FORM 10-Q


                SECURITIES AND EXCHANGE COMMISSION
                    Washington, D. C.   20549


            Quarterly Report Under Section 13 or 15(d)
              of the Securities Exchange Act of 1934


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

                                OR

   [  ]   Transition report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

           For the Quarter Ended    October 1,  1995    

                Commission File Number  0-24714  


                    KAHLER  REALTY  CORPORATION       
      (Exact name of registrant as specified in its charter)

            Minnesota                                      41-1784272          
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
     incorporation or organization)

          20 SW 2nd Avenue, Rochester, MN                    55902            
   (Address of principal executive offices)                 (Zip Code)

                          (507) 285-2700      
       (Registrant's telephone number, including area code)


  Indicate by check mark whether the registrant (2) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  registrant was required to file such reports), and, (2) has been subject to
  such filing requirements for the past 90 days.       

                         Yes   X         No      


  The number of shares outstanding of the Registrant's common stock as of
  October 1, 1995 was:
         Common Stock, $.10 par value  - 4,229,192 shares
<PAGE>


            KAHLER REALTY CORPORATION AND SUBSIDIARIES
              INDEX TO QUARTERLY REPORT ON FORM 10-Q
                          October 1, 1995


                                                             PAGE
                                                            NUMBER

Index to Report . . . . . . . . . . . . . . . . . . . . . . .   1

Part 1.  Financial Information
    Consolidated Balance Sheets -
      October 1, 1995 and January 1, 1995 . . . . . . . . . .  2 - 3

    Consolidated Statements of Operations -
      Third Quarter Ended and Nine Months Ended
      October 1, 1995 and October 2, 1994 . . . . . . . . . .    4

    Consolidated Statements of Cash Flow -
      Nine Months Ended
      October 1, 1995 and October 2, 1994 . . . . . . . . . .    5

    Notes to Consolidated Financial Statements. . . . . . . .   6 - 8 

    Management's Discussion and Analysis of
      Results of Operations and Financial Condition . . . . .   8 - 14

Part II.  Other Information
    Exhibits and Reports on Form 8-K. . . . . . . . . . . . .    14

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . .    15 
<PAGE>
<TABLE>
PART I.  FINANCIAL INFORMATION                                          Page 2

              KAHLER REALTY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS
                        (Dollars in Thousands)
                             (unaudited)
<CAPTION>
                                                       October 1,                  January 1,
                                                          1995                        1995   

ASSETS

CURRENT ASSETS
<S>                                                   <C>  <C>                   <C>  <C>
  Cash                                                $      2,881               $      1,110
  Receivables:
  Trade, less allowance for doubtful
     accounts of $257 and $252, respectively                 6,680                      5,333
  Current portion of notes receivable                          151                        150
  Inventories                                                2,610                      2,498
  Prepaid expenses                                             462                        265
     Total current assets                                   12,784                      9,356

OTHER ASSETS
  Notes receivable, primarily from affiliates                1,338                      1,423
  Investment in and advances to affiliates                   4,225                      3,279
  Debt service reserve fund                                    750                        750
  Intangibles                                                  739                        791
  Other                                                      2,546                      1,823
     Total other assets                                      9,598                      8,066

PROPERTY AND EQUIPMENT
  Land and improvements                                     17,026                     16,349
  Buildings                                                141,769                    136,967
  Equipment                                                 49,187                     46,977
  Formal wear apparel                                        5,807                      4,735
     Total                                                 213,789                    205,028
     Less accumulated depreciation                          60,723                     54,281
                                                           153,066                    150,747
  Construction in progress                                   2,044                         - 
     Total property and equipment                          155,110                    150,747

     TOTAL ASSETS                                     $    177,492               $    168,169








See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
PART I.  FINANCIAL INFORMATION                                          Page 3

              KAHLER REALTY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS
                        (Dollars in Thousands)
                             (unaudited)
<CAPTION>

