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                       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, 1995
 
                                       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)
 
                                 (415) 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,  1995 was
3,706,845, $10 par value per share.
 
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<PAGE>
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>            <C>                                                                                           <C>
PART I
  Item  1.     Business....................................................................................           1
  Item  2.     Properties..................................................................................           7
  Item  3.     Legal Proceedings...........................................................................          17
  Item  4.     Submission of Matters to a Vote of Security Holders.........................................          17
 
PART II
  Item  5.     Market for Registrant's Trust Shares and Related Shareholder Matters........................          18
  Item  6.     Selected Financial Data.....................................................................          20
  Item  7.     Management's Discussion and Analysis of Financial Condition and Results of Operations.......          21
  Item  8.     Consolidated Financial Statements and Supplementary Data....................................          26
  Item  9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........          45
 
PART III
  Item 10.     Directors and Executive Officers of Registrant..............................................          45
  Item 11.     Executive Compensation......................................................................          46
  Item 12.     Security Ownership of Certain Beneficial Owners and Management..............................          46
  Item 13.     Certain Relationships and Related Transactions..............................................          47
 
PART IV
  Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................          48
  Signatures...............................................................................................          49
</TABLE>
<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 invests in real  estate interests and at  December 31, 1995 owned
    (i) a 100% equity interest in  two shopping centers, (ii) a 40%  controlling
    interest  in Kingsco, a general partnership  that owns a shopping center and
    (iii) a 100% equity interest in a retail and professional office complex. In
    addition, the  Trust  holds various  notes  receivable, most  of  which  are
    secured  by deeds of  trust, and were  acquired in connection  with sales or
    assignments of Trust properties or contractual rights to acquire properties.
 
    The Trust's  total assets  were $63  million at  December 31,  1995 and  $95
    million at December 31, 1994.
 
    (b)  Financial Information About Industry Segments:
 
    The  Trust is currently  involved in only one  industry segment real estate.
    The Trust operates and holds for investment, income producing real  property
    and  promissory notes secured by real  property. 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 owns and manages a portfolio of neighborhood shopping centers, and
a professional office  and retail  complex. Each  of the  Trust's properties  is
located  in the metropolitan San Francisco Bay Area. Historically, the Trust has
specialized in the acquisition and  redevelopment of existing shopping  centers,
as  well  as  the development  of  new  centers. The  Trust's  existing property
portfolio, described more fully below under "Properties," consists primarily  of
properties situated in "in-fill" locations in suburban areas which are generally
characterized by dense populations and restrictions on development.
 
    The  Trust's shopping centers attract local area customers and are typically
anchored by a supermarket, superdrug, or other type of convenience store. Anchor
retailers are critically important to the success of the shopping center because
they attract consistent  local traffic  and repeat  shoppers whose  expenditures
support  a variety of  other stores in  the shopping center.  Examples of anchor
retailers in  the  Trust's  shopping  center properties  are  Lucky  Stores  and
Walgreen.  The  overall  tenant mix  in  each  of the  Trust's  shopping centers
typically caters to the retailing of day-to-day consumer necessities rather than
high-priced luxury or specialty items.
 
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
 
    The following is a  discussion of the Trust's  objectives and policies  with
respect  to investment, disposition,  financing and certain  other activities in
light of current  conditions. Current  capital constraints  affecting the  Trust
effectively  preclude new acquisitions of  significance. The investment policies
and other  policies of  the Trust  are reviewed  herein in  the context  of  the
Trust's  current  financial  condition.  These policies  are  determined  by the
Trustees, and may be amended or revised  from time to time at the discretion  of
the  Trustees without a vote of the holders of beneficial interests of the Trust
("shareholders"). No assurance  can be  given that  these investment  objectives
will be attained or that the value of the Trust will not decrease.
 
                                       1
<PAGE>
    INVESTMENT  POLICY.  The  Trust's historic investment  objective has been to
invest in commercial  real estate  which would generate  cash distributions  and
long-term  capital  appreciation. This  policy  was successful  from  1964 until
recent years. Since 1974 the Trust has sought to accomplish these objectives  by
acquisition,  development  and redevelopment  of anchored  neighborhood shopping
centers  and  commercial  property  in   Northern  California.  One  reason   we
concentrated  in retail  was because  the anchor  retail stores  tended to limit
oversupply by building only to demand. But  in recent years the emergence of  an
entirely  new  group  of retailers  have  changed that  completely  resulting in
increasing over-construction in retail. In addition, during the last four years,
lack of access to equity capital and strongly adverse property market conditions
have hampered  and  increasingly  frustrated  the  Trust's  achievement  of  its
investment  objectives. These circumstances  have resulted in  the suspension of
cash distributions to  shareholders, a  reduction in  the value  of the  Trust's
assets  and lack of liquidity  for shareholders. The Trust  has not acquired new
investment  property  since  1992  and  its  development  activities  have  been
suspended.
 
    Since  1991 the Trust has been  actively seeking to recapitalize to overcome
these challenges. This activity has been  conducted both under the direction  of
several   investment  bankers  as  well   as  independently  with  institutional
investors. Recapitalization strategies that  have been considered include  joint
venture,  merger and listing on one of  the national stock exchanges. During the
early 1990's the impact of a nationwide economic recession and the volatility of
public capital markets have prevented a successful outcome to these efforts. The
Trust have conducted active discussions  with potential merger or joint  venture
candidates  and  the  Trustees  plan to  explore  exhaustively  every reasonable
opportunity. However in the event that  this strategy cannot be achieved in  the
best  interest of  the shareholders  the Trustees  are committed  to pursuing an
alternative approach involving the orderly sale  of the Trust's assets. Such  an
approach is expected to enable the Trust to meet all of its debt obligations and
to  distribute remaining proceeds to  its shareholders as liquidating dividends.
There can be no assurance as to the amount of such liquidating dividends at this
time because the Trust must determine the  exact net value of its assets in  the
marketplace.
 
    The  value of  the Trust's property  portfolio has declined  during the past
three years. This decline is the  result of several factors. Most prominent  has
been  the collapse of  commercial real estate  values nationwide as  a result of
overbuilding and fallout from the savings  and loan collapse and the  consequent
establishment  of  the  Resolution  Trust  Corporation,  which  liquidated large
numbers of commercial properties at prices significantly below replacement cost,
severely depressing the nation's property markets. Another prominent factor  has
been  the pronounced depth  and protracted nature of  the economic recession and
defense industry cutbacks which severely affected California real estate values.
Concurrent with these economic forces, the value of the Trust's shopping  center
portfolio  has also been  adversely affected by rapid  and continuing changes in
the  retail  industry.  The   proliferation  of  "big-box"  discount   retailers
characterized  by their  predatory pricing and  marketing practices  is having a
widespread impact,  putting many  traditional retailers  at risk  and some  into
bankruptcy.  The  corollary  effect of  this  retailing revolution  has  been an
aggressive overbuilding in the retail sector, increased vacancy, tenant business
failures and the driving down of  rents and property values. The combination  of
these  economic and  retail industry trends  has adversely  affected many retail
REITs as well as the Trust.
 
    While  the  Trust's   investment  policy  emphasizes   equity  real   estate
investments,  it may invest in stock of other REITs, partnerships and other real
estate interests. If the Trust were successful in locating a suitable merger  or
joint  venture partner, it is  possible that such a  strategy could result in an
exchange of stock or investment in stock of another REIT or real estate entity.
 
    In considering dispositions, the Trust makes disposition decisions based  on
current  market conditions and its objective  of realizing maximum value for its
shareholders.
 
                                       2
<PAGE>
    FINANCING.   The Trust  intends  to continue  to restructure  its  portfolio
during  1996 in  order to reduce  indebtedness. This  goal is to  be achieved by
either an infusion of equity capital or the  sale of one or more of the  Trust's
properties,  repayment of associated indebtedness  and reduction of debt service
costs.
 
    In the  event that  the  Trustees are  successful in  attracting  additional
capital, they have the full authority to issue additional interests in the Trust
on such terms and for such consideration as they judge appropriate.
 
    DISTRIBUTIONS.   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).
Capital gains have been distributed on a  case by case basis. That portion of  a
distribution  which is sheltered by  depreciation and amortization constitutes a
nontaxable return  of capital  to the  shareholders. Dividends  were paid  on  a
regular basis for twenty-nine years, however, on February 25, 1993, the Trustees
unanimously  decided to  suspend the  payment of  regular dividends  in order to
conserve the Trust's  cash flow,  in an  effort to  meet its  capital needs,  to
maintain  the  quality of  the  Trust's properties  and  to protect  the Trust's
credit, since the Trustees concluded that the Trust could no longer rely on  its
traditional  sources of liquidity (i.e., secured bank financing and "intrastate"
equity offerings) for these purposes.  The suspension of regular dividends  will
continue  until sufficient liquidity  can be arranged  from alternative sources.
The suspension of dividends is not expected to affect the Trust's  qualification
as a REIT.
 
    WORKING  CAPITAL  RESERVES.   The Trust  seeks  to maintain  working capital
reserves (and, when not  sufficient, access to borrowings)  in amounts that  the
Trustees  determine to be adequate to  meet normal capital demands in connection
with the operation of the Trust's business and investments. As noted above,  the
Trust expects that it will either restructure or sell either all or a portion of
its portfolio in order to generate adequate working capital reserves.
 
    CONFLICTS  OF INTEREST  POLICIES.   The Trust  has adopted  certain policies
designed to reduce potential conflicts of  interest. Such policies do not  apply
where a Trustee, officer or affiliate has acquired property for the sole purpose
of  facilitating its acquisition by the  Trust, and the total consideration paid
by the Trust does not exceed the cost of the property to such person (which cost
is increased by such person's holding costs and decreased by any income received
by such person from the property) and no special benefit results to such person.
The Trustees may engage  in real estate  transactions which may  be of the  type
conducted  by the Trust, but  it is not anticipated  that such transactions will
have a material effect upon the Trust's operations.
 
    OTHER POLICIES.   The Trust intends  to operate  in a manner  that will  not
subject  it to regulation under the Investment  Company Act of 1940, as amended.
The Trust does not intend (i) to  invest in the securities of other issuers  for
the  purpose  of  exercising  control  over  such  issuers,  (ii)  to underwrite
securities of  other  issuers or  (iii)  to trade  actively  in loans  or  other
investments.
 
    The  Trust may make investments other than as previously described, although
it does not currently 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. Although
the Trust may do so in the future in connection with the purchase of  additional
properties  or otherwise,  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.
 
    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.
 
                                       3
<PAGE>
MARKET CONDITIONS
 
    The Company does  not believe that  the real estate  market is an  efficient
market. Local conditions and the type of commercial operations conducted at each
property  directly  affect property  values  in ways  that  may be  unrelated to
overall nationwide,  regional or  neighborhood market  trends. The  real  estate
market is also highly competitive, and maintaining property values is difficult.
Access  to economically  available equity  capital is  critical to  creating and
maintaining real estate  values. Other  real estate investment  trusts (many  of
which  are much larger  than the Trust), pension  trusts, private investors, and
real estate syndicates compete directly with the Trust for capital. In  addition
to  these geographic and industry considerations,  the market for real estate is
heavily  influenced  by  finance,  bond  and  securities  markets,  as  well  as
political, regulatory and Code factors.
 
    During  the last several years, investors have become increasingly selective
about real estate. This  heightened selectivity has  occurred against a  complex
marketplace  backdrop characterized  by declining values  and reduced liquidity,
lack of capital, adverse fallout resulting from reform of the tax code, property
over-building, solvency crisis in the savings and loan industry and the  related
incidences  of distress sales and dumping of swollen property inventories by the
Resolution Trust Corporation.  Most of  this occurred  within the  context of  a
severe  national economic  recession. While  1994 began  to witness  the gradual
recovery of the  real estate market  nationwide, the Trustees  believe that  the
overall  economic recovery in California during  1995 has continued by and large
to lag the nationwide trend and  continues to retard recovery of the  California
property  markets. While  the Trustees believe  that the  California real estate
market  will  eventually  recover,  as  the  California  economy  emerges   from
recession, for the near term, they do not expect values to recover to the market
levels achieved in the late 1980's and early 1990's, prior to the downturn. This
is particularly true for retail property and there can be no assurance that this
improvement  will occur or that 1996 will see any improvement. Thus there remain
significant impediments to the Trust's  ability to resume cash distributions  or
establish  liquidity for its  shareholders without improvement  in market values
and either capital restructuring or asset sales.
 
    The Trust is not involved in research and development activities other  than
market research.
 
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  King's 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  is
estimated to be $632,000, of which $503,000 has already been expended. The Trust
was not a partner of Kingsco at the time the contamination occurred, and 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 for payment of the clean-up
costs.  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.
 
    In another, unrelated, environmental audit  of the gasoline service  station
pad  ("Exxon Pad")  at King's  Court Shopping  Center, the  Phase I  and II work
identified gasoline and possibly other service
 
                                       4
<PAGE>
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 Menlo Management Company and 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.
 
    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. The Contra Costa County Regional Water
Quality  Control  Board  is currently  reviewing  the situation  and  a clean-up
remediation proposed by the Trust. The  cost of clean-up and timetable have  not
yet  been  identified, however,  based  on current  knowledge,  the cost  is not
expected to have a material effect  on the Trust's financial position. On  March
21,   1996,  the  Trustees  authorized  the  expenditures  up  to  $100,000  for
remediation.
 
    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 conditions 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 removal of access barriers and other 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. If
required  changes  involve  a  greater  expenditure  than  the  Trust  currently
anticipates,  or if the changes must be made on a more accelerated basis than it
anticipates, the Trust could be adversely affected.
 
MANAGEMENT
 
    The  search   for  suitable   real  estate   capitalization  and   portfolio
restructuring  is 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  has  agreed  to  use  its   best  efforts  to  present  to  the   Trust
recapitalization  and portfolio restructuring  opportunities consistent with the
investment policies and objectives of the Trust. After careful study and review,
the Advisor  may recommend  to the  Trustees those  opportunities or  strategies
whose  character  is consistent  with the  investment program  of the  Trust. In
addition to relying  on the  advice of  the Advisor,  the Trustees  occasionally
employ the services of independent professional consultants.
 
    The  Trust  employs no  full-time  executives or  administrative  staff. The
leasing and management of the Trust's properties and administration of the Trust
itself is  performed by  an independent  contractor, Menlo  Management  Company.
Eighty-three  percent of  the outstanding capital  stock of  Menlo Management is
owned by Robert C. Gould and the  remainder is owned by Charles R. Collier,  who
is  Mr.  Gould's father-in-law.  California Bavarian  Company, a  privately held
California corporation, provides service to the Trust on a contractual basis for
a monthly service fee.
 
    The Trust has five trustees who meet once a month and who are compensated by
the Trust.  The Trustees  include: Wilcox  Patterson, who  serves as  President;
Harry  E. Kellogg, who serves as Treasurer;  John H. Hoefer and Robert C. Gould,
who serve as Vice Presidents and William S. Royce, who serves as Secretary.  The
Trustees, Officers and Advisor all invest in the Trust.
 
                                       5
<PAGE>
COMPETITION
 
    The  Trust's properties are  all located in  metropolitan communities in the
San Francisco  Bay  Area.  Each  property is  situated  amidst  fully  developed
commercial and retail areas. As such, there are other competing neighborhood and
community  shopping centers and  professional office facilities  located in near
proximity to the Trust's  properties. These factors will  have a bearing on  the
Trust's  ability to  rent its  properties 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  who
may  have greater resources or more attractive locations than those available to
the Trust  and its  officers, directors  and agents.  Moreover, the  extent  and
increasing rates of changes in community demographics, public policy, retail and
office  usage patterns,  merchandising practices, consumer  tastes and financial
strength of tenants, amongst  other considerations, can  all affect adversely  a
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. Two of
the Trust's  properties (El  Portal Shopping  Center and  King's Court  Shopping
Center) are insured against damage from earthquakes.
 
    (d) Foreign Operations
 
    The  Trust does not engage in any foreign operations or derive revenues from
    foreign sources.
 
