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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2001

Commission File Number 0-20449

PRICE ENTERPRISES, INC.(Exact name of registrant as specified in its charter)

|Maryland(State or other jurisdiction of
incorporation or organization) | 33-0628740(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------- | ----------------------------------------------

17140 Bernardo Center Drive, Suite 300, San Diego, California 92128(Address of principal executive offices) (Zip Code)

(858) 675-9400(Registrant's telephone number, including area code)

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

The
registrant had 13,309,006 shares of common stock, par value $.0001 per share, outstanding at August 13, 2001.

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PRICE ENTERPRISES, INC.

INDEX TO FORM 10-Q

|PART IFINANCIAL INFORMATION |                                                                                              | 3                                         
|---------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------
|                             | ITEM 1FINANCIAL STATEMENTS (UNAUDITED)                                                      |                                           
|                             |                                                                                              | CONSOLIDATED BALANCE SHEETS               
|                             |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME         
|                             |                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                             |                                                                                              | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                             | ITEM 2MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                           
|                             | ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |                                           
|PART IIOTHER INFORMATION    |                                                                                              | 21                                        
|                             | ITEM 5OTHER INFORMATION                                                                     |                                           
|                             | ITEM 6EXHIBITS AND REPORTS ON FORM 8-K                                                      |                                           

2

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PART IFINANCIAL INFORMATION

ITEM 1FINANCIAL STATEMENTS (UNAUDITED)

PRICE ENTERPRISES, INC.        CONSOLIDATED BALANCE SHEETS        (in thousands)

|                                         |                                        | June 30
2001               |                                            | December 31
2000 |        
|---------------------------------------- | -------------------------------------- | -------------------------- | ------------------------------------------ | ---------------- | -------
|
|ASSETS                                   |                                       
|Real estate assets                       |                                        |                            |                                            |                  |        
|                                         | Land and land improvements             |                            | $                                          | 294,244          |        
|                                         | Building and improvements              |                            |                                            | 334,474          |        
|                                         | Fixtures and equipment                 |                            |                                            | 887              |        
|                                         | Construction in progress               |                            |                                            | 9,488            |        
|                                         |                                        |                            |                                            |                  |        
|                                         |                                        |                            | 639,093                                    |                  |        
|                                         | Less accumulated depreciation          |                            |                                            | (14,158          | )      
|                                         |                                        |                            |                                            |                  |        
|                                         |                                        |                            | 624,935                                    |                  |        
|Investment in real estate joint ventures |                                        |                            | 18,129                                     |                  |        
|Cash and cash equivalents                |                                        |                            | 9,707                                      |                  |        
|Accounts receivable                      |                                        |                            | 4,430                                      |                  |        
|Note receivable from affiliate           |                                        |                            | 39,782                                     |                  |        
|Notes receivable                         |                                        |                            | 13,792                                     |                  |        
|Deferred rents                           |                                        |                            | 4,555                                      |                  |        
|Other assets                             |                                        |                            | 10,026                                     |                  |        
|                                         |                                        |                            |                                            |                  |        
|                                         |                                        | Total assets               |                                            | $                | 725,356
|                                         |                                        |                            |                                            |                  |        
|LIABILITIES AND STOCKHOLDERS' EQUITY     |                                       
|Liabilities                              |                                        |                            |                                            |                  |        
|                                         | Mortgages and notes payable            |                            | $                                          | 187,213          |        
|                                         | Revolving lines of credit              |                            |                                            | 64,600           |        
|                                         | Accounts payable and other liabilities |                            |                                            | 4,645            |        
|                                         |                                        |                            |                                            |                  |        
|                                         |                                        | Total liabilities          |                                            |                  | 256,458
|Commitments                              |                                        |                            |                                            |                  |        
|Stockholders' equity                     |                                        |                            |                                            |                  |        
|                                         | Series A preferred stock               |                            |                                            | 353,404          |        
|                                         | Common stock                           |                            |                                            | 1                |        
|                                         | Additional paid-in capital             |                            |                                            | 115,418          |        
|                                         | Retained earnings (deficit)            |                            |                                            | 75               |        
|                                         |                                        |                            |                                            |                  |        
|                                         |                                        | Total stockholders' equity |                                            |                  | 468,898
|                                         |                                        |                            |                                            |                  |        
|                                         |                                        |                            | Total liabilities and stockholders' equity |                  | $      
|                                         |                                        |                            |                                            |                  |        

Note:
The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements.

See accompanying notes.