                                                       October 1,             January 1,
                                                          1995                   1995   
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
<S>                                                  <C>   <C>              <C>  <C>  
    Accounts payable                                 $       9,629          $      8,559
    Accrued liabilities:
      Payroll and payroll related liabilities                4,023                 2,473
      Real estate taxes                                      3,106                 1,996
      Other taxes                                            1,937                   806
    Notes payable                                            3,250                 5,300
    Current portion of long-term debt                        2,865                 2,767
    Current portion of subordinated debt
       due to affiliate                                        500                   500
      Total current liabilities                             25,310                22,401

LONG-TERM DEBT
    Obligations of Kahler Realty Corporation                98,526                94,942
    Obligations of Subsidiaries - Nonrecourse    
     to Kahler Realty Corporation                           26,508                26,517
      Total long-term debt                                 125,034               121,459

OTHER DEFERRED LIABILITIES
    Deferred revenue                                           131                   137
    Other                                                    1,379                 1,401
      Total other deferred liabilities                       1,510                 1,538


COMMITMENTS AND CONTINGENCIES

SUBORDINATED DEBT DUE TO AFFILIATE                           1,000                 1,500

STOCKHOLDERS' EQUITY
    Common stock, par value $.10
      Authorized - 70,000,000 shares;
      Issued and outstanding - 4,229,192 
     and 4,167,598, respectively                               423                   417
    Additional paid-in capital                              13,330                13,030
    Retained earnings                                       11,052                 7,991
    Minimum pension liability adjustment                      (167)                 (167)
      Total stockholders' equity                            24,638                21,271

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $     177,492          $    168,169


See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
PART I.  FINANCIAL INFORMATION                                          Page 4

                          KAHLER REALTY CORPORATION AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF OPERATIONS
                         (Dollars in Thousands Except Per Share Data)
                                          (unaudited)
<CAPTION>
                                               Third Quarter Ended          Nine  Months Ended  
                                             October 1     October 2      October 1     October 2  
                                                1995          1994           1995          1994   
REVENUES                                                                                                         
<S>                                        <C> <C>        <C> <C>        <C> <C>        <C> <C>
  Revenue of owned operations              $    31,143    $    28,000    $    93,009    $    84,345
  Other properties managed and/or                                                                                
    partially owned                              5,328          4,672         13,690         13,248
    Total revenues                         $    36,471    $    32,672    $   106,699    $    97,593  

REVENUE OF OWNED OPERATIONS                                                                     
  Lodging- rooms                           $     15,956   $    13,980    $    47,264    $    41,881
         - food and beverage                      7,838         6,979         23,919         21,480
         - other                                  3,046         2,552          8,934          7,767
  Formal wear, laundry & other                    4,163         4,255         12,528         12,700
  Interest income                                   140           234            364            517
    Total revenue of owned operations            31,143        28,000         93,009         84,345
  
OPERATING COSTS AND EXPENSES                                                                   
  Lodging- rooms                                  4,004         3,536         11,592         10,329
         - food and beverage                      6,156         5,482         18,918         17,024
         - other                                 10,219         8,811         29,385         25,929
  Formal wear, laundry & other                    3,087         3,266          9,755         10,460
  Corporate expenses                              1,059           893          2,973          2,587
  Depreciation and amortization                   2,287         2,140          6,725          6,438
    Total operating costs and expenses           26,812        24,128         79,348         72,767
                                                                                              
GROSS OPERATING PROFIT                            4,331         3,872         13,661         11,578

  Interest expense                               (3,087)       (2,929)        (9,147)        (8,177)
  Equity earnings of affiliates                     278           152            569            250
  Gain (Loss) on sale of assets                      (4)           12            (35)            23

INCOME FROM OPERATIONS BEFORE INCOME TAXES        1,518         1,107          5,048          3,674

Provision for income taxes                          471           330          1,565          1,100

NET INCOME                                  $     1,047   $       777    $     3,483    $     2,574

PRIMARY INCOME PER COMMON SHARE             $       .24   $       .19    $       .81    $       .62
                                                                                               
FULLY DILUTED INCOME PER COMMON SHARE       $       .24   $       .19    $       .81    $       .62



See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PART I.  FINANCIAL INFORMATION                                          Page 5