                                       6
<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 December 31, 1995:
<TABLE>
<CAPTION>
                                                   GROSS                     EFFECTIVE
                                PERCENTAGE     LEASABLE AREA  1995 ANNUAL   ANNUAL RENT                  PERCENT
                                 OWNERSHIP        (SQ FT)       MINIMUM     PER SQUARE      PERCENT     LEASED &
       NAME/LOCATION             INTEREST         (1)(2)       RENT (3)        FOOT         LEASED      OCCUPIED
----------------------------  ---------------  -------------  -----------  -------------  -----------  -----------
<S>                           <C>              <C>            <C>          <C>            <C>          <C>
                                     100%          271,426     $ 939,000     $    3.45           58%          44%
El Portal Shopping Center
 San Pablo, California
                                      40%           78,576     1,301,000         16.55          100%         100%
King's Court Shopping Center
 Los Gatos, California
                                     100%           54,903     1,734,000         31.58          100%         100%
Menlo Center (7)
 Menlo Park, California
                                     100%(1)       183,180     2,671,000         14.58           95%          39%
Monterey Plaza
 Shopping Center
 San Jose, California
 
<CAPTION>
                              ANCHORS AND PRINCIPAL
       NAME/LOCATION               TENANTS (1)
----------------------------  ----------------------
<S>                           <C>
                              Safeway Stores (4);
                              McCrory Stores (5);
                              Long's Drug Stores (6)
El Portal Shopping Center
 San Pablo, California
                              Lunardi's Supermarket;
                              Bank of America
King's Court Shopping Center
 Los Gatos, California
                              Dean Witter Reynolds
                              Inc.; Kepler's Books
                              and Magazines
Menlo Center (7)
 Menlo Park, California
                              Lucky Stores; HomeBase
                              (4); Walgreen
Monterey Plaza
 Shopping Center
 San Jose, California
</TABLE>
 
------------------------------
(1)  Lucky  Stores  owns  its  store  at  Monterey  Plaza  Shopping  Center and,
    therefore, is not  a tenant of  the Trust.  Even though the  Trust does  not
    benefit  directly from  the economic performance  of this  anchor store, the
    anchor is  nonetheless  critical to  the  success of  the  Trust's  shopping
    center.
 
(2)  The aggregate  gross leasable  area does  not include  approximately 51,000
    square feet at  Monterey Plaza  Shopping Center. This  represents the  store
    owned by Lucky Stores.
 
(3)  Total annual minimum rent  for the year ended  December 31, 1995, excluding
    (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 currently due,
    and  have  been  adjusted  for  the   effects  of  recognizing  rent  on   a
    straight-line basis as reported in the Trust's financial statements.
 
(4)  Safeway,  at El  Portal,  and HomeBase,  at  Monterey Plaza,  ceased retail
    operations during 1994. Both  tenants continue to  be obligated under  their
    lease  agreements. Safeway is current with their lease payments and HomeBase
    is delinquent in payment of its rents and charges since January 1, 1996 as a
    consequence of a dispute with the  Trust over certain lease provisions.  The
    Trust  expects that this dispute will  be resolved satisfactorily. Under the
    terms of both  leases, the tenants  have the right  to sublease their  space
    without  obtaining approval of the Trust.  Both tenants are actively seeking
    sublessees. HomeBase at  El Portal terminated  its lease with  the Trust  on
    December  31, 1994 by agreement with  the Trust and ceased retail operations
    in  April  1995.  See  below  for  further  discussion  on  each  of   these
    circumstances.
 
(5)  McCrory Corporation is operating its J.J. Newberry Store at El Portal under
    protection of  Chapter  11 of  the  U.S. Bankruptcy  Code.  As part  of  the
    Settlement  Agreement  between  the  Trustee in  Bankruptcy  and  the Trust,
    McCrory modified its lease to provide,  in effect, for a year-to-year  lease
    with  mutual termination  rights. Effective  rent and  triple net recoveries
    were reduced under the terms of the Settlement Agreement.
 
(6) Long's Drug Store's lease at El  Portal expired in February 1996 and  Long's
    has vacated the center.
 
(7) Menlo Center was sold in February 1996. See below (under Property Sales) for
    further discussion.
 
     EL  PORTAL  SHOPPING CENTER.    El Portal  Shopping  Center is  a community
shopping center located in  the community of San  Pablo, California. The  center
was  acquired by the  Trust in 1976,  and repositioned and  expanded in 1978 and
1986, respectively.  The center  has a  total of  271,426 square  feet of  gross
leasable  area. From 1976 to 1995 El Portal was an important source of cash flow
to the Trust.
 
    Today, El Portal is again in  need of substantial redevelopment to meet  the
rapidly changing methods of retailing and changing consumer shopping patterns in
the Center's trade area.
 
                                       7
<PAGE>
    During 1994, the structure of the Center's anchor tenancy underwent a series
of   material  changes.  In  February  1994  the  parent  of  Newberry,  McCrory
Corporation, operating under the protection of  Chapter 11 of the United  States
Bankruptcy  Code  (filed February  26,  1992), modified  its  lease, effectively
reducing the terms of the lease to a one year maturity with a series of one year
extensions  and  reducing  the  annual  rental  income  stream  by  $62,000  and
converting  the triple net lease terms into gross lease terms. At the same time,
the Newberry Store changed its merchandising format from that of a  conventional
variety store to a "99 CENTS" discount close-out store.
 
    During  1994,  the Safeway  Store suffered  a sharp  decline in  gross sales
volume as a  result of  newly established  competing supermarkets  in the  trade
area. In October 1994, Safeway abruptly terminated its operations. While Safeway
is  still liable for  rent under the terms  of its lease,  the lease provides no
mechanism affording  the  landlord  the right  to  require  continuing  business
operations. Safeway threatens to sub-lease its store to a local supermarket user
whose  usage and market draw would be inferior to that of a conventional Safeway
Store. This store closing  has had a substantial  negative impact on the  retail
sales traffic in the Center and on the ability of the Center's remaining tenants
to maintain viable retail sales volumes. The Trust is presently negotiating with
a  possible  satisfactory  replacement  tenant for  the  Safeway  Store  and has
received strong interest  from a leading  national warehouse supermarket  chain.
However, it has no assurance that these negotiations will be successful.
 
    Also, late in 1994, Waban Inc, the parent of the HomeBase warehouse discount
store  chain, announced plans to close its  stores in the Bay Area including its
100,000 square foot HomeBase store at El Portal. The Trust's lease with HomeBase
contained sufficient provisions enabling the Trust to negotiate successfully for
an  economically  acceptable  lease  termination.   In  exchange  for  a   lease
termination  effective December 31, 1994 the Trust negotiated a $6,000,000 lease
buy-out offer from  HomeBase. The full  amount of  the buy-out was  paid to  the
Trust  on December 30, 1994.  This sum was paid to  the lender as required under
the terms of the property financing. The HomeBase operations remained active  at
El Portal until April 8, 1995.
 
    The  combined effect of  these three developments  has prompted Long's Drug,
the Center's fourth anchor tenant, to close its store at the termination of  its
lease in February 1996.
 
    The  result of these  anchor lease events  has been very  serious. While the
Center has successfully maintained acceptable  overall occupancy levels in  1994
and  1995, it has been at the cost of reduced rental revenues and it is doubtful
that many smaller retailers will be able to continue to sustain themselves as  a
result of the anchor store closures.
 
    The Trust is vigorously exploring redevelopment possibilities with potential
replacement retailers and the City of San Pablo in its effort to salvage as much
equity  as possible for shareholders.  It is too soon  to predict how successful
these efforts will be.
 
    At December  31,  1995,  El  Portal Shopping  Center  was  58%  leased.  The
percentage  of the center that is both  leased and occupied at December 31, 1995
was 44%. Tenants leasing 10%  or more of the rentable  space as of December  31,
1995 are:
 
<TABLE>
<CAPTION>
                                                  GROSS
                                                LEASABLE    PERCENT OF TOTAL
                                                AREA (SQ     GROSS LEASABLE       BASE
                   TENANT                          FT)            AREA         RENTAL/YEAR      END OF LEASE TERM
---------------------------------------------  -----------  -----------------  -----------  --------------------------
<S>                                            <C>          <C>                <C>          <C>
Safeway Stores                                     37,141              14%     $   179,000         August 1998
                                                                                             (6 options for 5 years)
Newberry                                           28,130              10%     $   125,000  January 2002 with right to
                                                                                               terminate by either
                                                                                            landlord or tenant at end
                                                                                              of each calendar year
                                                                                             prior to lease maturity.
</TABLE>
 
    In  1995 the Trust discovered that there had  been a toxic spill by a former
dry  cleaner  tenant.  This  spill  probably  occurred  prior  to  the   Trust's
acquisition   of  the  Center.  See   above  under  Governmental  Regulation  --
Environmental Matters for a discussion of this spill.
 
                                       8
<PAGE>
    KING'S COURT SHOPPING CENTER.  This neighborhood shopping center is  located
in  the community of Los Gatos, California.  The center is anchored by Lunardi's
Supermarket, a  local supermarket  chain, and  an array  of retail  and  service
tenants  such as Hallmark  Cards, Wells Fargo  Bank and Bank  of America. King's
Court Shopping Center has 76,612 square feet of gross leasable space. The  Trust
presently  owns a  40% interest in  Kingsco, the general  partnership which owns
this shopping  center. In  addition,  the Trust  manages King's  Court  Shopping
Center  and has  control over  the shopping  center's operations,  including any
leasing, renovation, sale and financing activities.
 
    Kingsco owns a  leasehold estate  as to  the land and  fee title  as to  the
improvements  (excluding a  gas station).  The ground  lease has  a 65-year term
expiring in 2024, and  requires minimum annual payments  of $40,000 plus 12%  of
the  property's gross rental revenue in excess  of $333,333 per annum. The Trust
is presently  attempting to  negotiate with  the ground  lessors to  extend  the
ground  lease. There can be no assurance that these negotiations will succeed on
economically acceptable terms. The carrying  cost of the center, which  includes
the  other partners' interest in the property, was $6,208,000 after depreciation
at December 31, 1995. The property is security for a first mortgage loan with an
interest rate of prime +1.75%. At December 31, 1995 the rate was 10.25% and  the
outstanding balance was $1,343,000.
 
    At  December 31, 1995, King's Court Shopping Center was 100% leased. Tenants
occupying 10% or more of the rentable space as of December 31, 1995 are:
 
<TABLE>
<CAPTION>
                                              GROSS
                                            LEASABLE    PERCENT OF TOTAL
                                            AREA (SQ     GROSS LEASABLE     BASE RENTAL/
                 TENANT                        FT)            AREA              YEAR            END OF LEASE TERM
-----------------------------------------  -----------  -----------------  --------------  ---------------------------
<S>                                        <C>          <C>                <C>             <C>
Lunardi's Supermarket                          22,000              29%     $   140,000(1)         November 2003
                                                                                             (1 option for 10 years)
</TABLE>
 
------------------------
(1) Additional percentage rents paid  by Lunardi's Supermarket were $140,000  in
    1995, $99,000 in 1994, and $103,000 in 1993.
 
    The  Trust has discovered  toxic pollution of the  ground water under King's
Court Shopping Center. See above under Governmental Regulation --  Environmental
Matters for discussion of this circumstance.
 
    MENLO  CENTER.    Menlo  Center  is a  prime  quality  mixed-use  retail and
professional office redevelopment  project located near  Stanford University  in
downtown Menlo Park, California. Menlo Center was completed in December 1989 and
contains 54,903 square feet of gross leasable space (including storage space and
common  areas).  The complex  comprises a  retail plaza  of 15,375  square feet,
anchored  by  Kepler's  Books  and  Magazines,  which  draws  its  patrons  from
throughout  the  mid-San  Francisco  Peninsula.  The  professional  office space
contains 38,591 square feet, and is anchored by Dean Witter Reynolds Inc.  Menlo
Management  Company, the entity which  currently provides management services to
the Trust, has a lease  for 3,193 square feet of  office space at Menlo  Center,
and the Trust's executive office is located within such space.
 
    The  Trust leases a 10,500 square foot  portion of the land underlying Menlo
Center. The ground lease has an effective term of 40 years, grants the Trust ten
consecutive five-year renewal options  and contains an  option to purchase  upon
the death of the ground lessor.
 
    At December 31, 1995, Menlo Center was 100% leased. Tenants occupying 10% or
more of the rentable space as of December 31, 1995 are:
 
<TABLE>
<CAPTION>
                                                 GROSS
                                               LEASABLE    PERCENT OF TOTAL
                                               AREA (SQ     GROSS LEASABLE       BASE
                   TENANT                         FT)            AREA         RENTAL/YEAR       END OF LEASE TERM
--------------------------------------------  -----------  -----------------  -----------  ---------------------------
<S>                                           <C>          <C>                <C>          <C>
Kepler's Books and Magazines                      12,279              22%     $   382,000          August 1999
                                                                                            (2 options for 10 years)
Thomas Associates                                  8,759              16%     $   341,000          March 1996
                                                                                             (1 option for 5 years)
Dean Witter Reynolds, Inc.                         6,002              11%     $   144,000         October 1999
                                                                                             (2 options for 5 years)
</TABLE>
 
                                       9
<PAGE>
    At December 31, 1995, the Trust's investment in Menlo Center was $17,376,000
before accumulated depreciation, and the total indebtedness on this property was
$10,738,000. The Trust reduced the carrying value of Menlo Center to $15,000,000
after  depreciation during  1994 in  order to  reflect its  opinion of  the then
current market value. Menlo Center was sold on February 29, 1996.
 
    MONTEREY PLAZA SHOPPING CENTER.   This community shopping center is  located
in San Jose, California. The Trust began the development of this shopping center
in  1987, and completed development in 1990.  The center has 233,000 square feet
of retail space, of  which the Trust  owns 182,405 square feet,  or all but  the
Lucky  Store. In  addition to the  Lucky Stores anchor,  other retailers include
Walgreen, McDonald's, Lyon's Restaurant and Taco Bell.
 
    In November 1994, HomeBase ceased its  operations at Monterey Plaza as  part
of its overall strategy to close certain stores in Northern California. HomeBase
remains  liable for payment  of rent and related  occupancy charges. HomeBase is
delinquent in  payment of  its rents  and charges  since January  1, 1996  as  a
consequence of a dispute with the Trust over certain lease provisions. The Trust
expects  that this  dispute will be  resolved satisfactorily.  HomeBase does not
have the obligation to maintain continuous business operations. HomeBase and the
Trust are actively seeking an acceptable replacement tenant or sublessee at this
time, though there is no assurance that one will be found. The HomeBase lease is
an obligation of Waban, Inc.,  a New York Stock Exchange  company. It is also  a
guaranteed  by T.J.X. Corporation, also a  New York Stock Exchange company. This
anchor store closure has had  a negative impact on retail  sales in the rest  of
the  shopping center. Replacement of this anchor continues to be a major goal of
the Trust.  The  building  (101,500  sq ft)  will  require  substantial  capital
investment in order to prepare it for occupancy by a replacement retail tenant.
 
    At  December 31, 1995, Monterey Plaza Shopping Center was 95% leased. If the
HomeBase vacancy is accounted for, the percentage of the Center both leased  and
occupied  at  December 31,  1995 was  39%. Tenants  leasing 10%  or more  of the
rentable space as of December 31, 1995 are:
 
<TABLE>
<CAPTION>
                                              GROSS
                                            LEASABLE   PERCENT OF TOTAL
                                            AREA (SQ    GROSS LEASABLE    BASE RENTAL/
                  TENANT                       FT)           AREA             YEAR           END OF LEASE TERM
------------------------------------------  ---------  -----------------  -------------  --------------------------
<S>                                         <C>        <C>                <C>            <C>
HomeBase                                      101,500             55%     $   1,172,000        September 2010
                                                                                          (4 options for 5 years)
</TABLE>
 
    At December  31, 1995,  the Trust's  investment in  Monterey Plaza  Shopping
Center   after  accumulated   depreciation  was   $25,673,000,  and   the  total
indebtedness on this property was $18,568,000.
 
VESTING OF TITLE TO PROPERTIES
 
    With the  exceptions of  the  land under  King's  Court Shopping  Center,  a
portion  of the  land under Menlo  Center, and a  parcel of land  adjacent to El
Portal Shopping Center fee title  to all the properties  is owned by the  Trust.
For  King's Court Shopping Center, the Trust acquired a 40% controlling interest
in the general partnership which owns a leasehold estate as to the land and  fee
title  as to the improvements (excluding a  gas station). The ground lease has a
65-year term expiring in 2024. In Menlo  Park, the Trust leases a 10,500  square
feet  portion of the land underlying the  Menlo Center project. The ground lease
has an  effective term  of 40  years,  grants the  Trust 10  consecutive  5-year
renewal  options, and contains  an option to  purchase upon death  of the ground
lessor. At El Portal the  Trust leases a 2.513-acre  parcel of land adjacent  to
the  El Portal Shopping  Center and fronting  onto San Pablo  Avenue. The ground
lease has an effective term  of fifty years and  contains an option to  purchase
upon the death of one of the ground lessors.
 
