 1996, the Trust agreed to purchase a parcel of land it formerly
leased, consisting of a 20,000 square feet parcel of land, capable of 
supporting a 5,000 square foot commercial building, located at the periphery 
of Westwood Village Shopping Center in Redding, CA. The Limited Partnership 
which owns the land agreed to sell the parcel to the Trust in exchange for a 
payment equal to the current estimated value of the land at $200,000 plus a 
lease termination fee of $240,000, based on the Trust's residual rental 
commitment, discounted to present value. The land acquisition and the lease 
termination fee were accrued in 1996 and paid in 1997. In 1998, the Trust 
received a letter of intent to purchase this land at a reduced value. The 
land value has been reduced by $75,000 to $125,000 based on current sale 
negotiations.

         In 1994, the Kingsco partnership initiated an environmental audit of
the Kings Court Shopping Center property. The Phase One and Phase Two stages of
the environmental audit identified certain dry cleaning solvents which had
contaminated the ground water beneath the shopping center. Currently, a Phase
III plan of remediation has been prepared with a proposed plan of action for
clean up of the contamination expected to be completed in approximately two
years or longer. The cost to Kingsco for the clean up was estimated to be
$1,195,000 of which $1,153,000 has been expended through 1998. The Trust was not
a partner of Kingsco at the time the contamination occurred, and for payment of
the clean-up costs it intends to look to the seller of the Trust's 40% interest
in Kingsco, Kingsco's insurance carriers at the time of the contamination, the
other partners of Kingsco and the entity that caused the contamination. An
insurance company has agreed to indemnify the costs of this clean up subject to
a reservation of its rights to recover the costs thus indemnified.
Reimbursements received from the insurance company under this agreement total
$835,000. The Trust believes that the representations and warranties made by the
seller in the agreement pursuant to which the Trust acquired its partnership
interest give the Trust a cause of action against the seller for the clean-up
costs to the extent such costs are not reimbursed by the insurance carriers. In
addition the other partners in Kingsco have assumed full liability for the clean
up costs under the terms of a Remediation Agreement entered into with the Trust
in connection with the sale of the property to Federal Realty Partners LP. The
Regional Water Quality Control Board has approved the interim plan of
remediation and remediation has commenced. Accordingly, $360,000 is reflected in
the accompanying consolidated balance sheet at December 31, 1998 as Other
Assets, for expected reimbursements. On August 24, 1998, the Trust sold all of
its rights, title and interest in Kings Court Shopping Center to Federal Realty
Partners, LP a Delaware limited partnership.

         In another, unrelated, environmental audit of the gasoline service
station pad ("Exxon Pad") at Kings Court Shopping Center, the Phase One and
Phase Two work identified gasoline and possibly other service station
by-products in the soil underneath the station and its pumps. Exxon Corporation
has assumed financial and legal responsibility for the hazardous materials and
remediation of the Exxon Pad. The environmental firm responsible for maintaining
and analyzing the data from various monitoring wells on the Pad continues to
report to the Trust and governmental authorities on a quarterly basis.
Remediation efforts have commenced and include both vapor extraction and "pump
and treat" activities, depending upon the location of the materials in the soil
and water.

         In August 1998, the Trust and Kingsco purchased insurance protection
from American Insurance Group to protect the Trust from cost overruns associated
with the clean up of both the dry cleaners and the Exxon contamination.

         The Trust has also become aware of a spill from a former dry cleaning
establishment at El Portal Shopping Center. This spill probably occurred prior
to the Trust's ownership of the property. Nationwide Life Insurance 

                                       25
<PAGE>

Company foreclosed the property in 1997, which now holds fee title to the 
center. The Trust still retains liability for toxic pollution as a 
potentially responsible party. The Contra Costa County Regional Water Quality 
Control Board has approved a clean-up remediation plan proposed by the Trust. 
The cost of clean up and timetable have not yet been finalized, however, 
based on current knowledge; the cost is not expected to exceed $100,000. This 
sum has been paid to Nationwide Life Insurance Company, in exchange for a 
release of liability in favor of the Trust from the subsequent buyer of the 
property and the former lender. The residual legal liability to the Trust is 
considered to be insignificant.

         A parcel of land, in San Pablo, California (the Wanlass property),
which the Trust purchased in August 1998, has been contaminated with a gasoline
spill from an adjacent property. The source of contamination has been identified
and Atlantic-Richfield Company, Inc. ("ARCO") has issued a letter of
indemnification for the Trust's benefit respecting all financial and legal
liability arising from this contamination.

         At Monterey Plaza Shopping Center, which the Trust sold in April 1997,
the Phase One Environmental Assessment Report identified the possibility of oil
and grease contamination in the soil as well as possible residues of pesticides,
herbicides and insecticides due to prior agricultural use of the property. The
property was originally acquired by the Trust from the State of California. The
Trust believes that the State of California would be liable for any such
contamination under the controlling statutes. These possible hazardous waste
contaminations are not considered to be of material significance to the Trust.