3

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PRICE ENTERPRISES, INC.        CONSOLIDATED STATEMENTS OF INCOME        (unauditedamounts in thousands, except per share data)

|                                              |                                      | Second Quarter
Three Months Ended
June 30 |        | Year-to-Date
Six Months Ended
June 30 |       
|--------------------------------------------- | ------------------------------------ | ----------------------------------------- | ------ | ------------------------------------- | ------
|
|Rental revenues                               |                                      | $                                         | 19,148 |                                       | $     
|Expenses                                      |                                      |                                           |        |                                       |       
|                                              | Operating and maintenance            |                                           |        | 2,542                                 |       
|                                              | Property taxes                       |                                           |        | 2,229                                 |       
|                                              | Depreciation and amortization        |                                           |        | 2,310                                 |       
|                                              | General and administrative           |                                           |        | 823                                   |       
|                                              |                                      |                                           |        |                                       |       
|                                              |                                      | Total expenses                            |        |                                       | 7,904 
|                                              |                                      |                                           |        |                                       |       
|Operating income                              |                                      |                                           | 11,244 |                                       |       
|Interest and other                            |                                      |                                           |        |                                       |       
|                                              | Interest expense                     |                                           |        | (3,532                                | )     
|                                              | Interest income                      |                                           |        | 1,796                                 |       
|                                              | Equity in earnings of joint ventures |                                           |        | 204                                   |       
|                                              |                                      |                                           |        |                                       |       
|                                              |                                      | Total interest and other                  |        |                                       | (1,532
|                                              |                                      |                                           |        |                                       |       
|Income before gain on sale of real estate     |                                      |                                           | 9,712  |                                       |       
|                                              | Net gain on sale of real estate      |                                           |        | 1,250                                 |       
|                                              |                                      |                                           |        |                                       |       
|Net income                                    |                                      |                                           | 10,962 |                                       |       
|Dividends paid to preferred stockholders      |                                      |                                           | (8,386 | )                                     |       
|                                              |                                      |                                           |        |                                       |       
|Net income applicable to common stockholders  |                                      | $                                         | 2,576  |                                       | $     
|                                              |                                      |                                           |        |                                       |       
|Basic and diluted net income per common share |                                      | $                                         | .19    |                                       | $     
|Weighted average common shares outstanding    |                                      |                                           |        |                                       |       
|                                              | Basic and diluted                    |                                           |        | 13,309                                |       
|Dividends per preferred share                 |                                      | $                                         | .35    |                                       | $     

See accompanying notes.

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PRICE ENTERPRISES, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (unauditedamounts in thousands)

|                                                       |                                                                                   | Year-to-Date
Six Months Ended
June 30                                         |                                                     
|------------------------------------------------------ | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ----------------------------------------------------
|
|Operating activities                                   |                                                                                   |                                                                               |                                                     
|Net income                                             |                                                                                   | $                                                                             | 19,701                                              
|                                                       | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                               |                                                     
|                                                       |                                                                                   | Depreciation and amortization                                                 |                                                     
|                                                       |                                                                                   | Deferred rents                                                                |                                                     
|                                                       |                                                                                   | Equity in earnings of joint venture                                           |                                                     
|                                                       |                                                                                   | Net gain on sale of real estate                                               |                                                     
|                                                       | Changes in operating assets and liabilities:                                      |                                                                               |                                                     
|                                                       |                                                                                   | Accounts receivable and other assets                                          |                                                     
|                                                       |                                                                                   | Accounts payable and other liabilities                                        |                                                     
|                                                       |                                                                                   |                                                                               |                                                     
|                                                       | Net cash provided by operating activities                                         |                                                                               |                                                     
|Investing activities                                   |                                                                                   |                                                                               |                                                     
|                                                       |                                                                                   | Additions to real estate assets                                               |                                                     
|                                                       |                                                                                   | Proceeds from the sale of real estate assets                                  |                                                     
|                                                       |                                                                                   | Contributions to real estate joint ventures                                   |                                                     
|                                                       |                                                                                   | Advances on notes receivable                                                  |                                                     
|                                                       |                                                                                   | Repayments on notes receivable                                                |                                                     
|                                                       |                                                                                   |                                                                               |                                                     
|                                                       | Net cash used in investing activities                                             |                                                                               |                                                     
|Financing activities                                   |                                                                                   |                                                                               |                                                     
|                                                       |                                                                                   | Advances from revolving lines of credit and notes payable                     |                                                     
|                                                       |                                                                                   | Repayments of revolving lines of credit and notes payable                     |                                                     
|                                                       |                                                                                   | Dividends paid                                                                |                                                     
|                                                       |                                                                                   | Proceeds from exercise of stock options                                       |                                                     
|                                                       |                                                                                   |                                                                               |                                                     
|                                                       | Net cash provided by financing activities                                         |                                                                               |                                                     
|                                                       |                                                                                   |                                                                               |                                                     
|                                                       |                                                                                   |                                                                               | Net (decrease) increase in cash and cash equivalents
|Cash and cash equivalents at beginning of period       |                                                                                   |                                                                               | 49,996                                              
|                                                       |                                                                                   |                                                                               |                                                     
|Cash and cash equivalents at end of period             |                                                                                   | $                                                                             | 9,707                                               
|                                                       |                                                                                   |                                                                               |                                                     
|Supplemental cash flow information:                    |                                                                                   |                                                                               |                                                     
|                                                       |                                                                                   | Cash paid for interest                                                        |                                                     
|Supplemental schedule of noncash financing activities: |                                                                                   |                                                                               |                                                     
|                                                       |                                                                                   | Assumption of loans to acquire real estate assets                             |                                                     
|                                                       |                                                                                   | Reduction in note receivable to acquire interest in real estate joint venture |                                                     
|                                                       |                                                                                   | Receipt of common stock of former tenant in exchange for amounts due PEI      |                                                     

See accompanying notes.