              KAHLER REALTY CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF CASH FLOW
                        (Dollars in Thousands)
                             (unaudited)
<CAPTION>
                                                        Nine Months        Nine Months  
                                                           Ended               Ended     
                                                     October 1,  1995    October 2, 1994
OPERATIONS:
<S>                                                    <C> <C>             <C> <C>
  Net income                                           $     3,483         $     2,574
  Adjustments to reconcile net income to
  net cash provided by operating activities:
    Depreciation and amortization                            6,725               6,438
    Common stock issued under employee benefit plans           107                   6
    Equity in earnings of affiliates                          (569)               (250)
    Loss (Gain) on sale of assets                               35                 (23)
  Change in current assets and current liabilities
    Receivables                                             (1,347)             (1,716)
    Inventories                                               (112)                (66)
    Prepaid expenses                                          (197)                (86)
    Accounts payable                                         1,070                 244
    Accrued liabilities                                      3,791               2,460
      Net cash provided by operating activities             12,986               9,581

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for property and equipment                      (10,931)            (10,675)
  Proceeds from sale of property and equipment                   4                  50
  Payment received on notes receivable                          84                 172
  Investment in and advances to affiliates                    (657)                  -  
  Payments received from affiliates                            280                 280
  Payments for intangible assets                               (24)                (61)
  Increase in other assets                                    (843)               (782)
    Net cash used in investing activities                  (12,087)            (11,016)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid to preferred shareholders                       -                (224)
  Dividends paid to common shareholders                       (422)               (224)
  Proceeds from issuance of common stock                       199               1,273
  Proceeds from new long-term debt and notes payable         5,298               3,809
  Principal payments on subordinated debt                     (500)                  -  
  Principal payments on long-term debt                      (1,625)             (1,997)
  Net borrowings (payments) under line-of-credit
    agreements and short-term notes payable                 (2,050)                975
  Decrease in other liabilities                                (28)               (155)
    Net cash provided by financing activities                  872               3,457

INCREASE IN CASH                                             1,771               2,022

CASH AT BEGINNING OF THE PERIOD                              1,110                 984

CASH AT END OF PERIOD                                  $     2,881         $     3,006


See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION                                          Page 6

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                  QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                       Third Quarter Ended
                          October 1, 1995


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   The accompanying unaudited financial statements have been prepared in
     accordance with generally accepted accounting principles for interim
     financial information and with the instructions to Form 10-Q and Rule 10-01
     of Regulation S-X.  They do not include all information and footnotes
     required by generally accepted accounting principles for complete financial
     statements.  However, except as disclosed herein, there has been no
     material change in the information disclosed in the notes to consolidated
     financial statements included in the Annual Report on Form 10-K of Kahler
     Realty Corporation and subsidiaries (the Company) for the year ended
     January 1, 1995.  In the opinion of management, all adjustments (consisting
     of normal recurring accruals) considered necessary for a fair presentation
     have been included.  Operating results for the first nine months ended
     October 1, 1995 are not necessarily indicative of the results that may be
     expected for the year ending December 31, 1995.

2.   All comparative data reflects application of consistent accounting
     principles and contains no prior period adjustments.

3.   Revenues of the Company are classified into two components.  The Company
     uses this presentation to show the total scope of the Company's operations.
     The components of revenue are:

     Revenue of owned operations include revenues from lodging properties in
     which the Company has an interest greater than 50%, management fees
     generated from properties partially-owned (50% or less) and properties
     owned by others.  Also included are revenues from Anderson's Formal Wear,
     Textile Care Services and interest income.

     Other properties managed and/or partially-owned includes all revenue of
     properties partially-owned (50% or less) by the Company and the properties
     managed for others.  Under generally accepted accounting principles, this
     revenue is not included in revenue of owned operations and the Company's
     interest in partially-owned properties is reflected in the Consolidated
     Statements of Operations as equity earnings of affiliates.