         Compliance with federal, state and local laws and regulations relating
to the protection of the environment could have a significant impact on the
financial position of the Trust. However, other than disclosed herein, the
Trustees are not currently aware of any environmental conditions at its
properties that would have a material adverse effect on the Trust.

                                       26
<PAGE>


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

         Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         Mr. Wilcox Patterson, age 58, was elected a Trustee in 1980, and
President of the Trust in May 1985. Mr. Patterson is a director of Grove Farm
Company, Inc.; a sugar plantation and real estate Development Corporation
located on Kauai in the Hawaiian Islands. He is also an independent real estate
manager and investor. Mr. Patterson served as Regional Vice President of
Northern California Savings and Loan Association between April 1979 and
September 1980. Prior to that appointment, he served as a Vice President and
Manager of the Menlo Park branch of Northern California Savings and Loan
Association. In these capacities, he gained considerable experience in real
estate financing.

         Mr. John H. Hoefer, age 83, was elected a Trustee in 1982 and Vice
President in June 1988. Mr. Hoefer is a Rear Admiral, United States Naval
Reserve. He was founder of Hoefer, Dieterich and Brown, Inc., an advertising
agency in San Francisco, and was its Chairman at the time of its merger with
Chiat/Day, Inc. in 1979. He was also a Chairman of Chiat/Day, Inc. (San
Francisco).

         Mr. Harry E. Kellogg, age 75, who has served as a Trustee and Treasurer
of the Trust since the date of its inception, was an initial investor. Mr.
Kellogg was elected Executive Vice President of the Trust on December 5, 1978,
was President from February 1980 to May 1985, and was elected Secretary of the
Trust on September 17, 1998. Mr. Kellogg has served as Trustee of the Seattle
Retail Clerks Union Pension Fund, the GEMCO Retail Clerks Union Pension Trust
Fund and is the former Vice President--Finance and Secretary of Leslie Salt Co.,
a salt production company, with extensive real estate holdings in the San
Francisco Bay Area. At Leslie Salt Co., from which he retired in 1979, Mr.
Kellogg was responsible for the financial, administrative and tax matters of the
company.

         Mr. William S. Royce, age 80, has been an investor in the Trust since
1964, was elected a Trustee in 1980, and was Secretary from June 15, 1988 to
September 17, 1998. Mr. Royce is an independent management consultant
specializing in business planning and regional economic development. He retired
in 1984 from SRI International (Stanford Research Institute).

         Mr. Robert C. Gould, age 54, was elected a Trustee and appointed Vice
President in June 1989 and has previously served as a Vice President and
Secretary of the Trust from 1985 through 1988. Mr. Gould is President and a
director of Menlo Management Company of which he is the sole owner. Prior to his
employment with Menlo Management, he was a real estate manager with a subsidiary
of the Royal Dutch/Shell Group of Companies. He is a licensed California real
estate broker.


                                       27
<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

         During the fiscal year ended December 31, 1998, there were no officers
and/or Trustees whose aggregate direct remuneration exceeded $100,000. With
respect to the President of the Trust, aggregate direct remuneration, consisting
of fees for services performed as a Trustee, paid during the last three fiscal
years was as follows:

<TABLE>
                   NAME AND                                      AGGREGATE DIRECT
                   PRINCIPAL POSITION               YEAR         REMUNERATION
                   ----------------------------------------------------------------
                   <S>                              <C>          <C>
                   Wilcox Patterson,                1998         $      0
                   President                        1997         $  6,750
                                                    1996         $ 16,200
</TABLE>

         During fiscal 1998, aggregate direct remuneration paid to all Trustees
and Officers, as a group (five persons) was $0. In June 1997, the Board of
Trustees voted to discontinue all salaries and fees to the Officers and
Trustees.

         None of the Trustees or executive officers of the Trust has failed to
file, on a timely basis, reports required to be filed pursuant to Section 16 of
the Securities Exchange Act of 1934, as amended.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth as to each of the Trustees the number of
Trust Shares owned, directly or indirectly, by him on December 31, 1998. No
person is known by the Trust to be the beneficial owner of more than five
percent of the Trust's outstanding Trust Shares. Each person identified in the
table has sole voting and investment power with respect to all Trust Shares
shown as beneficially owned by such person, except as otherwise set forth in the
notes to the table. Unless otherwise indicated, the address of each person
listed below is 1010 El Camino Real, Suite 210, Menlo Park, California 94025.

<TABLE>
<CAPTION>
                                                    NUMBER OF SHARES              PERCENT OF
            NAME                                   BENEFICIALLY OWNED              CLASS(1)
            ---------------------------------------------------------------------------------------
            <S>                                    <C>                        <C>
            John H. Hoefer                              68,003                     1.835%
            Harry E. Kellogg (2)                         7,293                      .197%
            Wilcox Patterson (3)                        27,900                      .753%
            William S. Royce (2)                         2,708                      .073%
            Robert C. Gould                              1,471                      .040%
</TABLE>

(1)      Based on 3,706,845 Trust Shares outstanding as of December 31, 1998.