5

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PRICE ENTERPRISES, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (UNAUDITED)        June 30, 2001

Note 1Organization and Significant Accounting Policies

Organization

Price Enterprises, Inc. (PEI) operates as a real estate investment trust (REIT) incorporated in the state of Maryland. Our principal business is to own,
acquire, operate, manage and lease real property, primarily open-air shopping centers. We became a REIT in September 1997 after we spun-off our merchandising segment and
certain other assets to PriceSmart, Inc. In November 1999 Excel Legacy Corporation (Legacy) completed its exchange offer for our common stock. In the exchange offer, Legacy acquired
approximately 91.3% of our common stock, which represents approximately 77.5% of PEI's voting power.

In
accounting for this transaction, we followed Accounting Principles Board Opinion No. 16, "Business Combinations," which requires we treat this transaction as a purchase. In
following purchase accounting, we allocated the cost basis of Legacy's investment in our common stock among our assets and liabilities to adjust them to fair value at the time of the completion of the
exchange offer.

Accounting Principles

We prepared the financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those
rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States (GAAP) can be omitted. Certain prior year data have
been reclassified to conform to the 2001 presentation.

We
are responsible for the unaudited financial statements included in this document. The financial statements include all normal and recurring adjustments that are considered
necessary for the fair
presentation of our financial position and operating results. You should also read the financial statements and notes in our latest annual report on Form 10-K, as amended.

Revenues,
expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as
those for the full year.

Real Estate Assets and Depreciation

Prior to Legacy's exchange offer for our common stock, we recorded real estate assets at historical costs, and adjusted them for recognition of impairment
losses. In following purchase accounting, we adjusted the historical costs of our real estate assets to fair value. Our consolidated balance sheets at June 30, 2001 and December 31, 2000
reflect the new basis of our real estate assets.

We
expense as incurred ordinary repairs and maintenance costs, which include building painting, parking lot repairs, etc. We capitalize major replacements and betterments, which
include HVAC equipment, roofs, etc., and depreciate them over their estimated useful lives.

6

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Following completion of Legacy's exchange offer for our common stock, we adopted Legacy's accounting policy of depreciating real estate assets. We compute real estate asset
depreciation on a straight-line basis over their estimated useful lives, as follows:

Land improvements

40 yearsBuilding and improvements

40 yearsTenant improvements

Term of lease or 10 yearsFixtures and equipment

3-7 years


We
capitalize interest incurred during the construction period of certain assets and this interest is depreciated over the lives of those assets. The following table shows interest
expense and the amount capitalized (amounts in thousands):

Three Months Ended
June 30

Six Months Ended
June 302001

2000

2001

2000Interest incurred

$
3,885

$
3,035

$
7,723

$
5,228Interest capitalized


(353
)

(474
)

(793
)

(918
)


Use of Estimates

Preparing financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. We continually review our estimates and make adjustments as necessary, but actual results could differ from what we
envisioned when we made these estimates.

New Accounting Standards

In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and in 1999 they voted to delay the effective date of this SFAS by one year. SFAS No. 133 establishes a new model for accounting for derivatives and hedging
activities, where all derivatives must be recognized as assets and liabilities and measured at fair value. We adopted this standard on January 1, 2001 and it did not have a significant impact
on our financial statements.

Note 2Net Income Per Share

In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires presentation of two
calculations of earnings per common share. Basic earnings per common share equals net income applicable to common stockholders divided by weighted average common shares outstanding during the period.
Diluted earnings per common share equals net income applicable to common stockholders divided by the sum of weighted average common shares outstanding

7

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during the period plus common stock equivalents. Common stock equivalents are shares assumed to be issued if outstanding stock options that are dilutive were exercised. We did not have any common
stock equivalents during the periods presented.

Note 3Real Estate Assets

Acquisitions

During the first six months of 2001, we acquired the following properties:

|Location         |  | Description     |  | Date
Acquired |  | Purchase Price
(000's) |        | Mortgage
Assumed (000's)
|---------------- |  | --------------- |  | ------------- |  | ---------------------- | ------ | ------------------------
|Walnut Creek, CA |  | Land            |  | 1/4/01        |  | $                      | 2,816  |                         
|Anaheim, CA      |  | Land            |  | 1/29/01       |  |                        | 23,288 |                         
|Tempe, AZ        |  | Shopping Center |  | 5/18/01       |  |                        | 23,914 |                         
|Mesa, AZ         |  | Shopping Center |  | 5/18/01       |  |                        | 31,367 |                         

We
used the proceeds from tax-deferred exchange transactions on properties we sold in 2000 and assumed loans to fund these acquisitions.