4. Supplemental disclosure of cash flow information.
<TABLE>
<CAPTION>
   Cash paid (received) for:
                                  Nine Months Ended    Nine Months Ended
                                   October 1, 1995      October 2, 1994    

       <S>                          <C>                  <C>
       Interest paid                $   9,275            $   7,777
       Interest received                 (348)                (590)
       Income taxes                       702                  669
</TABLE>
5.  Income per share is computed on a primary share basis using the weighted
    average number of outstanding common shares plus common stock equivalents
    aggregating 4,340,000 and 3,926,000 for the third quarter of 1995 and 1994,
    respectively, and 4,317,000 and 3,832,000 for the nine months ended October
    1, 1995 and October 2, 1994.

 Income per share for the nine months ended October 1, 1995 is presented on
 a fully diluted basis using the weighted average number of outstanding common
 shares plus stock equivalents aggregating 4,340,000.   Income per share
 computed on a fully diluted basis for the third quarter of 1995 and 1994 and
 the nine months ended October 2, 1994 is the same as on a primary share
 basis.

<PAGE>
PART I.  FINANCIAL INFORMATION                                          Page 7

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                  QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                       Third Quarter Ended
                          October 1, 1995

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued


6.  The Board of Directors during the third quarter of 1995 and 1994 declared
    quarterly dividends of $.04 and $.02 per share to common shareholders of
    record on October 2, 1995 and October 1, 1994, respectively. These dividends
    totaling $169 and $82 were paid October 24, 1995 and October 21, 1994.  Year
    to date 1995 and 1994, the Company paid dividends of $.10 per share, and
    $.06 per share, to common shareholders for a total dividend of $422 and
    $224, respectively.

    During the third quarter of 1994, the Company paid a quarterly dividend of
    $0.5625 per share to preferred shareholders of record on September 14, 1994.
    This dividend, totaling $65, was paid on September 15, 1994.  Year to date 
    1994, the Company paid dividends of $1.6875 per share to preferred
    shareholders for a total dividend of $224.  All preferred shareholders
    converted their outstanding preferred shares to common stock during 1994.

    These dividends have been accounted for as a reduction to retained earnings.


7.  Investment in and advances to affiliates represent the Company's
    proportionate share of the affiliates' assets and liabilities as adjusted to
    reflect the effect of any basis differences. The Company or its subsidiaries
    typically serve as a general partner or limited partner of the partnership
    and operate the hotels under long-term management contracts.
<TABLE>
<CAPTION>
                                        Ownership   October 1,  October 2,
Equity investments                      Interests      1995         1994  

<S>                                        <C>      <C> <C>      <C> <C>
     Provo Park Hotel, Provo, UT           50.0%    $   3,468    $   3,221
     Best Western Copper King Park
        Hotel, Butte, MT                   32.9%          632            -  
     Kahler Park Hotel, Hibbing, MN        25.0%          125          150        Quality Hotel Plaza One,
        Rock Island, IL                    26.6%            -           58
                                                    $   4,225    $   3,429
</TABLE>
 The 32.9% equity interest in the 150 room Best Western Copper King Park Hotel
 was acquired in the third quarter of 1995.
 
<TABLE>
 Combined summarized balance sheet information for the Company's affiliates is
 as follows:

    <S>                                              <C>        <C>
    Current assets                                   $  1,596   $    949
    Noncurrent assets                                  19,767     15,643
    Current liabilities                                 1,887      1,272
    Long-term debt, principally mortgages              11,793      9,295
    Other long-term liabilities                         1,311      1,302
    Owner's equity                                      6,372      4,723
</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION                                          Page 8

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                  QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                       Third Quarter Ended
                          October 1, 1995

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
                                                    Nine Months Ended
                                             October 1, 1995   October 2, 1994
  The Company's income from affiliates
   before taxes is as follows:
<S>                                           <C>               <C>
     Management fees                          $      312        $     253
     Equity in net earnings                          569              250
                                              $      881        $     503

  Combined summarized operating results 
   reported by these affiliates
   are as follows:
     Revenues                                 $    10,353       $   8,473
     Net income                                       856             196

</TABLE>
8.  On August 1, 1995 the Company acquired the 112 room full-service Canyon
    Springs Park Hotel in Twin Falls, Idaho.  The purchase was financed with a
    first mortgage of $3.8 million, a note payable to the seller of $400 and
    $1.6 million from available cash and lines of credit.