(2)      Voting and investment powers are shared.

(3)      Includes 21,584 Trust Shares owned by members of Mr. Patterson's family
         as to which Mr. Patterson disclaims any beneficial ownership interest.


                                       28
<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

INCENTIVE COMPENSATION PLAN

         For 1990 and thereafter, the Trustees have approved an incentive
compensation plan for Robert C. Gould, Trustee and Vice President of the Trust.
For 1998, 1997 and 1996, the incentive compensation program resulted in no bonus
payment to Mr. Gould.

INVESTMENT ADVISOR, PROPERTY MANAGEMENT AGREEMENTS AND SALES SUPPORT SERVICES
AGREEMENT

         Collier Investment acts as both investment advisor and real estate
broker for the Trust. Menlo Management manages the Trust's properties. Collier
Investment is a proprietorship of Charles R. Collier. Robert C. Gould, who is a
Trustee and Vice President of the Trust, owns Menlo Management Company. See Note
2 of Notes to Consolidated Financial Statements for a description of the
compensation paid to Collier Investment and Menlo Management during the fiscal
year ended December 31, 1998. Beginning on January 1, 1994, a revised investment
advisory agreement became effective, which provides for a base advisory fee to
Collier Investment of 1/5 of 1% of gross Trust assets. In July 1994, at Mr.
Collier's request this fee was reduced by 50% to 1/10 of 1% of gross Trust
assets retroactive to January 1, 1994. As of June 1997, Mr. Collier receives no
compensation for his service. Mr. Collier also voluntarily waived his right to
receive any real estate brokerage commissions as a result of the sales of
Lakeshore Plaza Shopping Center, which was sold on March 13, 1995, Menlo Center,
which was sold on February 29, 1996, Monterey Plaza Shopping Center, which was
sold April 25, 1997, and Kings Court Shopping Center, which was sold August 24,
1998.

LOANS FROM AFFILIATES OF MENLO MANAGEMENT COMPANY

         Due to the shortage or unavailability of equity financing, the Trust
obtained short-term financing at competitive rates to provide working capital
and to complete the development of its Lakeshore Plaza Shopping Center through a
group of private limited partnerships. At December 31, 1998, there was no
outstanding balance. Interest of $2,000, $268,000 and $790,000 was paid on these
notes in 1998, 1997 and 1996, respectively.


                                       29
<PAGE>


                                     PART IV

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

(a)  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. See Item 8 of this
     Annual Report or Form 10-K for Consolidated Financial Statements for the
     Trust, Notes thereto, and Consolidated Supplemental Schedules. A Table of
     Contents to Consolidated Financial Statements and Consolidated Supplemental
     Schedules is included in Item 8 and incorporated herein by reference.

(b)  REPORTS ON FORM 8-K. Report on Form 8-K was filed by the Trust on February
     4, 1998 and September 8, 1998.

(c)  EXHIBITS:

<TABLE>
<CAPTION>

             TABLE REFERENCE           EXHIBIT                  LOCATION
             ---------------------------------------------------------------------------------
             <S>                       <C>                      <C>
             3 and 4                   Declaration of           Incorporated by reference from
                                       Trust and Amendments     Form 10 and Form 8-K of May 4,
                                                                1982
</TABLE>

         The exhibits required by Item 601 of Regulation 5-K have been filed
with previous reports by the registrant and are incorporated by reference
thereto.


                                       30
<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.

                                PACIFIC REAL ESTATE INVESTMENT TRUST
                                         Registrant

                                BY:      WILCOX PATTERSON
                                     --------------------------------------
                                         WILCOX PATTERSON, PRESIDENT
                                         (PRINCIPAL EXECUTIVE OFFICER)

                                BY:      HARRY E KELLOGG 
                                     --------------------------------------
                                         HARRY E. KELLOGG, SECRETARY AND
                                         TREASURER (PRINCIPAL FINANCIAL AND
                                         ACCOUNTING OFFICER)

Date:  March 18, 1999

         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.

                 Signatures                                      Date


     WILCOX PATTERSON                                        March 18, 1999
     ------------------------------------------------
     WILCOX PATTERSON, PRESIDENT AND TRUSTEE



     HARRY E KELLOGG                                         March 18, 1999
     ------------------------------------------------
     HARRY E KELLOGG, SECRETARY, TREASURER AND TRUSTEE



     ROBERT C. GOULD                                         March 18, 1999
     ------------------------------------------------
     ROBERT C. GOULD, VICE PRESIDENT AND TRUSTEE



     WILLIAM S. ROYCE                                        March 18, 1999
     ------------------------------------------------
     WILLIAM S. ROYCE, TRUSTEE


     JOHN H. HOEFER                                          March 18, 1999
     ------------------------------------------------
     JOHN H. HOEFER, VICE PRESIDENT AND TRUSTEE


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