During
the first six months of 2000, we acquired the following properties:

|Location                      |  | Description         |  | Date Acquired |  | Purchase Price
(000's) |        | Mortgage
Assumed (000's) |  
|----------------------------- |  | ------------------- |  | ------------- |  | ---------------------- | ------ | ------------------------ | -
|Middletown, OH                |  | Retail building     |  | 2/9/00        |  | $                      | 6,709  |                          | $
|Terre Haute, IN               |  | Retail building     |  | 2/9/00        |  |                        | 5,762  |                          |  
|San Diego/Rancho Bernardo, CA |  | Office building (1) |  | 2/25/00       |  |                        | 16,025 |                          |  

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We
purchased all three of these properties from Legacy and we funded these acquisitions through advances on our unsecured revolving credit facility.

Also
during the second quarter of 2000 we purchased a 50% interest in a real estate development joint venture in Westminster, CO from Legacy for an initial payment of
$8.1 million. The purchase price was based on the property's existing operating income, with additional payments estimated to be $4.8 million due through the completion of construction.

Dispositions

During the first six months of 2001, we sold a property in Aurora, CO for $1.6 million and another property in Sacramento, CA for $5.1 million.
We recorded a $1.2 million net gain on the sale of these

8

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properties. We are using the proceeds from the sales to purchase additional properties in tax-deferred exchange transactions.

In
May 2001, we executed a master lease of our existing four self-storage properties to certain of our officers. Effective as of the date of the agreement, the
officers ceased being employees of PEI and Legacy. The initial rent paid under this agreement is $5.1 million per year, and during the second quarter of 2001 we recorded $0.9 million in
rental revenue related to this lease. As part of the agreement, we have the right to require the lessee to purchase the properties from us at a price based upon the properties' net operating income as
defined by the agreement. In addition, we intend to develop four additional self-storage properties that the lessees will have the right to acquire from us upon completion and
stabilization of the properties. In connection with this agreement, we recorded a loss of $0.2 million, which is reflected in operating expenses.

There
were no dispositions during the first and second quarters of 2000.

Note 4Notes Receivable

In March 2000, we executed a $15 million note receivable with Legacy due December 2002. The note was amended to allow Legacy to borrow up
to $40.0 million on the note. The note bears an interest rate of LIBOR plus 375 basis points (7.7% at June 30, 2001) on the first $15.0 million. Amounts borrowed in excess of
$15 million bear interest at a fixed rate of 12.5% per year. As of June 30, 2001, Legacy owed $39.8 million on this note at a weighted average interest rate of 10.7%.

We
also have $13.8 million in notes receivable outstanding at June 30, 2001 related to various development projects. The notes bear interest at 8% to 25% per year and
are secured by the related projects. The notes mature on various dates through December 2001.

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Note 5Debt

We had the following notes and mortgages payable outstanding at June 30, 2001 and December 31, 2000 (amounts in thousands):

|                                                                                                                                                                                                             |  | June 30
2001 |         | December 31
2000
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ----------------
|Mortgage payable with GMAC Commercial Mortgage Corporation, bearing interest at LIBOR plus 98 basis points (5.13% at June 30, 2001). The mortgage is secured by five of our properties and matures June 2004 |  | $            | 121,375 |                 
|Revolving $75.0 million credit facility bearing interest at LIBOR plus 140 to 185 basis points (weighted average rate at June 30, 2001 was 5.55%) due December 2001                                          |  |              | 64,600  |                 
|Mortgages and notes payable on six properties bearing interest ranging from 6.59% to 9.00%. The loans are secured by the properties and mature on various dates ranging from August 2001 to March 2014       |  |              | 53,063  |                 
|Capital lease arrangement with an individual in conjunction with the San Diego/Rancho Bernardo, CA office building. The capital lease has an effective interest rate of 4.43% and matures in December 2004   |  |              | 11,516  |                 
|Construction loans payable with a bank bearing interest at LIBOR plus 275 basis points (6.74% at June 30, 2001). The loans are due April 2003 and are secured by the projects                                |  |              | 1,259   |                 
|                                                                                                                                                                                                             |  |              |         |                 
|Total                                                                                                                                                                                                        |  | $            | 251,813 |                 
|                                                                                                                                                                                                             |  |              |         |                 

Note 6Related Party Transactions

Following Legacy's completion of its exchange offer, Legacy took over daily management of PEI, including property management, finance and administration. We
reimburse Legacy for these services. We expensed $0.8 million for these services during the second quarter of 2001 and $1.7 million for the six months
year-to-date period of 2001, which was based on our historical costs for similar expenses.