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. However, due to changes in retail
industry practice, the Trust believes that several of its buildings at El Portal
may be either functionally obsolete or require substantial physical upgrading in
order to  be  capable of  re-letting  on  economic terms  in  today's  retailing
environment. Moreover, in recent years it has become
 
                                       10
<PAGE>
increasingly  evident that tenant  improvements for new  and replacement tenants
have escalated in cost significantly in excess of the rate of inflation and have
tended to increase capitalization in Trust properties to a material extent. This
trend is partially a  consequence of the growing  competitiveness of the  rental
marketplace in which the Trust's properties operate. This is evident at Monterey
Plaza  Shopping Center  where the  building formerly  occupied by  HomeBase will
require substantial physical renovation and upgrading in order to prepare it for
occupancy by a replacement retail tenant.
 
PROPERTY SALES
 
    The Trust sold the Lakeshore Plaza Shopping  Center on March 13, 1995 for  a
sales  price  of $31,292,000.  The  proceeds of  this  sale after  provision for
assumption of the existing  First Deed of Trust  financing, repayment of  junior
financing,  closing  costs, escrow  holdbacks  for supplemental  property taxes,
vacant spaces and  pending tenant improvement  allowances, legal fees,  transfer
taxes  and  miscellaneous selling  expenses,  were all  used  to pay  down other
short-term Trust debt, including debenture indebtedness maturing in July 1995.
 
    On February 29,  1996, the  Trust sold  Menlo Center  for a  sales price  of
$16,200,000.  The existing financing  was assumed by  the buyer. After provision
for closing costs, transfer  fees and real estate  commissions, the proceeds  of
this  sale were all used to pay  down other short-term Trust indebtedness and to
provide working capital for the Trust. The Trust remains liable to the buyer for
an annual net income subsidy for the  remaining term of the First Deed of  Trust
financing which matures in 2000.
 
PRINCIPAL TENANTS
 
    HomeBase,  Inc.  ("HomeBase") is  the  Trust's largest  tenant.  HomeBase, a
discount home improvement  and hardware chain,  is a subsidiary  of Waban,  Inc.
("Waban") which is traded on the New York Stock Exchange and, as of December 31,
1995,  has credit ratings of  BA3 and BB- as  determined by Moody's and Standard
and Poor's respectively.  In November 1993,  Waban announced plans  to close  or
relocate approximately 24 of a total of 90 HomeBase Stores in locations where it
perceived  limited potential to achieve its corporate objectives. In the fall of
1994, HomeBase notified the Trust that  it intended to shut down its  operations
at  both El Portal Shopping Center and Monterey Plaza Shopping Center in pursuit
of this policy. At that time, HomeBase's leases accounted for 29% of the Trust's
gross leasable area and 17% of base  rent revenues. The Monterey Plaza lease  is
guaranteed  by T.J.X. Corporation and  Waban, Inc., both of  which are listed on
the New York Stock Exchange.
 
    Because of  the  terms  of  the  HomeBase lease  at  El  Portal,  the  Trust
successfully  negotiated  an  adequate  financial  compensation  for  HomeBase's
closure of operations. On December 30,  1994, HomeBase paid a lease  termination
fee of $6,000,000 to the Trust. In exchange, HomeBase was granted the ability to
terminate its lease effective December 31, 1994 with the obligation to surrender
the  premises to the Trust by  April 1995. Under the terms  of the First Deed of
Trust to First Nationwide Life Insurance Company securing the loan on El Portal,
the full proceeds of this lease buy out were applied towards principal reduction
and prepayment penalty  applicable to this  loan. HomeBase closed  its store  on
April 8, 1995.
 
    HomeBase  closed its store at Monterey  Plaza in November 1994. The HomeBase
lease contains  no  continuous business  operations  provision; the  lease  only
requires  HomeBase to continue to pay rents  and other occupancy charges as they
become due. HomeBase  is delinquent in  payment of its  rents and charges  since
January  1, 1996 as a consequence of a dispute with the Trust over certain lease
provisions. The Trust expects that this dispute will be resolved satisfactorily.
The closure has had  a negative impact  on the volume  of retail sales  business
transacted  at the Center.  HomeBase and the  Trust are cooperating  to locate a
suitable replacement  anchor  retailer for  the  101,500 square  foot  premises.
Replacing this anchor is a major goal for the Trust.
 
    Safeway,  Inc. ("Safeway") is the Trust's second largest tenant, in terms of
gross leasable area. Safeway is a  major operator of retail supermarkets in  the
United  States and Canada. Safeway is listed on the New York Stock Exchange and,
as of December 31, 1995, has credit ratings of BA1/BA2 and BBB- from Moody's and
Standard and  Poor's respectively.  Safeway comprises  6% of  the Trust's  gross
 
                                       11
<PAGE>
leasable  area  and 3%  of  its base  rental revenue  at  December 31,  1995. As
indicated above, Safeway  closed operations at  the El Portal  store in  October
1994.  At the present time, Safeway remains  liable for rent and occupancy costs
during the remaining term of its lease and is current with all lease payments.
 
    Other  significant  tenants  at  the  Trust's  properties  include   McCrory
Corporation   (Newberry),  Walgreen  and  Lunardi's  Supermarkets,  which  lease
properties representing approximately 11% of the Trust's gross leasable area and
7% of  its base  rental revenues.  McCrory Corporation  is operating  under  the
jurisdiction  of the Bankruptcy Court, having  filed for relief under Chapter 11
of the Bankruptcy Code in 1992.
 
    Information with respect to the Trust's five largest tenants as of  December
31, 1995 is set forth in the following table:
 
<TABLE>
<CAPTION>
                                                               GROSS
                                                             LEASABLE                     ANNUALIZED
                                                               AREA      PERCENTAGE OF    BASE RENTAL    PERCENTAGE OF
TENANT                                    NUMBER OF LEASES    (SQ FT)        TOTAL          INCOME           TOTAL
----------------------------------------  -----------------  ---------  ---------------  -------------  ---------------
<S>                                       <C>                <C>        <C>              <C>            <C>
HomeBase................................              1        101,500            17%    $   1,172,000            18%
Safeway.................................              1         37,141             6%          179,000             3%
McCrory Corporation (Newberry)..........              1         28,130             5%          125,000             2%
Lunardi's Supermarket...................              1         23,960             4%          140,000             2%
Walgreen................................              1         14,000             2%          191,000             3%
</TABLE>
 
OCCUPANCY RATES FOR PAST FIVE YEARS
 
    The  following table shows year-end occupancy  rates for rentable space both
leased and occupied, expressed as a percentage of total rentable square  footage
for each of the Trust's properties for the past five fiscal years:
 
<TABLE>
<CAPTION>
PROPERTY                                                                 1991       1992       1993       1994       1995
---------------------------------------------------------------------  ---------  ---------  ---------  ---------  ---------
<S>                                                                    <C>        <C>        <C>        <C>        <C>
El Portal Shopping Center (1)........................................         98%        98%        97%        56%        44%
King's Court Shopping Center.........................................        100%       100%       100%        98%       100%
Menlo Center.........................................................        100%       100%       100%        97%       100%
Monterey Plaza Shopping Center (1)...................................         93%        91%        98%        43%        39%
</TABLE>
 
------------------------
(1)  The Safeway Store  at El Portal  Shopping Center and  the HomeBase store at
    Monterey Plaza Shopping Center are leased but not currently occupied. Long's
    Drug has vacated its premises at El Portal upon the expiration of its  lease
    in  February 1996. This has had the impact of reducing the occupancy rate to
    36%. See Description of Trust's Properties and Principal Tenants.
 
AVERAGE EFFECTIVE ANNUAL BASE RENT PER SQUARE FOOT FOR PAST FIVE YEARS
 
    The following table shows average effective annual rent per square foot  for
each of the Trust's properties for the past five years:
 
<TABLE>
<CAPTION>
PROPERTY                                                1991       1992       1993       1994       1995
----------------------------------------------------  ---------  ---------  ---------  ---------  ---------
<S>                                                   <C>        <C>        <C>        <C>        <C>
El Portal Shopping Center...........................  $    6.57  $    7.63  $    7.39  $    6.08  $    3.45
King's Court Shopping Center........................      13.69      14.79      14.85      16.24      16.55
Menlo Center........................................      29.55      29.80      29.45      30.73      31.58
Monterey Plaza Shopping Center......................      12.72      13.73      14.14      14.03      14.58
</TABLE>
 
                                       12
<PAGE>
LEASE EXPIRATIONS
 
    The  following  table shows  lease expirations  for the  next ten  years for
existing tenants at  the Trust's properties  as of December  31, 1995,  assuming
that none of the tenants exercise renewal options:
 
<TABLE>
<CAPTION>
                                                                             AVERAGE ANNUAL
                                                               ANNUALIZED     MINIMUM RENT     PERCENT OF
                                                APPROXIMATE   MINIMUM RENT     PER SQUARE     TOTAL LEASED
                                                 LEASE AREA       UNDER        FOOT UNDER    SQUARE FOOTAGE
                                  NUMBER OF      IN SQUARE      EXPIRING        EXPIRING     REPRESENTED BY
LEASE EXPIRATION YEAR          LEASES EXPIRING      FEET         LEASES          LEASES      EXPIRING LEASES
-----------------------------  ---------------  ------------  -------------  --------------  ---------------
<S>                            <C>              <C>           <C>            <C>             <C>
1996.........................            32          97,947   $   1,126,643    $    11.50           21.20%
1997.........................            14          37,510         680,947         18.15            8.12%
1998.........................            12          54,204         624,980         11.53           11.74%
1999.........................            11          34,484         988,417         28.66            7.47%
2000.........................             8          19,488         519,179         26.64            4.22%
2001.........................             6          18,642         486,518         26.10            4.04%
2002.........................             1          28,130         125,000          4.44            6.09%
2003.........................             4          31,242         408,938         13.09            6.76%
2004.........................             2           4,887         113,603         23.25            1.06%
2005.........................             1           1,388          29,148         21.00            0.30%
AFTER 2005...................             7         133,977       1,729,933         12.91           29.00%
                                         --
                                                ------------  -------------       -------         -------
  TOTAL                                  98         461,899       6,833,306         14.79          100.00%
                                         --
                                         --
                                                ------------  -------------       -------         -------
                                                ------------  -------------       -------         -------
</TABLE>
 
LEASES
 
    The  majority of the anchor leases  on the Trust's retail properties provide
for initial lease terms of between ten  and twenty years, and the leases on  the
Trust's  smaller shop spaces typically provide  for lease terms of between three
and five  years.  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, repairs and maintenance of common areas
and  insurance. Through the use of triple  net leases, the Trust seeks to reduce
its exposure to  escalating operational  costs and  risks and  the demands  upon
managerial  time typically associated  with investments in  real estate. In this
way, triple net leases provide opportunities for income growth from  contractual
rent  increases without  corresponding increases in  operational costs. However,
the Trust has agreed in certain instances to retain or limit the  responsibility
for  some obligations that  would otherwise be the  responsibility of the tenant
under a triple  net lease. Tenants  occupying the professional  office space  in
Menlo  Center are on gross leases, as  is customary in professional office lease
practice. Gross leases do  not require tenants to  bear their share of  property
taxes  or  costs of  insurance and  maintenance  of common  areas. At  El Portal
Shopping Center, several retail tenants are not responsible for full payment  of
property  taxes, insurance or  common area maintenance  expenses. At Kings Court
Shopping Center, one tenant is not responsible for its property taxes, insurance
and common area maintenance expenses. Triple  net expenses for vacant space  are
not recoverable and are thus net property expense to the Trust.
 
OUTSTANDING INDEBTEDNESS
 
    As  of December 31, 1995,  the combined total indebtedness  of the Trust was
approximately $48,008,000, consisting  entirely of  fixed rate  debt except  for
$1,343,000 of floating rate debt. Aggregate indebtedness included $36,818,000 in
long-term  mortgage  loans  with  maturity  dates  ranging  from  1999  to 2000,
$11,190,000 in short-term notes payable with maturity dates ranging from 1996 to
1997. The following  table sets forth  certain information with  respect to  the
Trust's mortgage loans:
 
                                       13
<PAGE>
 
<TABLE>
<CAPTION>
                                                                         ANNUAL
  PROPERTY OR INTERESTS      MATURITY     PRINCIPAL       SCHEDULED     INTEREST     ANNUAL DEBT   BALANCE DUE AT
  PLEDGED AS COLLATERALT       DATE        BALANCE      AMORTIZATION      RATE         SERVICE      MATURITY (1)
--------------------------  ----------  --------------  -------------  -----------  -------------  --------------
<S>                         <C>         <C>             <C>            <C>          <C>            <C>
El Portal.................    07/01/00  $    4,538,000  $     783,000       9.625%  $     583,000  $    3,755,000
King's Court..............    06/01/99       1,343,000        123,000       10.25%(3)       168,000      1,220,000
Menlo Center..............    02/07/00      10,738,000        437,000       9.470%      1,107,000      10,301,000
Monterey Plaza............    02/07/00      18,568,000        725,000       9.720%      1,954,000      17,843,000
Mt. Shasta (2)............    01/02/99       1,631,000        293,000       9.375%        238,000       1,338,000
                            ----------  --------------  -------------       -----   -------------  --------------
TOTAL.....................              $   36,818,000  $   2,361,000               $   4,050,000  $   34,457,000
                                        --------------  -------------               -------------  --------------
                                        --------------  -------------               -------------  --------------
</TABLE>
 
------------------------
(1)  Assumes no prepayments of principal prior to due dates thereof. The Trust's
    primary mortgage loan  with respect to  El Portal Shopping  Center does  not
    permit  prepayment until after July  1995, and thereafter permits prepayment
    with a penalty.  Mortgage loans with  respect to Menlo  Center and  Monterey
    Plaza  Shopping Center  permit prepayment,  but with  substantial prepayment
    penalties.
 
(2) This property is  no longer owned  by the Trust, but  the Trust remains  the
    primary  obligor on the underlying mortgage. See "Mortgage Notes Relating to
    Property Sales" below.
 
(3) This mortgage loan bears interest at prime +1.75%.
 
    The following table shows  the scheduled maturity  of the Trust's  long-term
mortgage loans over the next five years:
 
<TABLE>
<CAPTION>
                                                                             PRINCIPAL      PERCENTAGE
                                                                               AMOUNT        OF TOTAL
YEAR                                                                          MATURING     INDEBTEDNESS
-------------------------------------------------------------------------  --------------  ------------
<S>                                                                        <C>             <C>
1996.....................................................................         528,000         1.43%
1997.....................................................................         577,000         1.57%
1998.....................................................................         631,000         1.71%
1999.....................................................................       3,111,000         8.45%
2000.....................................................................      31,971,000        86.84%
                                                                           --------------  ------------
Total, December 31, 1995.................................................  $   36,818,000       100.00%
                                                                           --------------  ------------
                                                                           --------------  ------------
</TABLE>
 
    As  discussed above,  the Trust  is currently  reviewing the  feasibility of
redeveloping  El   Portal  Shopping   Center.  In   addition,  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.
 
MORTGAGE NOTES RELATING TO PROPERTY SALES
 
    As part of  its strategy  to focus  on metropolitan  "in-fill" locations  as
opposed to more rural locations, the Trust sold two properties, one each in 1988
and 1990. In connection with such sales, the Trust accepted seller financing:
 
        (i)  WESTWOOD VILLAGE SHOPPING CENTER.  In December 1988, the Trust sold
    the Westwood  Village Shopping  Center for  $6,475,000, payable  in cash  of
    $1,100,000  and a $5,375,000  seller-carryback note receivable  due in seven
    years with  interest only  payments at  a rate  of 9%.  In March  1990,  the
    purchaser  obtained a  $4,100,000 loan secured  by a first  mortgage on this
    shopping center to pay down the  Trust's note. The remaining amount owed  to
    the Trust is subordinate to this new loan. The principal balance owed to the
    Trust  on December  31, 1995 was  $1,120,000 and payments  are current. This
    loan was to mature in December 1995. The borrower requested an extension  of
    the  maturity date to December 1996 and  the Trust granted this request. The
    shopping center income  is sufficient to  cover the payments  on this  note.
    However,   there  is  considerable  vacancy   at  Westwood  Village  due  to
    overbuilding of retail facilities in the Redding area. This has put downward
    pressure on rents and property values.  The Trust feels that this note  will
    ultimately be collectible.
 