    On July 1, 1995, the Company acquired a 32.9% equity interest and took over
    the operating responsibility of the 150 room full-service Best Western
    Copper King Park Hotel in Butte, Montana. 

    In April 1995, construction of a 108 room expansion of the Boise Park Suites
    Hotel began.  Substantially all of the remaining construction cost will be
    paid for with a $4.9 million construction and permanent loan.

    The Company continues to study the possibility of converting to a real
    estate investment trust simultaneously with a public offering of its common
    shares. In the event the offering is not completed, offering costs incurred
    will be borne by the Company.  Offering costs incurred to date are $660. 



MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION


General

 The management's discussion and analysis of financial condition and results
 of operations set forth below follows the presentation of the Company's
 Consolidated Statements of Operations.  This discussion should be read in
 conjunction with this statement and the other Consolidated Financial
 Statements and Notes thereto appearing in this Form 10-Q.

 Revenues of the Company are classified into two components which are defined
 in Note 3 of the Notes to Consolidated Financial Statements.  The Company
 uses this presentation to show the total scope of the Company's operations.

<PAGE>
PART I.  FINANCIAL INFORMATION                                          Page 9

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                  QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                       Third Quarter Ended
                          October 1, 1995


 The Company's principal business is the ownership and management of hotel
 properties.  The following table sets forth certain financial information
 from owned operations for the lodging segment, stating the lodging revenue
 components as a percentage of total lodging revenue, for the periods
 indicated.
<TABLE>
<CAPTION>
                                             Third Quarter        First Nine Months 
                                            1995      1994         1995      1994  
<S>                                        <C>       <C>          <C>       <C>
    Room revenue                            59.4%     59.5%        59.0%     58.9%
    Food and beverage revenue               29.2      29.7         29.9      30.2
    Other - Golf, rents, phone, etc.        10.7      10.3         10.5      10.4
          - Management fees                   .7        .5           .6        .5
        Total lodging revenues             100.0     100.0        100.0     100.0
    Lodging operating expenses              75.9      75.8         74.8      74.9
    Lodging operating income before
      interest, depreciation and
      corporate expenses                    24.1%      4.2%        25.2%     25.1%
</TABLE>
 The Company's operations have benefitted from the addition of  new management
 contracts and the acquisition of  new properties.  In January 1995, the
 Company entered into a management contract with a 127 room property in
 Waverly, Iowa.  The Company acquired a 32.9% interest in and management
 contract with the 150 room Best Western Copper King Park Hotel in Butte,
 Montana in July, 1995.  In August 1995, the Company acquired the Best Western
 Canyon Springs Park Hotel in Twin Falls, Idaho, a 112 room property.  In March
 1994, the Company acquired Pocatello Park Quality Inn which is a 152 room
 property in Pocatello, Idaho.  In December 1994, the Company acquired the
 Green Oaks Inn and Conference Center in Fort Worth, Texas which it had managed
 since 1990.
<TABLE>
 The following table sets forth certain operating data for the hotels owned and
 managed by the Company:
<CAPTION>
 Hotel Operating Data:
                                             Third Quarter                   First Nine Months 
                                         1995              1994             1995          1994  

<S>                                    <C>               <C>            <C>           <C>
  Number of Hotels, period end              22                19               22            19
  Room Nights Available                427,235           393,083        1,239,338     1,166,919
  Occupancy                               72.8%             71.2%            68.7%         67.4%
  Average Daily Room Rate 
   per Occupied Room                   $ 62.42           $ 60.99          $ 65.39       $ 63.89
  Average Daily Revenue
   per Available Room                  $ 45.43           $ 43.41          $ 44.91       $ 43.07

</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION                                         Page 10

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                   QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                        Third Quarter Ended
                          October 1, 1995


Results of Operations

 This discussion should be read in conjunction with the Consolidated Statements
 of Operations.