During
the second quarter of 2001 we recorded $1.1 million in interest income from Legacy related to the note receivable discussed in Note 4, and $2.0 million for
the six month year-to-date period of 2001.

In
conjunction with the San Diego/Rancho Bernardo, CA office building purchased from Legacy, we leased the building back to Legacy under a 10-year lease agreement. During
the second quarter of 2001, we recorded $0.3 million of rental revenue from Legacy in connection with this lease, and $0.5 million for the six month year-to-date
period of 2001.

In
conjunction with the purchase of the Anaheim land in the first quarter of 2001, we executed a ground lease agreement with Legacy. The lease has a term of 50 years and
requires payments of $2.8 million per year in rent. During the second quarter of 2001 we recorded $0.7 million in rental

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revenue from Legacy related to this lease, and $1.2 million for the six month year-to date period of 2001.

We
discuss other related party transactions with Legacy in Note 3, Note 4, and Note 7.

Note 7Significant Events

On March 21, 2001, PEI, PEI Merger Sub, Inc., a Maryland corporation (Merger Sub), and Legacy entered into an Agreement and Plan of Merger (the
Merger Agreement). Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will be merged with and into Legacy (the Merger), with Legacy continuing as a
wholly-owned subsidiary of PEI. At the effective time of the Merger, each outstanding share of Legacy common stock, will be exchanged for 0.6667 of a share of PEI common stock, and each option to
purchase shares of Legacy common stock will be exchanged for an option to purchase shares of PEI common stock (with the exercise price and number of shares appropriately adjusted to reflect the
exchange ratio). Following the Merger, PEI will continue to operate as a real estate investment trust under the name Price Legacy Corporation (Price Legacy). The Merger, which is structured to qualify
as a tax-free reorganization, is subject to the approval of the stockholders of both PEI and Legacy and other customary closing conditions.

Also
on March 21, 2001, PEI entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with Warburg, Pincus Equity Partners, L.P. and certain of its
affiliates (Warburg Pincus), pursuant to which PEI agreed to sell to Warburg Pincus (a) 17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable
Preferred Stock, par value $0.0001 per share (the Series B Preferred Stock), and (b) a warrant (the Warrant) to purchase an aggregate of 2.5 million shares of Price Legacy common
stock at an exercise price of $8.25 per share, for an aggregate purchase price of $100,000,000. The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to
dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at $5.56 per share after 24 months from the date of issuance. The 9% coupon
will be paid in kind with additional shares of Series B Preferred Stock for the first 45 months from issuance. Since the Warburg Pincus investment and the Merger are subject to
substantially the same conditions, it is expected that the two transactions will close concurrently (assuming they are both completed).

On
April 12, 2001, PEI and Sol Price, a significant stockholder of PEI and Legacy through various trusts, agreed to convert an existing Legacy loan payable to a trust
controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of the Series B Preferred Stock and a warrant to purchase 233,679 shares of our common stock at an exercise
price of $8.25 per share concurrently with the closing of the merger with Legacy and the sale of the Series B Preferred Stock to Warburg Pincus. These transactions are subject to stockholder
approval and other customary conditions.

In
addition, the Merger Agreement obligates PEI to commence a tender offer for all outstanding shares of our common stock (other than those shares currently held by Legacy and those
shares issued in the Merger) at a cash price of $7.00 per share. Legacy currently owns approximately 91.3% of our common stock, with approximately 1,154,717 shares held by the public. The Merger
Agreement further obligates us to commence an exchange offer in which holders of Legacy's outstanding debentures and

11

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notes will be offered shares of our Series A Preferred Stock in exchange for their debt securities valued at par. The tender offer and exchange offer are conditioned on, and expected to close
concurrently with, the Merger.

On
May 14, 2001, PEI, Swerdlow Real Estate Group, Inc. (Swerdlow) and entities affiliated with Swerdlow entered into a Purchase and Sale Agreement effective as of
May 7, 2001 (the Purchase Agreement). Subject to the terms and conditions set forth in the Purchase Agreement, as subsequently amended, PEI has the right to acquire from Swerdlow and its
affiliates up to five properties located in Florida for aggregate consideration of $247.3 million, subject to adjustment, including the assumption of
mortgage indebtedness. The properties are primarily retail centers that contain an aggregate of approximately 2.4 million square feet of gross leasable area. As of May 14, 2001, four
properties were operating and approximately 97% leased to approximately 215 tenants and one property was under development. The top five tenants of the Swerdlow properties as of May 14, 2001,
representing approximately 31% of gross leasable area, were Home Depot, Kmart, Ross, BJ's Wholesale Club and Regal Cinemas. The transaction is subject to satisfactory completion of PEI's due diligence
investigation of the properties, and other customary closing conditions. If the necessary conditions are satisfied, the transaction is expected to be completed in the third quarter of 2001. However,
no assurance can be given that the transaction will be completed on the terms described in the Purchase Agreement, in this Form 10-Q or at all.