                                       14
<PAGE>
        (ii)  MT. SHASTA SHOPPING CENTER. In August 1990, the Trust sold the Mt.
    Shasta  Shopping Center  for $5,100,000, payable  in cash of  $900,000 and a
    $4,200,000 all-inclusive  promissory  note  and second  deed  of  trust  due
    January  1, 1999 (the "Mt. Shasta Note"). The Mt. Shasta Note bears interest
    9.25%. Because the interest  rate was less than  the market rate during  the
    initial  period, the  Mt. Shasta  Note was  discounted by  $303,000 which is
    being recognized as  additional interest  income over  the term  of the  Mt.
    Shasta  Note. The Mt.  Shasta Note requires interest  only payments until it
    matures on January 1, 1999. The Trust continues to be the primary obligor on
    the underlying  first  mortgage note,  the  principal balance  of  which  at
    December  31,  1995 was  $1,631,000.  Payments on  the  Mt. Shasta  note are
    current. The  current  owner  of  Mt.  Shasta  Shopping  Center  expects  to
    refinance the property and thereby repay the Trust's remaining loan balance.
    There is no assurance, however, that this refinance can be accomplished.
 
OTHER DEVELOPMENTS
 
    On  December 10, 1993, the Trust entered  into a purchase and sale agreement
(the "Plaza 580  Agreement") with Plaza  580 Ltd., pursuant  to which the  Trust
obtained  an  option  to  purchase  a  shopping  center  located  in  Livermore,
California. On March 10, 1994, the Trust entered into three additional  purchase
option  agreements: (i)  with DSL/Elk  Grove, a  California joint  venture, with
respect to a shopping  center located in Elk  Grove, California (the "Elk  Grove
Agreement");  (ii) with R/  P Manteca Limited  Partnership, a California limited
partnership, with respect to Mission  Ridge Shopping Center located in  Manteca,
California (the "Manteca Agreement"); and (iii) with DSL/Fair Oaks, a California
joint  venture,  with  respect  to  Northridge  Center  located  in  Fair  Oaks,
California (the "Northridge Agreement").
 
    Pursuant to  an agreement  dated  May 9,  1994  (the "Plaza  580  Assignment
Agreement"),  the Trust  assigned its  rights under  the Plaza  580 Agreement to
Western Investment  Real  Estate  Trust  ("WIRET"),  a  California  real  estate
investment  trust, for the  sum of $556,519, adjusted  for certain closing costs
and prorations. On  May 27, 1994,  WIRET closed its  acquisition of the  Trust's
rights  under  the Plaza  580 Agreement  and  acquired the  underlying property.
Pursuant to the Plaza 580 Assignment Agreement, the Trust guaranteed the payment
of certain rental rates with respect to  two empty shop spaces located at  Plaza
580  for a period of 24 months. The Trust  also agreed to repay a portion of the
purchase price with respect to any of such empty spaces that remain unleased  at
the end of the 24-month period. This space has since been leased.
 
    Pursuant  to  an  agreement  dated  May  11,  1994  (the  "Second Assignment
Agreement"), the Trust assigned  its rights as purchaser  under each of the  Elk
Grove Agreement, the Manteca Agreement and the Northridge Agreement to WIRET for
$1,804,211,  as adjusted  for certain closing  costs and prorations.  On June 7,
1994, the  transactions contemplated  by the  Second Assignment  Agreement  were
consummated.  Pursuant to the Second  Assignment Agreement, the Trust guaranteed
the payment of rent for 24 months for  certain empty space at the Elk Grove  and
Northridge  centers, and agreed  to repay to WIRET,  at the end  of 24 months, a
portion of  the purchase  price applicable  to such  empty space  which  remains
unleased  (or leased to tenants that do  not meet certain guidelines) as of such
24-month period. At  December 31, 1995  these spaces have  all been leased.  The
Trust  also agreed to pay pro forma  rents for certain space at Northridge which
space is subject to leases that expire within the first year after closing.
 
    During 1994, the Trust  recorded a net gain  of $994,000 and rent  guarantee
reserve accrual of $390,000, as the result of Plaza 580 Assignment Agreement and
the  Second Assignment Agreement. In 1995, the Trust increased the reserve by an
additional $213,000,  accordingly the  remaining deferred  gain of  $203,000  is
reflected in accounts payable and other liabilities.
 
    In  connection  with the  above transactions,  on June  7, 1994,  (i) Scotts
Valley Plaza, a California limited partnership ("Scotts"), granted to the  Trust
a  one-year  option to  acquire  the shopping  center  commonly known  as Scotts
Village Plaza and (ii) Scotts Village Phase II, a California limited partnership
("Scotts II"), granted a one-year option to the Trust to purchase Scotts  Valley
Square,  both of  which are located  in Scotts  Valley, California. Concurrently
with the grant of these options and in
 
                                       15
<PAGE>
connection  with  the  transactions   contemplated  by  the  Second   Assignment
Agreement,  the Trust made a loan to Malcolm  R. Riley, one of the principals in
Scotts and Scotts II, in the amount  of $750,000. The loan bears interest at  9%
per  annum, payable monthly,  and the principal  is due and  payable in 6 years.
Simultaneously, the  Trust made  a loan  to  Russell R.  Pratt, another  of  the
principals  in Scotts and Scotts II, in  the amount of $500,000. That loan bears
interest at 8% per annum, payable monthly, and the principal is due and  payable
in  6  years.  Each of  these  loans  is secured  by  the  borrower's respective
partnership interests in Scotts and Scotts II. The Trust also made a loan in the
amount of $75,000  to Scotts, which  bears interest at  8.6% per annum  (payable
monthly),  is due in 6 years and is secured  by a second deed of trust on Scotts
Village Plaza. Payment on these notes are current.
 
                                       16
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS
 
    The Trust is not presently involved  in any material litigation nor, to  its
knowledge,  is  any  material litigation  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
 
    There  were no matters  submitted to a  vote of security  holders during the
fourth quarter of 1995.
 
                                       17
<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.
Historically,  the Trust maintained consecutive offerings of new Trust Shares to
existing shareholders and  to the  investing public at  prices representing  the
then current estimated market value for the Trust Shares. The Trust's policy has
been  to review the prices at which Trust Shares were offered at least annually,
and at such  other times as  the Trustees  believed the estimated  value of  the
Trust's  assets had changed to a degree  sufficient to alter the prices of Trust
Shares. In  the  past, Trust  Shares  have  been offered  solely  to  California
residents  pursuant to  an exemption from  the registration  requirements of the
federal securities laws, and  have been qualified with  the State of  California
for  issuance pursuant to offering circulars  prepared by the Trust. The Trust's
most recent offering  circular expired on  December 15, 1992,  and no new  Trust
Shares have been sold since such date.
 
    The  Trust  also  historically maintained  a  dividend  reinvestment program
through which existing  shareholders were  able to  purchase Trust  Shares at  a
discount  from the then current offering price in lieu of receiving dividends in
cash. The dividend reinvestment program has been suspended since the  expiration
of the Trust's last offering circular in December 1992.
 
    From  time to time, to provide existing shareholders with a means of trading
Trust Shares, Pacific Real Estate Securities Co., Inc. ("Presco") has acted as a
crossing agent on behalf  of the Trust so  that persons interested in  acquiring
Trust  Shares could  purchase Trust  Shares from  persons interested  in selling
Trust Shares. Because there is no current offering circular in place, Presco  is
not  presently effecting crossing transfers of Trust Shares, ceased operation as
an N.A.S.D. broker/dealer in November 1995,  and has subsequently been wound  up
in  1996. Shareholders  wishing to liquidate  their interests in  the Trust must
locate buyers for  their Trust Shares  independently. As of  December 31,  1995,
there  were 145,000 Trust Shares available for sale by existing shareholders. At
this time, the Trust  cannot predict when  or at what  price these Trust  Shares
will be liquidated.
 
    As  of  December 31,  1995,  there were  3,706,845  Trust Shares  issued and
outstanding which were held of record by approximately 3,500 shareholders.
 
                                       18
<PAGE>
DISTRIBUTION POLICY
 
    The following table sets forth on a quarterly basis historical distributions
made by the Trust during its last three fiscal years. Distributions are based on
operating results  for  the quarter  prior  to the  quarter  in which  they  are
declared.  Historical distributions are not intended  to be indicative of future
distributions.
 
<TABLE>
<CAPTION>
                                                                     DISTRIBUTIONS
                                                                    PER TRUST SHARE
                                                                    ----------------
<S>                                                                 <C>
1993:
  First quarter (until suspension of dividends)...................           .155
  Second quarter..................................................          0.000
  Third quarter...................................................          0.000
  Fourth quarter (special distribution)...........................          0.050
                                                                          -------
    Total.........................................................     $    0.205
                                                                          -------
                                                                          -------
1994:
  First quarter...................................................     $    0.000
  Second quarter..................................................          0.000
  Third quarter...................................................          0.000
  Fourth quarter..................................................          0.000
    Total.........................................................     $    0.000
                                                                          -------
                                                                          -------
1995:
  First quarter...................................................     $    0.000
  Second quarter..................................................          0.000
  Third quarter...................................................          0.000
  Fourth quarter..................................................          0.000
                                                                          -------
    Total.........................................................     $    0.000
                                                                          -------
                                                                          -------
</TABLE>
 
    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).  From  its
inception  in  1963,  the Trust  made  155 consecutive  bi-monthly  or quarterly
regular distributions. With respect to distributions paid in 1991, 1992 and  the
first  quarter  of 1993,  100% of  the  amount paid  was sheltered  from current
taxable liability as  a result  of book  depreciation expense.  On February  25,
1993,  the payment of dividends  was suspended in order  to conserve the Trust's
cash flow, to  provide for  its capital  improvements program,  to maintain  the
quality  of the Trust's properties and to  protect the Trust's credit, since the
Trustees concluded  that the  Trust  could no  longer  rely on  its  traditional
sources  of  liquidity (i.e.,  secured  bank financing  and  "intrastate" equity
offerings). The  Trust is  applying the  funds that  would otherwise  have  been
distributed  to its shareholders  (i) to fund  capital expenditures necessary to
maintain its  properties,  (ii) to  make  requisite principal  payments  on  its
mortgage  indebtedness and (iii) to facilitate tenant improvements required upon
developing and reletting of  the Trust's properties. Because  the Trust did  not
have  taxable income for  1995, the suspension  of dividends is  not expected to
affect the Trust's qualification as a REIT.
 
    In December 1993,  the Trust declared  a special distribution  of $0.05  per
Trust  share, payable on or prior to December 31, 1993 to all Trust shareholders
of record on  November 30, 1993.  The timing of  resumption of regular  dividend
payments is not known at this time.
 
                                       19
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA
 
    The  following represents selected financial data for the Trust for the five
years ended  December 31,  1995. 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:                 1995         1994          1993           1992          1991
-------------------------------------------  -----------  -----------  -------------  -------------  -----------
<S>                                          <C>          <C>          <C>            <C>            <C>
Operating Data:
Rental revenues............................  $ 9,183,000  $12,417,000  $   9,725,000  $   8,683,000  $ 6,972,000
                                             -----------  -----------  -------------  -------------  -----------
                                             -----------  -----------  -------------  -------------  -----------
Operating income...........................  $ 2,031,000  $ 4,130,000  $   2,730,000  $   2,919,000  $ 1,975,000
Property acquisition expenses,
 reincorporation expenses and expenses of
 prospective offering......................     (214,000)  (1,159,000)    (1,833,000)       (80,000)
Interest income/(expense) net..............   (4,727,000)  (7,468,000)    (4,588,000)    (3,450,000)  (2,125,000)
Loss on impairment of property value.......                (8,000,000)
Gain on lease termination..................                 3,577,000
Gain (loss) on property sales..............     (213,000)     994,000                                   (100,000)
                                             -----------  -----------  -------------  -------------  -----------
Loss before minority interest in joint
 venture...................................   (3,123,000)  (7,926,000)    (3,691,000)      (611,000)    (250,000)
Less minority interest in joint venture's
 operations................................     (325,000)    (328,000)      (238,000)      (255,000)    (214,000)
                                             -----------  -----------  -------------  -------------  -----------
Net loss...................................  $(3,448,000) $(8,254,000) $  (3,929,000) $    (866,000) $  (464,000)
                                             -----------  -----------  -------------  -------------  -----------
                                             -----------  -----------  -------------  -------------  -----------
Net loss per share of beneficial
 interest..................................  $    (0.930) $    (2.227) $      (1.060) $      (0.230) $    (0.130)
Cash dividends per share of beneficial
 interest..................................  $     0.000  $     0.000  $       0.205  $       0.620  $     0.887
 
<CAPTION>
 
AS OF DECEMBER 31:
-------------------------------------------
<S>                                          <C>          <C>          <C>            <C>            <C>
Balance Sheet Data:
Total assets...............................  $62,875,000  $95,287,000  $ 112,697,000  $ 110,269,000  $86,009,000
Mortgages and other loans payable..........  $48,008,000  $75,770,000  $  84,887,000  $  78,643,000  $50,972,000
Weighted average number of shares
 outstanding...............................    3,706,845    3,706,845      3,707,072      3,706,308    3,684,899
</TABLE>
 
                                       20
<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, 1995 TO YEAR ENDED DECEMBER 31, 1994
 
    During  1995  the  Trust continued  its  efforts to  recapitalize  through a
variety of ways, including joint venture or merger with a compatible real estate
partner. The chief impediment  has been rising  yield expectations of  potential
institutional  investor partners. In addition, the  process has been hindered by
the problems at El Portal Shopping Center and the unresolved HomeBase vacancy at
Monterey Plaza, as well as the toxic pollution at King's Court Shopping  Center.
In  order to meet its debt obligations and improve its earnings from operations,
the Trust sold its Lakeshore Plaza  Shopping Center in March 1995, Menlo  Center
in February 1996, and is considering the sale of further assets in 1996 in order
to achieve these goals.
 
    Net  loss for the year ended December 31, 1995 was $3,448,000 as compared to
a net loss of $8,254,000 for the year ended December 31, 1994, a decrease in the
loss of $4,806,000.
 
    Rental revenues  decreased  from $12,417,000  to  9,183,000, a  decrease  of
$3,234,000,  or 26%, as a result of  the sale of Lakeshore Plaza Shopping Center
and the declining  revenues at  El Portal  Shopping Center  as a  result of  the
HomeBase lease termination in 1994.
 
    Operating  expenses decreased from $2,162,000 in 1994 to $2,145,000 in 1995,
a decrease of $17,000, or 1% due to additional expense of El Portal ground lease
and offset by  a decrease  in Lakeshore  Plaza expense due  to the  sale of  the
Center.
 
    Property  taxes increased  from $953,000 in  1994 to $1,194,000  in 1995, an
increase of  $241,000,  or 25%  due  to  supplemental bills  at  Monterey  Plaza
Shopping  Center. Property  management fees decreased  from $456,000  in 1994 to
$318,000 in 1995, a decrease of $138,000, or 30%. Depreciation and  amortization
decreased  from $3,862,000 in 1994 to $2,886,000 in 1995, a decrease of $976,000
or 25%.  Each of  these decreases  resulted  from the  sale of  Lakeshore  Plaza
Shopping Center with the exception of property taxes.
 
    General  and  administrative expenses  decreased  from $854,000  in  1994 to
$609,000 in 1995, a decrease of $245,000 due to cost saving measures.
 
    Interest income decreased by $396,000, or 38%, from $1,033,000 to  $637,000,
as a result of the early repayment of two mortgage notes receivable during 1994.
 
    Interest  expense  decreased  by  $3,137,000,  or  37%,  from  $8,501,000 to
$5,364,000, due to a pay-down on the El Portal mortgage, a prepayment penalty in
1994 made in conjunction  with the sale of  Lakeshore Plaza Shopping Center  and
the pay-down of short-term debt.
 
    In  connection with  a prospective  offering of  debt or  equity securities,
potential merger  or  joint venture  activities,  the potential  acquisition  of
additional   properties,  and   the  proposed  reincorporation   as  a  Maryland
Corporation, the Trust  incurred expenses  of $214,000  in 1995  as compared  to
$1,159,000  in 1994. These expenses were offset  in part by a profit of $994,000
on the sale of property options accrued during this effort.
 