 Lodging 

 Total lodging revenue for the third quarter and first nine months of 1995
 increased by $3.3 million and $9.0 million or 14.2% and 12.6% compared to the
 same periods in 1994.  These increases are primarily the result of
 acquisitions subsequent to the first nine months in 1994, which are outlined
 above.  The Company's room revenues also increased due to increased
 occupancies and higher rates.  The Company's occupancy percentage increased
 from 71.2% to 72.8% in the third quarter and from 67.4% to 68.7% for the first
 nine months of 1995 compared with the same periods in 1994.  The Company's
 hotels in the intermountain west states of Utah, Arizona and Idaho, and the
 conference center hotel in Texas primarily generated the increase in average
 daily room rate and occupancy.  This is a  result of strong economies in these
 areas and good marketing efforts by the Company.

 Food and beverage revenues increased by $859 and $2.4 million or 12.3% and
 11.4% when comparing the third quarter and the first nine months of 1995 with
 the same periods in 1994.  This is primarily the result of acquiring new hotel
 properties as discussed above.

 Lodging operating costs and expenses in the third quarter of 1995 increased
 by $2.6 million from $17.8 million to $20.4 million and increased for the
 first nine months of 1995 by $6.6 million from $53.3 million to $59.9 million
 when comparing the same periods in 1994.  This again is primarily due to the
 acquisition of new hotel properties.

 The gross operating margin for lodging decreased to 24.1% from 24.2% in the
 third quarter and increased to 25.2% from 25.1% for the first nine months of
 1995 when comparing the same periods in 1994.


 Formal Wear, Laundry and Other

 Formal wear revenues increased 4.3% to $2.6 million from $2.5 million in the
 third quarter and increased by 4.1% to $7.6 million from $7.3 million for the
 first nine months when comparing 1995 and 1994.  The third quarter of 1995
 improvement resulted from an increase in the volume of units shipped of 1.4%
 and an increase of revenue per unit of 2.1%.  The first nine months of 1995
 improvement resulted from an increase in the volume of units shipped of 1.7%
 and an increase of revenue per unit of 1.6%.

 Formal wear operating expenses increased $219 and $451 or approximately 12.8%
 and  8.3%  when comparing the third quarter and the first nine months of 1995
 to the same periods a year ago.  The increases are primarily for employee
 related expenses and increases in rental expense for the retail stores.  As
 a percentage of revenue, formal wear expenses increased in the third quarter
 to 73.6% from 68.1% and for the first nine months increased to 76.9% from
 73.9% for 1995 when compared with the same periods in 1994.

<PAGE>
PART I.  FINANCIAL INFORMATION                                         Page 11

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                   QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                        Third Quarter Ended
                          October 1, 1995



 Laundry revenues for third quarter of 1995 decreased 12.8% to $1.4 million
 from $1.6 million and decreased for the first nine months of 1995 by 9.3% to
 $4.4 million from $4.9 million in 1994.  This decrease was primarily the
 result of downsizing the Utah laundry facility in the fourth quarter of 1994. 
 This downsizing was the result of the Company's efforts to discontinue laundry
 services for unprofitable products and accounts.  Offsetting this decrease was
 an increase in revenues at the Rochester facility of approximately 3.3% for
 the first nine  months.

 Laundry operating expenses for the third quarter decreased as a percentage of
 laundry revenue to 73.8% in 1995 from 90.3% in 1994.  For the first nine
 months of 1995 operating expenses decreased to 78.6% from 95.0% as a
 percentage of revenue compared to 1994.  The decreases are primarily due to
 greatly improved efficiencies associated with the laundry facility in
 Rochester, which opened in April 1993.  Productivity measured in pounds
 produced per labor hour at the Rochester facility increased to 92.1 in 1995
 as compared to 64.8 in 1994, a 42.1% improvement.  Also contributing to this
 improvement was the downsizing at the Utah facility which was mentioned above.


 Interest Income

 Interest income for third  quarter of 1995 decreased by $94 from 1994 and for
 the first nine months decreased $153 in 1995.  This resulted primarily from
 an increase in interest income from a guarantee agreement with the mortgagor
 of the Salt Lake Hilton which was offset by the consolidation of the Green
 Oaks Inn & Conference Center which was acquired at the end of 1994.  Prior to
 the acquisition, the Company held a mortgage receivable and recognized
 interest income. 