12

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ITEM 2MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Our disclosure and analysis in this report contain "forward-looking statements." Forward-looking statements give our current expectations or forecasts of
future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide oral or
written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any other public statements we make may turn out to
be incorrect. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results
may vary materially.

We
undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult
any further disclosures we make on related subjects in our reports on Forms 10-K, 10-Q and 8-K filed with the SEC. Our Form 10-K filing for the
2000 fiscal year listed various important factors that could cause actual results to differ materially from expected and historic results.

We
note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I of our 2000
Form 10-K under the heading "Factors That May Affect Future Performance." You should understand that it is not possible to predict or identify all such factors. Consequently, you
should not consider any such list to be a complete set of all potential risks or uncertainties.

In
Management's Discussion and Analysis we explain our general financial condition and results of operations including:



As
you read Management's Discussion and Analysis, it may be helpful to refer to our financial statements and accompanying notes beginning on page 3. In Management's Discussion and
Analysis we explain the changes in specific line items in the statements of income. Where changes are due to more than one reason, we list the reasons in order of importance.

Rental Revenues

Amount

Change

Percent
Change2nd Quarter 2001

$
19,148

$
1,693

10
%2nd Quarter 2000


17,455




Year-to-Date 2001


36,928


2,002

6
%Year-to-Date 2000


34,926







13

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Revenues
increased $1.7 million to $19.1 million in the second quarter of 2001 compared to the same period in 2000 primarily because:



Revenues
increased $2.0 million to $36.9 million in the six month year-to-date period of 2001 compared to the same period in 2000 primarily
because:



Expenses

Amount

Change

Percent
Change2nd Quarter 2001

$
7,904

$
1,121

17
%2nd Quarter 2000


6,783




Year-to-Date 2001


15,441


1,688

12
%Year-to-Date 2000


13,753







Expenses
increased $1.1 million to $7.9 million in the second quarter of 2001 compared to 2000 primarily because:



Expenses
increased $1.7 million to $15.4 million in the six month year-to-date period of 2001 compared to the same period in 2000 primarily
because:



14

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Operating Income

Amount

Change

Percent
Change2nd Quarter 2001

$
11,244

$
572

5
%2nd Quarter 2000


10,672




Year-to-Date 2001


21,487


314

1
%Year-to-Date 2000


21,173







Operating
income increased for the second quarter and year-to-date periods of 2001 compared to the same periods in the prior year primarily because of the
changes in Rental Revenues and Expenses discussed above.

Interest Expense

Amount

Change

Percent
Change2nd Quarter 2001

$
3,532

$
971

38
%2nd Quarter 2000


2,561




Year-to-Date 2001


6,930


2,620

61
%Year-to-Date 2000


4,310







Interest
expense increased $1.0 million in the second quarter of 2001 compared to 2000 because during the second quarter of 2001 we had an average of $233.4 million debt
outstanding compared to $138.4 million in the second quarter of 2000. Interest expense increased $2.6 million in the six month year-to-date period of 2001
compared to 2000 because during the six month year-to-date period of 2001 we had an average of $218.9 million debt outstanding compared to $124.8 million for the
same period in 2000. The increase in interest expense due to the amount of debt outstanding was partially offset by a decrease in interest rates on our variable rate debt. The weighted average
interest rate on our variable rate debt decreased from 7.64% in June 2000 to 5.49% in June 2001. We discuss our outstanding debt further in "Liquidity and Capital Resources" located
elsewhere in this Form 10-Q.

15

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Interest Income

Amount

Change

Percent
Change2nd Quarter 2001

$
1,796

$
1,420

378
%2nd Quarter 2000


376




Year-to-Date 2001


3,643


2,906

394
%Year-to-Date 2000


737





Interest
income increased $1.4 million in the second quarter of 2001 compared to 2000 primarily because



Interest
income increased $2.9 million in the six month year-to-date period of 2001 compared to the same period in 2000 primarily because



Gain on Sale of Real Estate

During the first six months of 2001 we sold the following properties for a net gain of $1.2 million:

Location

Description

Date
Sold

Sales Price
(000's)Aurora, CO

Retail Building

1/15/01

$
1,592Sacramento, CA

Office Building (1)

6/1/01


5,125


There
were no dispositions during the first six months of 2000.