    The aggregate lease-up  rate for three  of the Trust's  four properties  was
approximately  97% at December 31,  1995 and December 31,  1994. At one property
(El Portal) as a result  of the termination of the  HomeBase lease in 1994,  the
lease  rate  declined to  58%. At  another property  (Monterey Plaza)  where the
HomeBase lease  remains in  effect and  the lease-up  rate was  95%, the  actual
occupancy  rate  declined to  39%. Both  of these  declines relate  primarily to
vacancy  arising  from  anchor  tenant   lease  terminations  or  cessation   of
operations.  The aggregate occupancy  rate for the  Trust's overall portfolio at
December 31, 1995 was 55%.
 
                                       21
<PAGE>
    COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993
 
    During  1994 the Trust endeavored to recapitalize and to reduce its ratio of
debt to equity. It sought to achieve this through a variety of ways including  a
public  equity  offering,  private offerings  of  debt and/or  equity  and joint
venture or  merger with  a  compatible real  estate  enterprise. The  Trust  was
advised throughout this process by its investment bankers. Due to market factors
chiefly affecting yield and interest rates these goals could not be achieved and
in  the interests of preserving shareholder value  the Trust decided to sell the
Lakeshore Plaza to a pension fund. The sale was completed on March 13, 1995.
 
    In the  course  of generating  proposals  that  culminated in  the  sale  of
Lakeshore  Plaza  the Trust's  property portfolio  was  formally exposed  to the
investment market. This exposure elicited  several offers which were  predicated
on  estimates of value for all the  Trust's properties with the exception of the
El Portal Shopping Center. El Portal was not a candidate for evaluation in  this
manner  because  of the  losses in  its tenant  structure and  its redevelopment
needs. As a result of these  estimates of value generated in competitive  formal
bids  and subsequent informal negotiations, the Trustees were able to assess the
probable current market value  of most of its  property portfolio. This had  not
previously  been possible due to the  dearth of comparable property transactions
in the Bay Area since the decline  of the real estate markets during the  recent
recession.
 
    The  estimated  current market  value information  gathering in  the process
described above led  the Trustees  to the decision  to adjust  the Trust's  book
values  to more  closely reflect these  current market values.  The aggregate of
these write-downs at December 31, 1994 was $8,000,000. The details of the amount
of each  adjustment are  contained  in the  notes  to the  Trust's  consolidated
financial statements.
 
    Net  loss for the year ended December 31, 1994 was $8,254,000 as compared to
a net loss of $3,929,000  for the year ended December  31, 1993, an increase  in
the  loss of  $4,325,000. This  increase was caused  by an  increase in interest
expense of $2,663,000 and a loss  on impairment of property value of  $8,000,000
offset  by the  early termination  of a lease  which resulted  in a  net gain of
$3,578,000 after giving effect  to writing off the  remaining book value of  the
building  and associated  tenant improvements leased  by the  former tenant, the
sale of options on four shopping center properties which resulted in a net  gain
of $994,000, a one time loan commitment fee expensed in 1993 which did not recur
in 1994 and $1,400,000 increase in operating income.
 
    Rental  revenues increased  from $9,725,000  to $12,417,000,  an increase of
$2,692,000, or  28%, primarily  as a  result of  income generated  from a  newly
developed property, Lakeshore Plaza Shopping Center, which was fully operational
beginning in October 1993.
 
    Operating  expenses decreased from $2,254,000 in 1993 to $2,162,000 in 1994,
a decrease of $92,000, or 4% due to reduced bad debt expense offset by increased
operating expenses at Lakeshore Plaza Shopping Center.
 
    Property taxes  increased from  $874,000 in  1993 to  $953,000 in  1994,  an
increase  of $79,000, or 9%. Property management fees increased from $320,000 in
1993 to $456,000  in 1994,  an increase of  $136,000, or  43%. Depreciation  and
amortization  increased  from  $3,052,000  in 1993  to  $3,862,000  in  1994, an
increase of $810,000  or 27%. Each  of these increases  resulted from  Lakeshore
Plaza Shopping Center becoming fully operational beginning in October 1993.
 
    General  and  administrative expenses  increased  from $495,000  in  1993 to
$854,000 in  1994,  an increase  of  $359,000 due  to  increased  administrative
expenses connected with the proposed reorganization.
 
    Interest income decreased by $133,000, or 11% from $1,166,000 to $1,033,000,
as  a result of the early repayment  of two mortgage notes receivable originally
scheduled to be repaid in future years.
 
    Interest expense  increased  by  $2,935,000,  or  53%,  from  $5,567,000  to
$8,501,000,  due  to the  assumption of  new debt  for Lakeshore  Plaza Shopping
Center, and the cessation of capitalized interest  on this project as well as  a
prepayment  penalty of $271,000 in connection  with early repayment of a portion
of the outstanding debt on El Portal Shopping Center.
 
                                       22
<PAGE>
    In connection with a prospective offering  of debt or equity securities  and
the   potential  acquisition  of  additional   properties,  the  Trust  proposed
reincorporation as a  Maryland corporation  and incurred $1,159,000  in 1994  as
compared to $989,000 in 1993.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    Cash  flow used by operating activities  was $1,759,000 in 1995, compared to
cash flow provided  by operating activities  of $3,930,000 in  1994 and  $33,000
used  in  1993. The  decrease  in 1995  was primarily  due  to a  one-time lease
termination fee received in 1994 at  one property. Additionally, cash flow  from
rental operations has declined in 1995.
 
    Cash  flow  provided by  investing activities  was  $29,623,000 in  1995, as
compared to cash flow provided by investing activities in 1994 of $5,513,000 and
$4,767,000 used in 1993. The increase in 1995 was due to proceeds received  from
the  sale of Lakeshore Plaza  Shopping Center. The increase  in cash provided in
1994 was due  to the  early pay  off of  two notes  receivable in  1994 and  the
decrease  in  1993  was due  to  a  property under  construction  in  1992 being
substantially completed by early 1993.
 
    Cash flow used by financing activities  was $28,122,000 in 1995 as  compared
to $9,633,000 used in 1994 and $4,824,000 provided in 1993. The increase in 1995
is  due to repayment of  a mortgage note and the  repayment of an unsecured note
payable and short-term notes payable due to the sale of Lakeshore Plaza Shopping
Center. The decrease  in 1994 is  primarily due to  the early pay  off of  three
mortgage  notes  payable paid  early  as a  result of  refinance  by owner  of a
property formerly owned by the Trust, and  also due to a mortgage loan  pay-down
due to HomeBase lease buy-out at El Portal Shopping Center. The increase in 1993
is primarily due to an increase in proceeds from short-term notes.
 
    The  Trust's financial structure at December  31, 1995 shows debt financing,
including short-term and unsecured notes, representing approximately 68% of  the
book  value  of the  Trust's properties,  before  depreciation. The  decrease in
leverage from the level of  75% in 1994 is primarily  due to the Trust's use  of
the  proceeds from the  sale of Lakeshore  Plaza Shopping Center  to pay off the
Lakeshore Plaza mortgage  note, $8,045,000  of unsecured notes,  and short  term
notes.
 
    The  Trust has  a number  of short-term  notes due  in 1996  and 1997. Menlo
Management Company is the general partner of the partnership lenders which  hold
these  short-term mortgage notes.  The aggregate balance owed  on these notes is
$11,190,000 at December 31,  1995. The Trust  has one $500,000  note due in  May
1996. This note was paid off in March 1996.
 
    Sources  of liquidity for the Trust  include five mortgage loans receivable,
totaling approximately  $6,565,000 at  December  31, 1995.  Two of  these  loans
result  from the sale of  properties prior to 1991.  Payments on these notes are
due as follows: $1,120,000 in 1996  and $4,200,000 in January 1999. The  balance
of $1,325,000 of these notes matures in 2000.
 
    The  Trustees  believe that  the Trust  has  sufficient working  capital and
sources of liquidity to meet its current needs. The Trustees have considered the
long-term liquidity needs of the Trust and have evaluated the following means of
raising additional  capital: (i)  a  merger or  joint  venture with  a  suitable
existing  REIT or real estate company, (ii) a public or private equity offering,
(iii) or restructuring or sale of all or part of the Trust's portfolio.
 
    The Trustees will consider the sale of one or more of the Trust's properties
if an acceptable  price and  terms could be  obtained. However,  certain of  the
Trust's  mortgage loans provide  for substantial prepayment  penalties. Also, in
order for a purchaser to assume this debt, the applicable lender's consent would
be required. The  Trust has engaged  in formal negotiations  during 1994 and  in
1995 regarding restructuring the Trust and the sale of certain Trust properties.
The  Trust is presently  engaged in active discussions  for the restructuring of
the Trust  through a  joint venture  or private  equity offering.  However,  the
discussions  presently under way  are not sufficiently  advanced to generate any
firm offer.  The Trust  expects to  pursue such  avenues actively  during  1996.
However, if these
 
                                       23
<PAGE>
negotiations  are unsuccessful,  the Trust  will sell  certain of  its assets in
order to generate liquidity sufficient to meet the Trust's needs. In pursuit  of
this  strategy, on February 29, 1996, the  Trust sold Menlo Center using the net
proceeds to reduce the Trust's debt and to provide working capital.
 
    There has been no public  market for Trust Shares,  nor have there been  any
known  market-makers. From time to time, to provide shareholders with a means of
trading Trust Shares,  Presco has acted  as a  crossing agent on  behalf of  the
Trust  so that persons interested in acquiring Trust Shares could purchase Trust
Shares from persons  interested in selling  Trust Shares. Presco  has ceased  to
function  in this capacity and the company has  been wound up in 1996. The price
of Trust Shares sold by the Trust and selling shareholders was determined by the
Trustees, based on  their estimate of  the value of  the Trust's properties  and
other  assets net  of estimated  liabilities, with  the properties  being valued
based on estimates of  the long-term investment value  of each property,  rather
than  on current market value or liquidation value, assuming that the properties
were held as long-term assets rather  than being sold in mid-term or  liquidated
in  currently depressed market conditions.  This valuation approach assumed that
the Trust would continue  as a "going  concern", and did  not take into  account
then  current market  value or liquidation  value and costs  of liquidation. All
existing shareholders who resided  in California were  given the opportunity  to
purchase  shares in  cross-selling transactions. Distributions  of $760,000 were
paid to shareholders in 1993.
 
JOINT VENTURE INTEREST
 
    The Trust presently owns a 40% interest in Kingsco, the general  partnership
which  owns King's  Court Shopping Center.  In addition, the  Trust has managing
control over King's  Court Shopping  Center operations,  including any  leasing,
renovation,  sale or financing activities. The term of the partnership continues
until September  30,  2039. 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. The shopping center is
managed by Menlo  Management on  behalf of  the Trust,  and the  Trust does  not
receive  any portion  of the  management fee paid  to Menlo  Management for such
management services.
 
OTHER CAPITAL EXPENDITURES
 
    Each shopping center prepares an annual capital expenditure budget which  is
intended  to provide  for all necessary  recurring capital  improvements. At the
present  time,  the  Trust's  existing  shopping  centers  have  been   properly
maintained  on a current  and regular basis  and there are  no material deferred
capital maintenance  obligations outstanding.  However, the  Trust expects  that
several  of its  buildings may require  significant capital  investment in 1996.
This is particularly evident  at El Portal  Shopping Center where  redevelopment
and  re-letting of obsolete or outmoded  physical stores will require upgrading.
This is also true at Monterey Plaza Shopping Center where the building  formerly
occupied  by HomeBase and now vacant will require substantial capital investment
in order to prepare it for occupancy  by a replacement retail tenant. The  Trust
believes that in order to fund capital budgets for such physical improvements it
may have to raise capital in a variety of ways including sale of assets, raising
debt  or entering into a  joint venture or merger  or other restructuring. These
potential capital  improvement  needs  have  been discussed  above  in  Item  2.
Properties -- Description of Trust's Properties.
 
ECONOMIC CONDITIONS
 
    In  the last three years, inflation has  not had a significant impact on the
Trust because of the relatively low inflation rate. Nonetheless, the majority of
the Trust's leases contain provisions designed to mitigate the adverse impact of
inflation. Such  provisions  include  clauses  enabling  the  Trust  to  receive
percentage  rents  which generally  increase as  prices rise,  and/or escalation
clauses which are typically related to increases in the Consumer Price Index  or
similar  inflation indices. Most of the Trust's leases require the tenant to pay
its share of operating expenses, including common area maintenance, real  estate
taxes  and  insurance, thereby  reducing the  Trust's  exposure to  increases in
 
                                       24
<PAGE>
costs and operating expenses resulting from inflation. However, several  tenants
do  not pay  such expense  reimbursements under  the terms  of their  leases, as
indicated in "Item 2 Properties -- Leases" section.
 
    The United States generally, and the State of California in particular,  has
experienced  a recent economic  recession. The State  of California continues to
show the effect of economic recession, and further adverse changes in general or
local economic conditions could result in the inability of some existing tenants
of the  Trust to  meet their  lease obligations  and could  otherwise  adversely
affect  the Trust's ability  to attract or retain  tenants. The Trust's shopping
centers are typically anchored by national or regionally recognized supermarket,
super  drug  and  other  convenience  stores  which  usually  offer   day-to-day
necessities  rather than high-priced luxury items.  These types of retailers, in
the experience of  the Trust,  generally continue  to maintain  their volume  of
sales  despite a slowdown  in economic conditions.  However, economic conditions
are not the only or  even necessarily the major  influences that can affect  the
success  of  tenants  in  achieving  or  maintaining  sufficient  sales volumes.
Competitive factors and  overall changes in  retail merchandising practices  can
have an equal or even greater impact. The loss of an anchor retailer can lead to
the  diminution of  retail sales  and the  loss of  other retailers  in the same
shopping center. This can seriously affect  the viability of a shopping  center,
as has become particularly evident at El Portal Shopping Center and, to a lesser
extent, at Monterey Plaza Shopping Center.
 
                                       25
<PAGE>
ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                      PACIFIC REAL ESTATE INVESTMENT TRUST
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>                                                                                                          <C>
Independent Auditors' Report...............................................................................          27
Consolidated Financial Statements:
  Balance Sheets at December 31, 1995 and 1994.............................................................          28
  Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993............................          29
  Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1995, 1994 and 1993.......          30
  Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993............................          31
  Notes to Consolidated Financial Statements...............................................................          32
Financial Statement Schedules:
  XI -- Commercial Properties and Accumulated Depreciation at December 31, 1995............................          42
  XII -- Mortgage Loans on Real Estate at December 31, 1995................................................          43
</TABLE>
 
    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.
 
                                       26
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
The Trustees and Shareholders of Pacific Real Estate Investment Trust:
 
    We have  audited  the  accompanying  consolidated  financial  statements  of
Pacific  Real Estate Investment Trust (the "Trust") and its joint venture listed
in the  foregoing table  of contents.  Our audits  also included  the  financial
statement  schedules listed in the foregoing  table of contents. These financial
statements and  financial  statement schedules  are  the responsibility  of  the
Trust's  management.  Our  responsibility  is to  express  an  opinion  on these
financial statements and financial statement schedules based on our audits.
 
    We conducted  our  audits in  accordance  with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence  supporting
the  amounts and disclosures in the financial statements. An audit also includes
assessing the  accounting  principles used  and  significant estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion,  such consolidated financial  statements present fairly,  in
all material respects, the financial position of the Trust and its joint venture
at  December 31, 1995  and 1994, and  the results of  their operations and their
cash flows for each of the three years in the period ended December 31, 1995  in
conformity  with generally accepted accounting  principles. Also in our opinion,
such financial statement  schedules, when  considered in relation  to the  basic
consolidated  financial  statements  taken as  a  whole, present  fairly  in all
material respects the information shown therein.
 