 Corporate Expenses

 Corporate expenses, primarily professional fees and employee related expenses,
 increased in the third quarter by $166 and increased in the first nine months
 by $386 when compared with the same periods in 1994.


 Depreciation and Amortization

 Depreciation and amortization increased to $2.3 million from $2.1 million when
 comparing 1995 and 1994 third quarters.  Comparing the first nine months for
 the same years, depreciation and amortization increased to $6.7 million from
 $6.4 million.  This is primarily the result of acquiring new hotel properties
 as discussed above.


 Interest Expense

 Interest expense for third quarter and the first nine months for 1995
 increased by $158 and $970 respectively when compared to the same periods in
 1994.  The increase in the amount of interest expense is attributed to the
 increase in the prime lending rate, and the debt associated with the
 acquisition of Pocatello Park Quality Inn Hotel and Best Western Canyon
 Springs Park Hotel. 
<PAGE>
PART I.  FINANCIAL INFORMATION                                         Page 12

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                   QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                        Third Quarter Ended
                          October 1, 1995



 Equity Earnings of Affiliates

 Equity earnings of affiliates for the third quarter was $278 in 1995 compared
 with $152 in 1994.  Equity earnings of affiliates in the first nine months of
 1995 was $569 compared with equity earnings of $250 in 1994.  This activity
 can be further understood by referencing Footnote 7 of the Notes to
 Consolidated Financial Statements.  For 1995, the Company received equity
 earnings of $583 and $32  from Provo Park Hotel and Copper King Park Hotel,
 respectively, and incurred an  equity loss of $46 from Kahler Park Hotel.  For
 the same period in 1994, the Company received equity earnings of $415 from
 Provo Park Hotel and incurred equity losses of $56 and $109 from Kahler Park
 Hotel and Plaza One Hotel, respectively.


 Net Income

 Net income for the third quarter increased to $1.0 million in 1995 from $777 
 in 1994.  For the nine months of 1995 net income increased to $3.5 million
 compared to $2.6 million in 1994.  The increase was primarily due to increased
 revenues in the lodging and laundry segments, and the improved operating
 margin in the laundry segment.


Liquidity and Capital Resources

 For this discussion, reference to 1995 represents the first nine months of
 1995 and reference to 1994 represents the first nine months of 1994.


 Cash Flows

 Net cash provided by operating activities increased $3.4 million  over 1994
 to $13.0 million  for 1995.  The Company's improved operating income was the
 primary contributor to this improvement.

<PAGE>
PART I.  FINANCIAL INFORMATION                                         Page 13

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                   QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                        Third Quarter Ended
                          October 1, 1995
 

 Capital Expenditures

 Capital expenditures for 1995 and 1994 totaled approximately $10.9 million and
 $10.7 million, respectively.  In 1995, $5.7 million, $2.0 million and $2.1
 million were used for the acquisition of the Best Western Canyon Springs Park
 Hotel, the construction of a 108 suite addition at the Boise Park Suites Hotel 
 and to remodel and refurbish existing hotels and to purchase laundry and
 formal wear equipment, respectively.  The remaining $1.1 million was used for
 garment purchases.  In 1994, approximately $5.2 million and $672 of the funds
 were used for the acquisition of Pocatello Park Hotel and laundry equipment,
 respectively.  Approximately $3.6 million and $1.2 million of funds were used
 for refurbishment of existing properties and purchase of garments,
 respectively. 


 Investment in and Advances to Affiliates

 The Company received a $280 distribution from the Provo Park Hotel in 1995 and
 1994.  The Company made an investment of $600 and $57 to affiliates related
 to Copper King Park Hotel and Kahler Park Hotel, respectively.   See Footnote
 7 of Notes to Consolidated Financial Statements for further discussion.