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Funds From Operations

Three Months
Ended June 30

Six Months
Ended June 302001

2000

2001

2000Net income

$
10,962

$
8,488

$
19,701

$
17,659Depreciation and amortization


2,310


2,498


4,536


4,787PEI's share of depreciation of joint ventures


259


23


518


45Gain on sale of real estate


(1,250
)




(1,159
)

FFO before preferred dividends


12,281


11,009


23,596


22,491Preferred dividends paid


(8,386
)

(8,327
)

(16,744
)

(16,651
)FFO

$
3,895

$
2,682

$
6,852

$
5,840Net cash provided by (used in):Operating activities

$
9,025

$
3,909

$
17,327

$
12,642Investing activities


(21,930
)

(12,658
)

(65,010
)

(33,836
)Financing activities


(3,975
)

10,666


7,394


22,347


Our
Company, as well as real estate industry analysts, generally consider FFO as another measurement of economic profitability for real estate-oriented companies. The Board of
Governors of the National Association for Real Estate Investment Trusts (NAREIT), defines FFO as net income, excluding depreciation and amortization expense, and gains (losses) from certain sales of
property. We calculate FFO in accordance with the NAREIT definition and also exclude provisions for asset impairments and gains (losses) from sale of investments when we calculate FFO. FFO and
adjusted FFO do not represent the cash flows from operations defined by accounting principles generally accepted in the United States and should not be considered as an alternative to net income as an
indicator of our operating performance or to cash flows as a measure of liquidity. Excluded from FFO are significant components in understanding our financial performance.

FFO
before preferred dividends during the second quarter of 2001 increased 11.6% to $12.3 million compared to the second quarter of 2000 and 4.9% to $23.6 million for
the six month year-to-date period of 2001 compared to 2000 primarily because of the changes in revenues and expenses discussed previously. In the fourth quarter of 2000, we
sold $24.3 million of operating properties. The proceeds of these properties were deposited in tax-deferred exchange accounts until we were able to reinvest the proceeds into new
properties. At June 30, 2001, the proceeds had been reinvested in new properties with a total purchase price of $81.4 million, which primarily contributed to the increases in FFO during
the second quarter and year-to-date periods of 2001.

Liquidity and Capital Resources

Liquidity refers to our ability to generate sufficient cash flows to meet the short and long-term cash requirements of our business operations.
Capital resources represent those funds used or available to be used to support our business operations and consist of stockholders' equity and debt.

Cash
flow from operations has been the principal source of capital to fund our ongoing operations and dividend payments, while use of our credit facility and mortgage financing have
been the principal sources of capital required to fund our growth. While we are positioned to finance our business activities through a variety of sources, we expect to satisfy short-term
liquidity requirements through net cash provided by operations and through borrowings.

17

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We continue to evaluate various properties for acquisition or development, which has included acquiring development properties from Legacy once completed. We also continue to evaluate
other investment opportunities. In 2001 we anticipate borrowing available amounts on our credit facility to fund these acquisition and development opportunities. We are also seeking additional funds
through issuing new equity. We anticipate obtaining construction loans to fund our development activities. During the first six months of 2001 we purchased four properties for $81.4 million. We
used the proceeds from tax-deferred exchange transactions on properties sold in 2000 and assumed loans to fund these acquisitions. We are also under contract to buy up to five properties
from Swerdlow Real Estate Group, Inc., discussed below, and are contemplating buying additional properties.

From
time to time we will consider selling properties to better align our portfolio with our geographic and tenant composition strategies. We may also participate in additional
tax-deferred exchange transactions, which allow us to dispose of properties and reinvest the proceeds in a tax efficient manner. During the first six months of 2001 we sold two properties
from our portfolio for $6.6 million. We anticipate a temporary reduction in operating income due to the time lag between selling a property and reinvesting the proceeds. We are also under
contract to sell and are contemplating selling certain other properties.

These
potential purchases and sales may not be completed due to uncertainties associated with contract negotiations and buyer due diligence contingencies.

In
June 2000, we borrowed $121.4 million from GMAC Commercial Mortgage Corporation. The GMAC loan is secured by five retail properties located in Westbury, NY; Signal
Hill, CA; Philadelphia, PA; Wayne, NJ; and Roseville, CA. The GMAC loan bears interest at LIBOR plus 98 basis points, 5.13% at June 30, 2001, and is due in June 2004. We used proceeds of
the loan to repay outstanding amounts on our existing revolving credit facility.

In
connection with our GMAC loan, we reduced our existing revolving credit facility from $125 million of total availability to $75 million of total availability. The
amended facility has a remaining term of one year with interest rates of LIBOR plus 140 to 185 basis points. The rate varies based on our leverage, amounts loaned to Legacy, and other financial
ratios. As of June 30, 2001, we owed $64.6 million on this credit facility at a weighted average interest rate of 5.55%.

On
March 21, 2001, PEI, PEI Merger Sub, Inc., a Maryland corporation (Merger Sub), and Legacy entered into an Agreement and Plan of Merger (the Merger Agreement).
Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will be merged with and into Legacy (the Merger), with Legacy continuing as a wholly-owned
subsidiary of PEI. Following the Merger, PEI will continue to operate as a real estate investment trust under the name Price Legacy Corporation (Price Legacy). The Merger, which is structured to
qualify as a tax-free reorganization, is subject to the approval of the stockholders of both PEI and Legacy and other customary closing conditions.