DELOITTE & TOUCHE
San Francisco, California
March 1, 1996
 
                                       27
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1995 AND 1994
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                      1995             1994
                                                                                 ---------------  ---------------
<S>                                                                              <C>              <C>
Investment in commercial properties:
  Land.........................................................................  $    14,308,000  $    24,015,000
  Buildings and improvements...................................................       56,345,000       77,521,000
  Accumulated depreciation.....................................................      (18,375,000)     (17,000,000)
                                                                                 ---------------  ---------------
  Commercial properties -- net.................................................       52,278,000       84,536,000
Mortgage notes receivable......................................................        6,565,000        6,515,000
Tenant and other notes receivable -- net.......................................          246,000          271,000
Cash...........................................................................          308,000          666,000
Restricted cash................................................................          100,000
Accounts receivable (net of allowance of $146,000 in 1995 and $103,000 in
 1994).........................................................................          891,000          791,000
Deferred lease commissions -- net..............................................          742,000          860,000
Deferred financing costs -- net................................................          440,000          584,000
Other assets...................................................................        1,305,000        1,064,000
                                                                                 ---------------  ---------------
    Total......................................................................  $    62,875,000  $    95,287,000
                                                                                 ---------------  ---------------
                                                                                 ---------------  ---------------
 
                                      LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Mortgage loans...............................................................  $    36,818,000  $    57,335,000
  Short-term notes.............................................................       11,190,000       15,435,000
  Unsecured note payable.......................................................                         3,000,000
  Security deposits............................................................          231,000          291,000
  Accounts payable and other liabilities.......................................          566,000        1,673,000
                                                                                 ---------------  ---------------
    Total liabilities..........................................................       48,805,000       77,734,000
                                                                                 ---------------  ---------------
Commitments and contingencies..................................................
Minority interest in joint venture.............................................        3,321,000        3,356,000
Shareholders' Equity:
  Shares of beneficial interest, $10 par value, authorized: 1995 and 1994,
   10,611,863; shares issued and outstanding: 1995 and 1994, 3,706,845.........       37,068,000       37,068,000
Additional paid-in capital.....................................................       11,009,000       11,009,000
Distributions in excess of net income..........................................      (37,328,000)     (33,880,000)
                                                                                 ---------------  ---------------
Shareholders' equity -- net....................................................       10,749,000       14,197,000
                                                                                 ---------------  ---------------
    Total......................................................................  $    62,875,000  $    95,287,000
                                                                                 ---------------  ---------------
                                                                                 ---------------  ---------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       28
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
 
<TABLE>
<CAPTION>
                                                                        1995            1994             1993
                                                                   --------------  ---------------  --------------
<S>                                                                <C>             <C>              <C>
Rental revenues..................................................  $    9,183,000  $    12,417,000  $    9,725,000
                                                                   --------------  ---------------  --------------
Operating expenses (including related party amounts of $694,000,
 $996,000 and $391,000 in 1995, 1994 and 1993, respectively):
  Operating......................................................       2,145,000        2,162,000       2,254,000
  Property tax...................................................       1,194,000          953,000         874,000
  General and administrative.....................................         609,000          854,000         495,000
  Depreciation and amortization..................................       2,886,000        3,862,000       3,052,000
  Property management fees.......................................         318,000          456,000         320,000
                                                                   --------------  ---------------  --------------
    Total operating expenses.....................................       7,152,000        8,287,000       6,995,000
                                                                   --------------  ---------------  --------------
Operating income.................................................       2,031,000        4,130,000       2,730,000
                                                                   --------------  ---------------  --------------
Other income/(expense):
  Interest income................................................         637,000        1,033,000       1,166,000
  Interest expense...............................................      (5,364,000)      (8,230,000)     (5,567,000)
  Gain (loss) on sale of options.................................        (213,000)         994,000
  Reincorporation expenses.......................................        (139,000)        (355,000)       (421,000)
  Property acquisition expenses..................................         (75,000)        (503,000)       (187,000)
  Expenses of prospective offering...............................                         (301,000)       (381,000)
  Prepayment penalty.............................................                         (271,000)
  Gain on lease termination......................................                        3,577,000
  Loss on impairment of property value...........................                       (8,000,000)
  Loan commitment fees...........................................                                       (1,031,000)
                                                                   --------------  ---------------  --------------
    Total other expense -- net...................................      (5,154,000)     (12,056,000)     (6,421,000)
                                                                   --------------  ---------------  --------------
Net loss before minority interest................................      (3,123,000)      (7,926,000)     (3,691,000)
Minority interest in joint venture...............................        (325,000)        (328,000)       (238,000)
                                                                   --------------  ---------------  --------------
Net loss.........................................................  $   (3,448,000) $    (8,254,000) $   (3,929,000)
                                                                   --------------  ---------------  --------------
                                                                   --------------  ---------------  --------------
Net loss per share of beneficial interest........................  $        (0.93) $         (2.23) $        (1.06)
                                                                   --------------  ---------------  --------------
                                                                   --------------  ---------------  --------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       29
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
 
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
 
<TABLE>
<CAPTION>
                                                        BENEFICIAL INTEREST        ADDITIONAL     DISTRIBUTIONS
                                                    ---------------------------     PAID-IN       IN EXCESS OF
                                                      SHARES         AMOUNT         CAPITAL        NET INCOME
                                                    -----------  --------------  --------------  ---------------
<S>                                                 <C>          <C>             <C>             <C>
Balance January 1, 1993...........................    3,707,072  $   37,071,000  $   11,010,000  $   (20,937,000)
Net Loss..........................................                                                    (3,929,000)
Distribution to Shareholders......................                                                      (760,000)
                                                    -----------  --------------  --------------  ---------------
Balance December 31, 1993.........................    3,707,072      37,071,000      11,010,000      (25,626,000)
Repurchase of shares..............................         (227)         (3,000)         (1,000)
Net Loss..........................................                                                    (8,254,000)
                                                    -----------  --------------  --------------  ---------------
Balance December 31, 1994.........................    3,706,845      37,068,000      11,009,000      (33,880,000)
Net Loss..........................................                                                    (3,448,000)
                                                    -----------  --------------  --------------  ---------------
Balance December 31, 1995.........................    3,706,845  $   37,068,000  $   11,009,000  $   (37,328,000)
                                                    -----------  --------------  --------------  ---------------
                                                    -----------  --------------  --------------  ---------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       30
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
 
<TABLE>
<CAPTION>
                                                                      1995             1994            1993
                                                                 ---------------  --------------  ---------------
<S>                                                              <C>              <C>             <C>
Cash Flow from Operating Activities:
  Net loss.....................................................  $    (3,448,000) $   (8,254,000) $    (3,929,000)
  Adjustments to reconcile net loss to net cash provided (used)
   by operating activities:
    Depreciation...............................................        2,496,000       3,290,000        2,708,000
    Amortization of note receivable discount...................          (64,000)        (34,000)           2,000
    Amortization of deferred cost..............................          359,000         570,000          345,000
    Minority interest in joint venture's operations............          325,000         328,000          238,000
    Provision for doubtful receivables.........................          103,000         161,000          540,000
    Loss (gain) on sale of options.............................          213,000        (994,000)
    Gain on lease termination..................................                       (3,578,000)
    Proceeds from lease termination............................                        6,000,000
    Loss on impairment of property value.......................                        8,000,000
    Changes in operating assets and liabilities:
      Accounts payable and other liabilities...................       (1,107,000)       (501,000)       1,291,000
      Security deposits........................................          (60,000)        (38,000)          22,000
      Deferred lease commissions...............................          (97,000)       (217,000)        (414,000)
      Deferred financing costs.................................                                           404,000
      Accounts receivable......................................         (238,000)       (417,000)        (378,000)
      Other assets.............................................         (241,000)       (386,000)        (862,000)
                                                                 ---------------  --------------  ---------------
Net cash provided (used) by operating activities...............       (1,759,000)      3,930,000          (33,000)
                                                                 ---------------  --------------  ---------------
Cash Flow from Investing Activities:
  (Increase) decrease in restricted cash.......................         (100,000)                         207,000
  Construction of properties...................................         (107,000)     (1,491,000)      (4,981,000)
  Collection of notes receivable...............................           78,000       6,030,000          122,000
  Additions of notes receivable................................           (4,000)     (1,327,000)        (115,000)
  Proceeds from sales of Lakeshore.............................       29,869,000
  Proceeds (costs) from sale of options........................         (213,000)      2,301,000
                                                                 ---------------  --------------  ---------------
Net cash provided (used) in investing activities...............       29,523,000       5,513,000       (4,767,000)
                                                                 ---------------  --------------  ---------------
Cash Flow from Financing Activities:
  Proceeds from (costs of) sale of Trust Shares................                           (4,000)
  Proceeds from short-term notes...............................          800,000       3,905,000        5,275,000
  Proceeds from mortgage loans.................................                        1,500,000       22,850,000
  Re-payment of mortgage loans.................................      (20,517,000)     (9,712,000)        (683,000)
  Re-payment of short-term notes...............................       (5,045,000)     (4,810,000)     (21,198,000)
  Re-payment of unsecured note payable.........................       (3,000,000)
  Payment of financing costs...................................                         (152,000)        (300,000)
  Distributions of joint venture partner.......................         (360,000)       (360,000)        (360,000)
  Distributions to shareholders................................                                          (760,000)
                                                                 ---------------  --------------  ---------------
Net cash provided (used) by financing activities...............      (28,122,000)     (9,633,000)       4,824,000
                                                                 ---------------  --------------  ---------------
  Increase (decrease) in cash..................................         (358,000)       (190,000)          24,000
    Cash, January 1............................................          666,000         856,000          832,000
                                                                 ---------------  --------------  ---------------
    Cash, December 31..........................................  $       308,000  $      666,000  $       856,000
                                                                 ---------------  --------------  ---------------
                                                                 ---------------  --------------  ---------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       31
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
    ORGANIZATION
 
    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.
 
    CONSOLIDATION
 
    The consolidated financial statements include the Trust and a joint  venture
("Kingsco") in which the Trust has a 40% controlling interest. The joint venture
is  included in the  consolidated 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.
 
    PROPERTIES
 
    Properties  are stated at the lower  of depreciated cost or 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  judgement because  the actual
market value of real  estate can be determined  only by negotiation between  the
parties in a sales transaction.
 
    DEFERRED LEASE COMMISSIONS
 
    Deferred  lease commissions are amortized on  a straight-line basis over the
lives of the related leases, which range from two to forty years.
 
    DEFERRED FINANCING COSTS
 
    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.
 
                                       32
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
    OTHER ASSETS
 
    Certain  lease agreements  contain provisions  for fixed  rent increases for
future periods and for periods of rent abatement during the earliest portion  of
such  leases. Rental revenue  from such leases is  recognized on a straight-line
basis over the lives of the related leases. Rental revenues in excess of amounts
currently billed  are reflected  in  other assets  in the  accompanying  balance
sheets.
 
    INCOME TAXES
 
    The  Internal Revenue Code provides that a  trust qualifies as a real estate
investment trust if,  among other  things, the  trust distributes  each year  at
least  95% of its  taxable income to  shareholders. If the  Trust distributes at
least 95%  of its  taxable income  to shareholders,  such distributions  can  be
treated  as deductions for income tax purposes.  Because it is the policy of the
Trust to  distribute amounts  approximately  equal to  its taxable  income  plus
depreciation  and amortization, 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 realization.  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.
 
    NET LOSS PER SHARE OF BENEFICIAL INTEREST
 
    Net loss per share of beneficial interest, is computed by dividing net  loss
by  the weighted average number  of shares outstanding of  3,706,845 in 1995 and
1994 and 3,707,072 in 1993.
 
    RECLASSIFICATIONS
 
    Certain 1994  amounts  have  been  reclassified to  conform  with  the  1995
presentation.
 
2.  INVESTMENT ADVISOR, PROPERTY MANAGEMENT AGREEMENTS AND SALES SUPPORT
SERVICES AGREEMENT
 
    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  and Pacific Real Estate Securities  Co.
Inc.  ("Presco"). Menlo  Management Company  manages the  Trust's properties, is
affiliated with the Advisor and is the owner of Presco. Until its dissolution in
1995, Presco  provided  support services  and  acted  as a  crossing  agent  for
shareholders wishing to purchase existing shares of the Trust.
 
    In  April 1992, the Trust and the Advisor agreed that, during 1992 and 1993,
the Advisor would be paid only  real estate brokerage commissions at  negotiated
rates  in connection with the purchase of the Trust's properties, in lieu of the
base compensation otherwise payable under the investment advisory agreement. The
investment advisory  agreement  was also  amended  to provide  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.  The
Investment  Advisor also voluntarily waived real estate brokerage commissions in
connection with both the sale of Lakeshore Plaza Shopping Center, which was sold
on March 13, 1995, and the sale of Menlo Center, which was sold on February  29,
1996.
 
    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,
 
                                       33
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1995, 1994 or 1993.
 
    The Trust has a property management agreement with Menlo Management Company,
which is related to the Advisor through common ownership, 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. 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, Menlo Management Company and Presco in
1995, 1994 and 1993 were as follows:
 
<TABLE>
<CAPTION>
                                                                            1995          1994           1993
                                                                         -----------  -------------  -------------
<S>                                                                      <C>          <C>            <C>
ADVISOR
Advisory fee...........................................................  $    68,000  $     112,000
MENLO MANAGEMENT COMPANY
Property management fees...............................................      313,000        456,000  $     321,000
Administrative services................................................      199,000        260,000         57,000
Loan fees..............................................................      114,000        132,000        247,000
Development, planning and lease negotiation............................                                    180,000
Lease commissions......................................................       68,000        126,000        334,000
Real estate brokerage commissions......................................                     145,000
PRESCO
Sales support services and reimbursements..............................                                     16,000
Capital fund raising cost reimbursements...............................                      36,000        144,000
                                                                         -----------  -------------  -------------
    Total..............................................................  $   762,000  $   1,267,000  $   1,299,000
                                                                         -----------  -------------  -------------
                                                                         -----------  -------------  -------------
</TABLE>
 
    Real estate brokerage  commissions and  fees for  development, planning  and
lease negotiations have been capitalized and property and lease commissions have
been deferred.
 
3.  NOTES RECEIVABLE
 
    Notes  receivable consist of the following at December 31, 1995 and December
31, 1994:
 
<TABLE>
<CAPTION>
                                                                                1995           1994
                                                                            -------------  -------------
<S>                                                                         <C>            <C>
Mortgage notes............................................................  $   6,565,000  $   6,515,000
Unsecured loans (principally to tenants)..................................        285,000        344,000
Allowance for doubtful accounts...........................................        (39,000)       (73,000)
                                                                            -------------  -------------
  Total...................................................................  $   6,811,000  $   6,786,000
                                                                            -------------  -------------
                                                                            -------------  -------------
</TABLE>
 
    The mortgage notes outstanding at December 31, 1995 result from sale of  two
shopping  center properties located in Northern California bear interest from 9%
to 9.25% and loans (see note 12). At  the time of sale, the two shopping  center
notes    were   discounted    to   yield    market   interest    rates   ranging
 
                                       34
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from 9.5% to 13%. The discounts are recognized as interest income over the  life
of  the note. The  mortgage notes receivable  have been pledged  as security for
various short-term notes payable, which were  extended to various dates in  1996
and in 1997.
 
    Notes receivable are due as follows:
 
<TABLE>
<S>                                <C>
1996.............................  $1,157,000
1997.............................      50,000
1998.............................      19,000
1999.............................   4,213,000
2000.............................   1,329,000
Thereafter.......................     161,000
Less discounts...................     (80,000)
Less allowance for bad debt......     (38,000)
                                   ----------
  Total..........................  $6,811,000
                                   ----------
                                   ----------
</TABLE>
 
    The  debtor of  a note  scheduled to  mature in  December 1995  requested an
extension to December  1996 and the  Trust granted this  extension in  September
1995.
 
4.  SHORT-TERM NOTES
 
    At  December 31, 1995,  notes outstanding totaled  $11,190,000 with interest
rates ranging  from 10%  to 10.20%.  The  notes are  secured by  mortgage  notes
receivable  from  property sales  (see  Note 3),  additional  deeds of  trust on
existing properties and the  Trust's interest in a  joint venture. All of  these
notes  at December 31, 1995 are held by private limited partnerships independent
of the  Trust  in which  Menlo  Management  Company has  a  general  partnership
interest.  Interest of $1,163,000 and $1,442,000 was paid on these notes in 1995
and 1994 respectively. The Notes are due in 1997 with the exception of one  note
for  $500,000 which was paid off in March 1996. On March 13, 1995 the Trust paid
off short-term notes  of $5,045,000  with proceeds  from the  sale of  Lakeshore
Plaza Shopping Center.
 
5.  UNSECURED NOTE PAYABLE
 
    The  Trust obtained a $3 million unsecured note (loan and debenture) bearing
interest at 10% on the first $1 million, 17% on the second $1 million and  18.1%
on  the final $1 million. The note terms  called for interest payments of 10% on
the first $1 million and 9% on the balance. The remaining interest was  accrued,
without  compounding. This note was paid off on  March 13, 1995 from the sale of
Lakeshore Plaza Shopping Center.
 
6.  MORTGAGE LOANS
 
    Operating properties are pledged as collateral for mortgage loans which have
interest rates varying from 9.375% to 10.25% at December 31, 1995. The loans are
payable monthly over periods through July  2000. In connection with the sale  of
one  property,  the  Trust  remains  the  primary  obligator  on  the underlying
non-recourse note payable, totaling $1,631,000, which is secured by a first deed
of trust on the property sold. The all-inclusive promissory note receivable from
the buyer was received by the Trust at the date of sale.
 