Financing

 In 1995 the Company made a scheduled $500 payment on it's subordinated debt,
 normal principal retirements of $1.6 million and $2.1 million of repayments
 on the lines of credit and short- term notes.  In 1995, net cash provided from
 proceeds of new long-term debt was $5.3 million. $4.2 million related to the
 acquisition of Canyon Springs Park and $1.1 million  relates  primarily to the
 construction of a 108 suite addition to the Boise Park Suites Hotel.  In 1994,
 net cash provided from proceeds of new long-term debt of $3.8 million and net
 borrowing under line-of-credit agreements of $1.7 million relates to the cash
 requirements for the acquisition of Pocatello Park Hotel.   The Company also
 made payments of $750 on an unsecured short term note payable in 1994.


 Inflation

 Operators of hotels in general possess the ability to adjust room rates
 quickly.  However, competitive pressures have limited and may in the future
 limit the Company's ability to raise rates in the response to inflation.  
<PAGE>
PART I.  FINANCIAL INFORMATION                                         Page 14

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                   QUARTERLY REPORT ON FORM 10-Q
           (Dollars in Thousands Except Per Share Data)
                        Third Quarter Ended
                          October 1, 1995


 Seasonality

 The Company's hotel operations historically have been seasonal in nature,
 reflecting higher occupancy rates during the first and third quarters.  The
 higher occupancy rates during the first quarter are due to increased seasonal
 demand at the Sheraton San Marcos Golf Resort and Conference Center and the
 greater Salt Lake City area hotels due to winter skiing.  The third quarter
 typically has higher occupancy rates due to summer vacation travel.   In
 addition, the formal wear segment is highly seasonal with the greatest amount
 of rentals during the second quarter which typically includes higher demand
 for high school proms and weddings.

 Other

 The Company continues to study the possibility of converting to a real estate
 investment trust simultaneously with a public offering of its common shares. 
 In the event the offering is not completed, offering costs incurred will be
 borne by the Company.  Offering costs incurred to date are $660. 

 The Company is in the preliminary stage of litigation with a
 telecommunications company relating to disputed unremitted telephone revenue
 and fees at ten of the Company's hotels.  The Company has denied all claims
 and has made counter claims relating to breach of contract and intends to
 pursue all available alternatives.  The outcome of this dispute is uncertain.

 In December 1994 the Company received notice of default relating to bond
 indebtedness on one of its wholly owned properties.  A group of bondholders
 have claimed the Company incorrectly calculated added interest for this hotel
 for the year 1993 in the amount of approximately $267.  The Company denies the
 claim.  If the bondholders were found judicially correct, the Company would
 owe this amount for 1993 and an additional $618 for 1994.

 Additionally, the Company is involved in various litigation in the normal
 course of business.  The Company does not expect the outcome of the matters
 described above to have a material adverse effect on the Company's
 consolidated financial statements.

 The Company is required to adopt Statement of Financial Accounting Standards
 (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS
 No. 107, "Disclosure about Fair Value of Financial Instruments" no later than
 its fiscal year 1995.  In addition, the Company is required to adopt Statement
 of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
 Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
 no later than its fiscal year 1996.  The Company has not completed all of the
 analysis required to estimate the impact of the new statements.  Management
 of the Company does not believe that the adoption of these statements will
 have any material adverse effect on the financial position or results of
 operations of the Company.




PART II.  OTHER INFORMATION

 Item 6.  Exhibits and Reports on Form 8-K

    (a)  Exhibits

      27 Financial Data Schedule
<PAGE>
                                                                       Page 15

            KAHLER REALTY CORPORATION AND SUBSIDIARIES
                   QUARTERLY REPORT ON FORM 10-Q
                        Third Quarter Ended
                          October 1, 1995






                             SIGNATURE

 Pursuant to the requirements of the Securities Exchange Act of 1934, the
 Registrant has duly caused this report to be signed on its behalf by the
 undersigned thereunto duly authorized on November 14, 1995.







                     KAHLER REALTY CORPORATION


 
     By: Harold W. Milner             By: Steven R. Stenhaug      
        Harold W. Milner                Steven R. Stenhaug
        President, CEO                  Senior Vice President-Treasurer