Also
on March 21, 2001, PEI entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with Warburg, Pincus Equity Partners, L.P. and certain of its
affiliates (Warburg Pincus), pursuant to which PEI agreed to sell to Warburg Pincus (a) 17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable
Preferred Stock, par value $0.0001 per share (the Series B Preferred Stock), and (b) a warrant (the Warrant) to purchase an aggregate of 2.5 million shares of Price Legacy common
stock at an exercise price of $8.25 per share, for an aggregate purchase price of $100,000,000. The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to
dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at $5.56 per share after 24 months from the date of issuance. The 9% coupon
will be paid in kind with additional shares of Series B Preferred Stock for the first 45 months from issuance. Since the Warburg Pincus investment and the Merger are subject to
substantially the same conditions, it is expected that the two transactions will close concurrently

18

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(assuming they are both completed). We anticipate that net proceeds from this transaction will be used to repay debt, fund acquisitions including the properties noted below, and pay costs associated
with the Merger.

In
addition, the Merger Agreement obligates PEI to commence a tender offer for all outstanding shares of our common stock (other than those shares currently held by Legacy and those
shares issued in the Merger) at a cash price of $7.00 per share. Approximately $8.1 million will be needed to purchase the remaining 1,154,717 common shares of our publicly-held
common stock. The Merger Agreement further obligates us to commence an exchange offer in which holders of Legacy's outstanding debentures and notes will be offered shares of our Series A
Preferred Stock in exchange for their debt securities valued at par. The tender offer and exchange offer are conditioned on, and expected to close concurrently with, the Merger.

On
August 10, 2001, PEI commenced the exchange offer and tender offer.

After
completion of the Merger, we will not record interest income on notes receivable due from and rent revenues earned from master leases with Legacy. Total interest income and rent
revenues earned from Legacy were $2.1 million for the second quarter of 2001 and $3.7 million for the six month year-to-date period.

On
May 14, 2001, PEI, Swerdlow Real Estate Group, Inc. (Swerdlow) and entities affiliated with Swerdlow entered into a Purchase and Sale Agreement effective as of
May 7, 2001 (the Purchase Agreement). Subject to the terms and conditions set forth in the Purchase Agreement, as subsequently amended, PEI has the right to acquire from Swerdlow and its
affiliates up to five properties located in Florida for aggregate consideration of $247.3 million, subject to adjustment, including the assumption of mortgage indebtedness. The transaction is
subject to satisfactory completion of PEI's due diligence investigation of the properties and other customary closing conditions. If the necessary conditions are
satisfied, the transaction is expected to be completed in the third quarter of 2001. However, no assurance can be given that the transaction will be completed on the terms described in the Purchase
Agreement, in this Form 10-Q or at all. Approximately $57 million will be needed to complete the purchase of these properties and we expect to use proceeds from the Warburg Pincus investment to
fund this purchase.

Inflation

Because a substantial number of our leases contain provisions for rent increases based on changes in various consumer price indices, fixed rate increases, or
percentage rent if tenant sales exceed certain base amounts, we do not expect inflation to have a material impact on future net income or cash flow from developed and operating properties. In
addition, substantially all leases are triple net, which means specific operating expenses and property taxes are passed through to the tenant.

ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in short-term LIBOR interest rates. We do not have any foreign exchange or
other significant market risk, nor did we have any derivative financial instruments at June 30, 2001.

Our
exposure to market risk for changes in interest rates relates primarily to our unsecured line of credit and GMAC loan. We enter into fixed rate mortgages and variable rate debt
obligations to support general corporate purposes, including acquisitions, capital expenditures and working capital needs. We continuously evaluate our level of variable rate debt with respect to
total debt and other factors, including our assessment of the current and future economic environment.

We
had $221.5 million in variable rate debt outstanding at June 30, 2001. Based upon this debt level, a hypothetical 10% adverse change in interest rates would increase
interest expense by

19

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approximately $1.4 million on an annual basis, and likewise decrease our earnings and cash flows. We cannot predict market fluctuations in interest rates and their impact on our variable rate
debt, nor can there be any assurance that fixed rate long-term debt will be available to us at favorable rates, if at all. Consequently, future results may differ materially from the
estimated adverse changes discussed above.

20

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PART IIOTHER INFORMATION

ITEM 5OTHER INFORMATION

See Note 7 to the Financial Statements and the Liquidity and Capital Resources section in Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussion of the Merger Agreement, the tender offer, the exchange offer, and the Purchase Agreement with Swerdlow.

ITEM 6EXHIBITS AND REPORTS ON FORM 8-K



21

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SIGNATURES

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

|                      |  | PRICE ENTERPRISES, INC. Registrant                               
|--------------------- |  | -----------------------------------------------------------------
|                      |  |                                                                  
|                      |  |                                                                  
|Date: August 13, 2001 |  | /s/GARY B. SABINGary B. Sabin President & Chief Executive Officer
|                      |  |                                                                  
|                      |  |                                                                  
|Date: August 13, 2001 |  | /s/JAMES NAKAGAWAJames Nakagawa Chief Financial Officer          

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