                                       35
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
    Mortgage loans mature  in future  years as  follows (see  Note 10  regarding
repayments subsequent to December 31, 1995):
 
<TABLE>
<S>                                <C>
1996.............................  $   528,000
1997.............................      577,000
1998.............................      631,000
1999.............................    3,111,000
2000.............................   31,971,000
                                   -----------
  Total..........................  $36,818,000
                                   -----------
                                   -----------
</TABLE>
 
    Total  interest costs in 1995, 1994 and 1993 were $5,364,000, $8,230,000 and
$8,247,000, of  which $2,681,000  was  capitalized in  1993. Interest  paid  was
$5,364,000,   $8,501,000  and  $5,317,000,   respectively,  net  of  capitalized
interest.
 
    In 1993 loan commitment  fees totaling $1,031,000  were charged to  expense.
The  Trustees  determined  to  forego  these  loan  fees  because  the  foregone
commitment required a higher fixed rate of interest as compared with alternative
financing available.
 
7.  COMMERCIAL PROPERTY OPERATING LEASES
 
    Space in  the  Trust's  operating  properties is  leased  to  tenants  under
long-term noncancelable 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,  1995 are as follows
(excluding Menlo Center which was sold on February 29, 1996, see note 10):
 
<TABLE>
<S>                                <C>
1996.............................  $ 4,580,000
1997.............................    4,129,000
1998.............................    3,509,000
1999.............................    3,187,000
2000.............................    3,053,000
Thereafter.......................   19,073,000
                                   -----------
  Total..........................  $37,531,000
                                   -----------
                                   -----------
</TABLE>
 
    Rental revenues  in 1995,  1994  and 1993  included $153,000,  $196,000  and
$188,000 of contingent rentals based on individual tenants' sales volumes.
 
    For  the  years ending  December  31, 1995,  1994  and 1993  rental revenues
representing 14% in 1995 and 17% in 1994 and 1993, of total revenues were earned
from a single tenant at one of the Trust's properties in 1995 and at two of  the
Trust's properties in 1994 and 1993.
 
8.  GAIN ON LEASE TERMINATION
 
    In  December 1994, HomeBase,  an anchor tenant at  El Portal Shopping Center
reached an agreement with the Trust whereby in exchange for a lease  termination
the Trust accepted a $6,000,000 lease buy-out payment.
 
    Under  the term of the  mortgage loan secured by  the property $5,729,000 of
this lease buy out was applied towards the principal reduction and $271,000  was
applied  as a prepayment penalty. In connection with this transaction, the Trust
determined that the  HomeBase facility became  functionally obsolete,  therefore
the  remaining book value of $2,040,000  and associated accrued rents receivable
resulting from the straightlining  of HomeBase's rent  of $383,000 were  charged
against the lease termination payment resulting in a net gain of $3,577,000.
 
                                       36
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9.  SALE OF LAKESHORE PLAZA
 
    The  Trust sold the Lakeshore Plaza Shopping  Center on March 13, 1995 for a
sales price  of $31,292,000.  The  proceeds of  this  sale after  provision  for
assumption  of the existing First Deed  of Trust financing ($15,826,000 at March
13, 1995),  repayment of  second mortgage  ($4,000,000), closing  costs,  escrow
holdbacks  for  supplemental property  taxes, vacant  spaces and  pending tenant
improvement allowances,  legal fees,  transfer taxes  and miscellaneous  selling
expenses,  were all used to pay down  other short-term notes ($5,045,000) and an
unsecured note payable including interest payable ($3,467,000). The loss on sale
was recognized in 1994 (see Note 11).
 
10.  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
$10,730,102. After  payment  of  closing  costs,  transfer  taxes,  real  estate
commissions  and  miscellaneous  selling expenses,  all  totalling approximately
$550,000, the  net  proceeds of  approximately  $4,935,000 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 Trust's liability in this respect extends to the
maturity date of the existing First Trust Deed financing which the buyer assumed
in the purchase. This financing expires in 2000.
 
11.  LOSS OF IMPAIRMENT OF PROPERTY VALUE
 
    In 1994, the Trustees  decided to reduce  the carrying value  of two of  the
Trust's  properties  to  reflect  their  estimated  current  market  value  more
accurately. Accordingly, Menlo Center's carrying value was reduced by $3,600,000
to $15,000,000 after  depreciation. Lakeshore Plaza  Shopping Center's  carrying
value  was reduced by $3,500,000 and  an additional $900,000 related to deferred
lease commissions and financing costs.
 
12.  PROPERTY PURCHASE OPTIONS
 
    On December 10, 1993, the Trust  entered into a purchase and sale  agreement
(the  "Plaza 580 Agreement")  with Plaza 580  Ltd., pursuant to  which the Trust
obtained  an  option  to  purchase  a  shopping  center  located  in  Livermore,
California.  On March 10,  1994, the Trust entered  into three additional option
purchase agreements: (i) with  DSL/Elk Grove, a  California joint venture,  with
respect  to a shopping center  located in Elk Grove,  California (the "Elk Grove
Agreement"); (ii) with R/  P Manteca Limited  Partnership, a California  limited
partnership,  with respect to Mission Ridge  Shopping Center located in Manteca,
California (the "Manteca Agreement"); and (iii) with DSL/Fair Oaks, a California
joint  venture,  with  respect  to  Northridge  Center  located  in  Fair  Oaks,
California (the "Northridge Agreement").
 
    Pursuant  to  an agreement  dated  May 9,  1994  (the "Plaza  580 Assignment
Agreement"), the Trust  assigned its  rights under  the Plaza  580 Agreement  to
Western  Investment  Real  Estate  Trust  ("WIRET"),  a  California  real estate
investment trust, for the  sum of $556,519, adjusted  for certain closing  costs
and  prorations. On May  27, 1994, WIRET  closed its acquisition  of the Trust's
rights under  the Plaza  580  Agreement and  acquired the  underlying  property.
Pursuant to the Plaza 580 Assignment Agreement, the Trust guaranteed the payment
of  certain rental rates with  respect to one empty  shop space located at Plaza
580 for a period of 24 months. The  Trust also agreed to repay a portion of  the
purchase  price with respect to any of such empty spaces that remain unleased at
the end  of the  24-month period.  All vacant  spaces have  been leased  and  at
December 31, 1995 there are no vacancies, although the Trust is obligated to pay
some  rents for  spaces in which  the tenant's  rent start dates  are later than
their lease commencement dates.
 
                                       37
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
    Pursuant to  an  agreement  dated  May  11,  1994  (the  "Second  Assignment
Agreement"),  the Trust assigned its  rights as purchaser under  each of the Elk
Grove Agreement, the Manteca Agreement and the Northridge Agreement to WIRET for
$1,804,211, as adjusted  for certain closing  costs and prorations.  On June  7,
1994,  the  transactions contemplated  by the  Second Assignment  Agreement were
consummated. Pursuant to the Second  Assignment Agreement, the Trust  guaranteed
the payment of rent for 24 months for certain empty shop spaces at the Elk Grove
and Northridge centers, and agreed to repay to WIRET, at the end of 24 months, a
portion  of  the purchase  price applicable  to such  empty spaces  which remain
unleased (or leased to tenants that do  not meet certain guidelines) as of  such
24-month  period. The Trust also agreed to pay pro forma rents for certain space
at Northridge which space is subject to leases that expire within the first year
after closing. At December 31, 1995, all such spaces have been leased. The Trust
has some  residual  rental obligations  on  newly leased  space  pending  actual
occupancy by the tenants.
 
    During  1994, the Trust recorded  a net gain of  $994,000 and rent guarantee
reserve accrual of $390,000, as the result of Plaza 580 Assignment Agreement and
the Second Assignment Agreement. In 1995, the Trust increased the reserve by  an
additional  $213,000,  accordingly the  remaining deferred  gain of  $203,000 is
reflected in accounts payable and other liabilities.
 
    In connection  with the  above transactions,  on June  7, 1994,  (i)  Scotts
Valley  Plaza, a California limited partnership ("Scotts"), granted to the Trust
a one-year  option to  acquire  the shopping  center  commonly known  as  Scotts
Village Plaza and (ii) Scotts Village Phase II, a California limited partnership
("Scotts  II"), granted a one-year option to the Trust to purchase Scotts Valley
Square, both of  which are  located in Scotts  Valley, California.  Concurrently
with  the  grant  of  these  options and  in  connection  with  the transactions
contemplated by  the Second  Assignment  Agreement, the  Trust  made a  loan  to
Malcolm  R. Riley, one of the principals in  Scotts and Scotts II, in the amount
of $750,000. The loan bears interest at  9% per annum, payable monthly, and  the
principal  is due and payable in 6  years. Simultaneously, the Trust made a loan
to Russell R. Pratt, another of the  principals in Scotts and Scotts II, in  the
amount  of $500,000. That loan bears interest  at 8% per annum, payable monthly,
and the principal is due and payable in 6 years. Each of these loans is  secured
by  the borrower's respective partnership interests in Scotts and Scotts II. The
Trust also made a loan in the amount of $75,000 to Scotts, which bears  interest
at  8.6% per  annum (payable monthly),  is due  in 6 years  and is  secured by a
second deed of trust on Scotts Village Plaza.
 
13.  DISTRIBUTIONS TO SHAREHOLDERS
 
    During the second quarter of 1993, distributions were suspended. Except  for
a  special  distribution  in  December  of  1993,  distributions  have  remained
suspended. Distributions during 1993 totaled $.205  per share and resulted in  a
nontaxable  return of capital reportable by shareholders on their individual tax
returns.
 
14.  REINCORPORATION TRANSACTIONS
 
    The Trustees have  formed Pacific  Real Estate Investment  Trust, Inc.  (the
"Successor  Company") as a  Maryland corporation for the  purpose of effecting a
reincorporation (the "Reincorporation Transactions"). The Successor Company  has
no  material assets  or liabilities.  The Trust  held a  Special Meeting  of the
Shareholders on March 18, 1994,  at which time the Reincorporation  Transactions
were  approved by  the Trust's  shareholders. If  completed, the Reincorporation
Transactions would cause the Trust to transfer all of its assets and assign  and
delegate  all of  its enforceable liabilities  and obligations  to the Successor
Company in exchange for  1,235,690 shares of Common  Stock, $.01 par value  (the
"Common  Shares"),  of the  Successor Company,  and  the Trust  thereafter would
liquidate, distributing the Common  Shares to the shareholders  of the Trust  in
cancellation  of their shares of beneficial interest, in the ratio of one Common
Share for  each  three shares  of  beneficial interest  held  of record  by  the
shareholders   on  the  record  date   for  the  liquidating  distribution.  The
one-for-three
 
                                       38
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exchange ratio  would in  effect result  in  a reverse  split of  the  currently
outstanding  shares of  beneficial interest,  in order  to facilitate subsequent
financing transactions by the  Successor Company. As part  of its assumption  of
the  Trust's obligations, the Successor  Company would commit to  issue up to an
additional 36,283 Common  Shares in  the event  of exercise  (during a  two-year
period  beginning January 1,  1995) of warrants  issued by the  Trust in January
1992, covering an aggregate of 108,848.5 shares of beneficial interest.
 
    Expenses incurred in  connection with the  Reincorporation Transactions  are
reflected as reincorporation expenses in the accompanying consolidated statement
of operations.
 
    As a result of the present conditions of the capital markets, the Trust does
not  currently  expect to  effect the  Reincorporation Transactions.  This could
change in  the  future  if  the reincorporation  would  facilitate  the  Trust's
objectives.
 
15.  EXPENSES OF PROSPECTIVE OFFERING
 
    The  Trust  was  involved  in  discussions  with  underwriters  regarding  a
potential  offering  of  the  Successor  Company's  Common  Shares  and/or  debt
securities   to  public  or  private   purchasers,  should  the  Reincorporation
Transactions be consummated.  The expenses  incurred in connection  with such  a
prospective  offering are reflected in  the accompanying consolidated statements
of operations as  expenses of prospective  offering as the  ultimate timing  and
form of such transaction, if any, is not determinable.
 
16.  COMMITMENTS AND CONTINGENCIES
 
    The  Trust is obligated on four land leases. The first lease extends through
2012 and requires minimum annual payments of $26,000, plus 8% of the  property's
rental  revenue in excess of $325,000. The second lease extends through 2024 and
requires minimum annual payments of $40,000,  plus 12% of the property's  annual
rental  revenue in excess of $333,000. The third lease extends through 2028, has
ten consecutive five-year renewal options, an  option to purchase upon death  of
the  ground lessor, and requires minimum annual  payments of $60,000 prior to an
adjustment for inflation.  As discussed  in Note 10,  Menlo Center  was sold  on
February  29, 1996 and  the Trust is  no longer obligated  under this third land
lease which is assumed by  the buyer of Menlo  Center. The fourth lease  extends
through  2045 and contains a dual option for  the Trust to acquire fee title and
for the ground lessor  to "put" the  property to the Trust.  The option for  the
Trust to acquire commences upon the death of one of the ground lessors and lasts
for  five years from said  date. The option for the  ground lessors to "put" the
property to the Trust incepts March 1, 1998 and survives through the term of the
ground lease.  The annual  rent is  $184,400 with  annual increases  of 4%.  The
purchase price under the options is the minimum ground rent capitalized at a 10%
yield.  Land  lease  expense totaled  $400,000  in  1995, $236,000  in  1994 and
$217,000 in 1993.
 
    In connection  with the  refinancing efforts  at the  King's Court  Shopping
Center  in 1994, the Kingsco partnership initiated an environmental audit of the
property. The  Phase I  and  II 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 is estimated to be $632,000 of which $503,000 has been
expended in 1994 and 1995.  The Trust was not a  partner of Kingsco at the  time
the contamination occurred, and 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  for payment  of the clean-up  costs. 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  interim  plan  of
remediation   has  been   approved  by   the  Regional   Water  Quality  Control
 
                                       39
<PAGE>
                      PACIFIC REAL ESTATE INVESTMENT TRUST
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Board and  remediation  has commenced.  Accordingly,  $129,000 and  $632,000  is
reflected in the accompanying consolidated balance sheet at December 31, 1995 as
Other Liabilities and Other Assets respectively.
 
    In  another, unrelated, environmental audit  of the gasoline service station
pad ("Exxon Pad")  at King's  Court Shopping  Center, the  Phase I  and II  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 Menlo
Management  Company  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  connection with redevelopment efforts at  El Portal Shopping Center, dry
cleaning solvents have  been discovered  to have contaminated  the ground  water
beneath the shopping center, arising from dry cleaning operations which probably
preceded  the Trust's ownership of  the property. At the  present time, the site
characterization and negotiation with regulatory authorities are proceeding. The
ultimate exposure  to the  Trust cannot  yet be  determined, however,  based  on
current  knowledge it is not expected to have a material adverse effect upon the
Trust's financial position.
 
17.  SHAREHOLDERS' EQUITY
 
    In January 1992,  the Trust  began a  Rights Offering,  which entitled  each
shareholder  of record on December 31, 1991,  to purchase an additional share in
the Trust for each share owned. The rights were exercisable at $13.68 per  share
through  March 20, 1992 when  the offering expired. In  addition, each right was
accompanied by one warrant  which entitles the owner  to purchase an  additional
one-half  share  of  beneficial  interest for  $7.00  during  a  two-year period
beginning January 1, 1995. (This is equivalent to a purchase price of $14.00 for
each whole share.) At  December 31, 1995,  217,697 warrants, covering  108,848.5
shares of beneficial interest, were issued and outstanding.
 
                                       40
<PAGE>
                                                                     SCHEDULE XI
 
                      PACIFIC REAL ESTATE INVESTMENT TRUST
 
               COMMERCIAL PROPERTIES AND ACCUMULATED DEPRECIATION
 
                               DECEMBER 31, 1995
<TABLE>
<CAPTION>
        COLUMN A             COLUMN B             COLUMN C                     COLUMN D
-------------------------  ------------   -------------------------   --------------------------
                                          INITIAL COST TO TRUST (1)        COST CAPITALIZED
                                          -------------------------   SUBSEQUENT TO ACQUISITION
                                                        BUILDINGS     --------------------------
                                                           AND                        CARRYING
       DESCRIPTION         ENCUMBRANCES      LAND      IMPROVEMENTS   IMPROVEMENTS      COSTS
-------------------------  ------------   -----------  ------------   ------------   -----------
<S>                        <C>            <C>          <C>            <C>            <C>
 
COMMERCIAL PROPERTIES:
 
El Portal Shopping Center  $ 4,538,000    $   875,000  $  2,308,000   $ 10,730,000   $ 1,234,000
 San Pablo, California...
 
King's Court Shopping        1,343,000                    9,137,000        757,000
 Center
 Los Gatos, California...
 
Menlo Center                10,738,000      3,329,000    13,411,000     (3,109,000)    3,745,000
 Menlo Park,
 California..............
 
Monterey Plaza Shopping     18,568,000     10,104,000    12,717,000      1,658,000     3,757,000
 Center
 San Jose, California....
 
Mt. Shasta Shopping          1,631,000
 Center
 Mt. Shasta, California
 (7).....................
                           ------------   -----------  ------------   ------------   -----------
 
  TOTAL..................  $36,818,000    $14,308,000  $ 37,573,000   $ 10,036,000   $ 8,736,000
                           ------------   -----------  ------------   ------------   -----------
                           ------------   -----------  ------------   ------------   -----------
 
<CAPTION>
        COLUMN A                         COLUMN E                      COLUMN F           COLUMN G       COLUMN H
-------------------------  -------------------------------------  -------------------   ------------   ------------
                             GROSS AMOUNT AT WHICH CARRIED AT
                                    CLOSE OF PERIOD (2)
                           -------------------------------------
                                         BUILDINGS
                                            AND                       ACCUMULATED         DATE OF          DATE
       DESCRIPTION            LAND      IMPROVEMENTS  TOTAL (3)   DEPRECIATION (4)(6)   CONSTRUCTION     ACQUIRED
-------------------------  -----------  -----------  -----------  -------------------   ------------   ------------
<S>                        <C>          <C>          <C>          <C>                   <C>            <C>
COMMERCIAL PROPERTIES:
El Portal Shopping Center  $   875,000  $14,272,000  $15,147,000      $ 9,311,000            (5)           9/76
 San Pablo, California...
King's Court Shopping                     9,894,000    9,894,000        3,686,000            (8)          12/86
 Center
 Los Gatos, California...
Menlo Center                 3,329,000   14,047,000   17,376,000        2,815,000            (9)
 Menlo Park,                                                                                           11/84, 5/86,
 California..............                                                                                  8/88
Monterey Plaza Shopping     10,104,000   18,132,000   28,236,000        2,563,000            (9)       7/87, 1/88,
 Center                                                                                                4/88, 7/88,
 San Jose, California....                                                                              10/88, 3/89
Mt. Shasta Shopping
 Center
 Mt. Shasta, California
 (7).....................
                           -----------  -----------  -----------  -------------------
  TOTAL..................  $14,308,000  $56,345,000  $70,653,000      $18,375,000
                           -----------  -----------  -----------  -------------------
                           -----------  -----------  -----------  -------------------
</TABLE>
 
See notes on following page
 
                                       41
<PAGE>
                                                                     SCHEDULE XI
 
                      PACIFIC REAL ESTATE INVESTMENT TRUST
 
               COMMERCIAL PROPERTIES AND ACCUMULATED DEPRECIATION
 
                               DECEMBER 31, 1995
 
Notes:
 
<TABLE>
<S>     <C>                                                         <C>
(1)     Construction costs incurred under the initial construction subsequent to
        purchase of the land are included as initial cost to the Trust.
 
(2)     The aggregate cost for federal income tax purposes is $68,295,000.
 
(3)     Balance, January 1, 1993..................................  $ 75,883,000
          Acquisitions............................................    28,642,000
          Improvements capitalized subsequent to acquisition......     1,314,000
          Construction period interest capitalized................     4,306,000
                                                                    ------------
        Balance, December 31, 1993................................   110,145,000
          Improvements capitalized subsequent to acquisition......     1,491,000
          Retirements.............................................    (3,000,000)
          Loss on impairment of property value....................    (7,100,000)
                                                                    ------------
        Balance, December 31, 1994................................   101,536,000
          Improvements capitalized subsequent to acquisition......       108,000
          Retirements.............................................   (30,991,000)
                                                                    ------------
        Balance, December 31, 1995................................  $ 70,653,000
                                                                    ------------
                                                                    ------------
(4)     Balance, January 1, 1993..................................  $ 11,962,000
          Additions charged to expense............................     2,708,000
                                                                    ------------
        Balance, December 31, 1993................................    14,670,000
          Additions charged to expense............................     3,290,000
          Retirements.............................................      (960,000)
                                                                    ------------
        Balance, December 31, 1994................................    17,000,000
          Additions charged to expense............................     2,496,000
          Retirements.............................................    (1,121,000)
                                                                    ------------
        Balance, December 31, 1995................................  $ 18,375,000
                                                                    ------------
                                                                    ------------
 
(5)     Property  initially acquired subsequent  to construction. However, major
        redevelopment work at the property was  begun in 1985 and was  completed
        in 1987.
 
(6)     Depreciation is computed on lives ranging from three to forty years.
 
(7)     This  property has been sold, but the Trust remains primarily liable for
        the  note  payable,  which   is  secured  by   the  property  sold.   An
        all-inclusive  promissory note receivable from the buyer was received by
        the Trust as the date of sale. Such financing is commonly referred to as
        "wraparound" financing.
 
(8)     This property is owned by a joint  venture in which the Trust has a  40%
        controlling interest.
 
(9)     This  property  was  acquired  at  various  times  and  development  was
        completed in 1991.
</TABLE>
 
                                       42
<PAGE>
                                                                    SCHEDULE XII
 
                      PACIFIC REAL ESTATE INVESTMENT TRUST
                         MORTGAGE LOANS ON REAL ESTATE
                               DECEMBER 31, 1995
 
<TABLE>
<CAPTION>
                                                                                                        COLUMN F
                                             COLUMN C                                   COLUMN E    ----------------
          COLUMN A              COLUMN B     ---------            COLUMN D            ------------  CARRYING AMOUNT
----------------------------  -------------  MATURITY   ----------------------------  FACE AMOUNT          OF
        DESCRIPTION           INTEREST RATE    DATE        PERIODIC PAYMENT TERMS     OF MORTGAGE   MORTGAGE (1)(5)
----------------------------  -------------  ---------  ----------------------------  ------------  ----------------
<S>                           <C>            <C>        <C>                           <C>           <C>
SECURED LOANS:
Westwood Shopping Center               9%      12/96    $7,967/mo. principal and      $ 5,375,000   $   1,069,000   (2)
 (Second mortgage secured by                             interest. Balloon payment
 shopping center)                                        of $1,121,000 due at
                                                         maturity.
Mt. Shasta Shopping Center          9.25   %   1/99     $32,375/mo. interest only.      4,200,000       4,171,000   (3)
 (Wraparound second mortgage                             Balloon payment of
 secured by shopping center)                             $4,200,000 due at maturity.
Scotts Valley Loans
  Malcom Riley..............           9   %  6/2000    $5,625                            750,000         750,000   (4)
  Russell Pratt.............           8   %  6/2000    $3,333                            500,000         500,000   (4)
  Scotts Valley Plaza.......         8.6   %  6/2000    $537.50                            75,000          75,000
                                                                                      ------------  ----------------
TOTAL SECURED LOANS.........                                                          $10,900,000       6,565,000
                                                                                      ------------  ----------------
                                                                                      ------------  ----------------
</TABLE>
 
                                       43
<PAGE>
                                                                    SCHEDULE XII
 
                      PACIFIC REAL ESTATE INVESTMENT TRUST
                         MORTGAGE LOANS ON REAL ESTATE
                               DECEMBER 31, 1995
 
Notes:
 
<TABLE>
<S>        <C>                                                          <C>         <C>
(1)        The aggregate cost for federal income tax purpose is $6,563,000.
(2)        Net of discount of $51,000 based on an effective interest rate of 9.75%.
(3)        Net discount of $29,000 based on an effective interest rate of 9.5%.
(4)        Loans secured by interest in partnership which owns commercial real estate.
(5)        Balance, January 1, 1993...................................              $11,159,000
           Deductions during year:
           Amortization of discount...................................      (2,000)
           Collection of principal....................................     (27,000)     (29,000)
                                                                        ----------  -----------
           Balance at December 31, 1993...............................               11,130,000
           Deductions during year:
           Amortization of discount...................................      34,000
           Additions..................................................   1,325,000
           Collection of Principal....................................  (5,974,000)  (4,615,000)
           Balance at December 31, 1994...............................                6,515,000
           Deductions during year:
           Amortization of discount...................................      64,000
           Collection of Principal....................................     (14,000)      50,000
                                                                        ----------  -----------
           Balance at December 31, 1995...............................              $ 6,565,000
                                                                                    -----------
                                                                                    -----------
</TABLE>
 
                                       44
<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 55, 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 has gained considerable experience in real estate financing.
 
    Mr. John H. Hoefer, age 80, 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 72, has served  as a Trustee and Treasurer of the
Trust since the date of its inception  and was an initial investor. Mr.  Kellogg
was  elected Executive Vice President  of the Trust on  December 5, 1978 and was
President from February 1980 to May 1985.  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 77, has  been an investor in the Trust since  1964
and was elected a Trustee in 1980 and Secretary on June 15, 1988. 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. Royce also is a director of Diablo Research Corporation
and Treasurer of the Silicon Valley Economic Roundtable.
 
    Mr. Robert  C. Gould,  age 51,  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. Mr. Gould is the son-in-law of Charles R. Collier
and, together  with  his  wife, owns  83%  of  Menlo Management.  Prior  to  his
employment   with  Menlo  Management,   he  was  a   real  estate  analyst  with
Shell-Mex/B.P. Ltd., a subsidiary of  the Royal Dutch/Shell Group of  Companies.
He  is a registered NASD principal and securities representative, and a licensed
California real estate broker.
 
                                       45
<PAGE>
ITEM 11.  EXECUTIVE COMPENSATION
 
    During the  fiscal year  ended December  31, 1995,  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>
<CAPTION>
                                                 AGGREGATE
            NAME AND                              DIRECT
       PRINCIPAL POSITION            YEAR      REMUNERATION
---------------------------------  ---------  ---------------
<S>                                <C>        <C>
Wilcox Patterson, President             1995    $    16,600
                                        1994    $    16,200
                                        1993    $    16,400
</TABLE>
 
    During  fiscal 1995, aggregate direct remuneration  paid to all Trustees and
officers as a group (five persons) was  $26,400, all of which consisted of  fees
for  services performed as Trustees. Trustees are paid a monthly fee of $200 for
their services and a fee of $200 per Trustee meeting attended. Committee members
receive $100 per committee meeting attended.  The Trust has an Audit  Committee,
which  makes  recommendations concerning  the  engagement of  independent public
accountants, reviews the plans and results  of the audit engagement and  reviews
the  adequacy of  the Trust's internal  accounting controls,  and a Compensation
Committee.
 
    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, 1995. 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
                                                                             BENEFICIALLY      PERCENT OF
NAME                                                                             OWNED         CLASS (1)
-------------------------------------------------------------------------  -----------------  ------------
<S>                                                                        <C>                <C>
John H. Hoefer (2)(3)....................................................         68,003           1.835%
Harry E. Kellogg (4).....................................................          7,293            .197%
Wilcox Patterson (4)(5)..................................................         27,900            .753%
William S. Royce (2)(3)..................................................          2,708            .073%
Robert C. Gould..........................................................          1,471            .040%
</TABLE>
 
------------------------
(1) Based on 3,706,845  Trust Shares outstanding  as of December  31, 1995,  and
    warrants  to purchase 108,848.5 Trust Shares held by certain shareholders as
    of December 31, 1995.
 
(2) Member of Audit Committee.
 
(3) Member of Compensation Committee.
 
(4) Voting and investment power are shared.
 
(5) Includes 21,584 Trust Shares owned by  members of Mr. Patterson's family  as
    to which Mr. Patterson disclaims any beneficial ownership interest.
 
                                       46
<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.
The  annual incentive bonus  under the agreement will  be determined as follows:
7.5% of the  difference between  "operating income" and  8.6% "adjusted  average
equity."  "Operating  income"  is  defined  as  income  from  operations  before
depreciation, gain on  property sales,  and deductions  for investment  advisory
fee,  but after deduction for amortization  of deferred costs. "Adjusted average
equity"  is  defined  as  the  average  of  the  year's  beginning  and   ending
shareholders'  equity plus accumulated depreciation. Incentive compensation will
be paid in stock,  valued per share at  the time the compensation  is paid at  a
price  equal to  the net proceeds  per share received  by the Trust  in sales of
shares to the public.  The Trustees intend to  review and modify if  appropriate
for  each succeeding year, the percentage return on adjusted average equity used
in the above  calculation so  that it  is comparable  to rates  of return  being
earned by competing real estate entities. For 1995, 1994 and 1993, 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.  Until  its
dissolution  in 1995, Presco provided support  and capital fund raising services
and acted as  a crossing  agent for  shareholders wishing  to purchase  existing
Trust  shares. Collier Investment is a  proprietorship of Russell Collier. Menlo
Management is 17%  owned by  Mr. Collier  and 83% owned  by Robert  C. Gould,  a
Trustee  and Vice President  of the Trust.  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, 1995.
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. 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, and Menlo  Center, which was sold  on
February 29, 1996.
 
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. Menlo  Management  Company  serves as
general partner in these partnerships and the Notes are secured by mortgages  on
the Trust's properties or pledge of Promissory Notes owned by the Trust.
 
                                       47
<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 March
28, 1995. In 1996, Report on Form 8-K was filed by the Trust on March 14, 1996.
 
    (c) Exhibits:
 
<TABLE>
<CAPTION>
    TABLE
  REFERENCE                EXHIBIT                                LOCATION
--------------  -----------------------------  -----------------------------------------------
<S>             <C>                            <C>
3 and 4         Declaration of Trust and       Incorporated by reference from Form 10 and Form
                 Amendments                     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.
 
                                       48
<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:        /s/ WILCOX PATTERSON
 
                                             -----------------------------------
                                                 Wilcox Patterson, PRESIDENT
                                                (PRINCIPAL EXECUTIVE OFFICER)
 
                                          By:        /s/ HARRY E. KELLOGG
 
                                             -----------------------------------
                                                 Harry E. Kellogg, TREASURER
                                                  (PRINCIPAL FINANCIAL AND
                                                     ACCOUNTING OFFICER)
 
Date: March 21, 1996
 
    Pursuant to the requirements  of the Securities Exchange  Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                         SIGNATURES                                  DATE
------------------------------------------------------------  ------------------
 
<S>                                                           <C>
                    /s/ WILCOX PATTERSON
      ------------------------------------------------
                     Wilcox Patterson,                          March 21, 1996
                   PRESIDENT AND TRUSTEE
 
                          /s/ HARRY E. KELLOGG
      ------------------------------------------------
                     Harry E. Kellogg,                          March 21, 1996
                   TREASURER AND TRUSTEE
 
                           /s/ ROBERT C. GOULD
      ------------------------------------------------
                      Robert C. Gould,                          March 21, 1996
                          TRUSTEE
 
                           /s/ WILLIAM S. ROYCE
      ------------------------------------------------
                     William S. Royce,                          March 21, 1996
                          TRUSTEE
 
                            /s/ JOHN H. HOEFER
      ------------------------------------------------
                      John H. Hoefer,                           March 21, 1996
                          TRUSTEE
</TABLE>
 
                                       49
<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, PRESIDENT
                                                (PRINCIPAL EXECUTIVE OFFICER)
 
                                          By:
 
                                             -----------------------------------
                                                 Harry E. Kellogg, TREASURER
                                                  (PRINCIPAL FINANCIAL AND
                                                     ACCOUNTING OFFICER)
 
Date: March 21, 1996
 
    Pursuant to the requirements  of the Securities Exchange  Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                         SIGNATURES                                  DATE
------------------------------------------------------------  ------------------
 
<S>                                                           <C>
      ------------------------------------------------
                     Wilcox Patterson,                          March 21, 1996
                   PRESIDENT AND TRUSTEE
 
      ------------------------------------------------
                     Harry E. Kellogg,                          March 21, 1996
                   TREASURER AND TRUSTEE
 
      ------------------------------------------------
                      Robert C. Gould,                          March 21, 1996
                          TRUSTEE
 
      ------------------------------------------------
                     William S. Royce,                          March 21, 1996
                          TRUSTEE
 
      ------------------------------------------------
                      John H. Hoefer,                           March 21, 1996
                          TRUSTEE
</TABLE>
 
                                       50