<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
(MARK ONE)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

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

        FOR THE TRANSITION PERIOD FROM                TO

                         COMMISSION FILE NUMBER 1-13092
                            ------------------------

                          MALAN REALTY INVESTORS, INC.
               (Exact name of registrant as specified in charter)

<Table>
<S>                                            <C>
                  MICHIGAN                                      38-1841410
        (State or other jurisdiction                         (I.R.S. Employer
      of incorporation or organization)                   Identification Number)

        30200 TELEGRAPH RD., STE. 105                              48025
           BINGHAM FARMS, MICHIGAN                              (Zip Code)
  (Address of principal executive offices)
</Table>

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (248) 644-7110

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

<Table>
<Caption>
               TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
               -------------------                 -----------------------------------------
<C>                                                <S>
     Common Stock, Par Value $0.01 Per Share            New York Stock Exchange
 9 1/2% Convertible Subordinated Debentures due
                       2004                             New York Stock Exchange
</Table>

     Indicate by check mark whether the Registrant (1) has filed all reports 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 at least the past 90 days.  YES [X]   NO [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K:  YES [X]   NO [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  YES [ ]   NO [X]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $19,370,000 (computed on the basis of $4.34 per
share), which was the last sale price on the New York Stock Exchange on June 30,
2003. (For this computation, the Registrant has excluded the market value of all
shares of its Common Stock reported as beneficially owned by executive officers
and directors of the Registrant; such exclusion shall not be deemed to
constitute admission that any such person is an "affiliate" of the Registrant.)

     As of March 21, 2004, 5,121,370 shares of Common Stock, Par Value $0.01 Per
Share, and $12,093,000 aggregate principal 9 1/2% Convertible Subordinated
Debentures due 2004, were outstanding.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                          PAGE NO.
                                                                          --------
<S>         <C>                                                           <C>
                                       PART I
Item 1.     Business....................................................      2
Item 2.     Properties..................................................      4
Item 3.     Legal Proceedings...........................................      6
Item 4.     Submission of Matters to a Vote of Security Holders.........      7
                                      PART II
Item 5.     Market for Registrant's Common Stock and Related Stockholder
            Matters.....................................................      7
Item 6.     Selected Financial Data.....................................      9
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................     10
Item 8.     Consolidated Financial Statements and Supplementary Data....     19
Item 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................     42
Item 9a.    Controls and Procedures.....................................     42
                                      PART III
Item 10.    Directors and Executive Officers of the Registrant..........     42
Item 11.    Executive Compensation......................................     44
Item 12.    Security Ownership of Beneficial Owners and Management and
            Related Stockholder Matters.................................     47
Item 13.    Certain Relationships and Related Transactions..............     48
Item 14.    Principal Accountant Fees and Services......................     48
                                      PART IV
Item 15.    Exhibits, Consolidated Financial Statement Schedules, and
            Reports on Form 8-K.........................................     49
            Signatures..................................................     50
</Table>
<PAGE>

                                     PART I

ITEM 1. BUSINESS

     Malan Realty Investors, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged in the ownership,
management and leasing of commercial retail properties. Prior to December 2001,
the Company was also engaged in acquisition, development and redevelopment of
such properties. As of December 31, 2003 the Company's operating units are
comprised of 27 community shopping centers and free-standing retail stores. All
financial results are aggregated into one operating segment since the properties
have similar economic characteristics. Prior to 2004 the Company had also
managed properties owned by unrelated third parties.

     The Company is currently operating under a plan of complete liquidation
(the "Plan of Liquidation"). The Plan of Liquidation was approved by
shareholders at the 2002 annual meeting in August 2002 and provides for the
orderly sale of assets for cash or such other form of consideration as may be
conveniently distributed to shareholders, payment of or establishing reserves
for the payment of liabilities and expenses, distribution of net proceeds of the
liquidation to common shareholders, and wind up of operations and dissolution of
the company. The liquidation process is expected to take up to 24 months from
the August 2002 adoption to complete, although it may take longer. To the extent
that the process does take longer than 24 months, the assets and liabilities of
the Company will be transferred into a liquidating trust as described below.

     The Company is continuing to liquidate its assets and currently expects
that no later than the end of the third quarter, and possibly as early as the
second quarter of 2004, any then remaining assets and liabilities will be
transferred to a liquidating trust. Each shareholder of the Company will
automatically become the holder of one unit of beneficial interest in the trust
for each share of Company common stock, and all outstanding shares of Company
common stock will automatically be deemed cancelled. The Company will seek
relief for the trust from registering the units under Section 12(g) of the
Securities Exchange Act of 1934, as amended, and its obligation to file periodic
reports. Subject to limited exceptions related to transfer by will, intestate
succession or operation of law, the units will not be transferable. As a result,
the beneficial interest in the liquidating trust will not be listed on any
securities exchange or quoted on any automated quotation system of a registered
securities association.

     The Company's major tenants include Kmart Corporation ("Kmart") and
Wal-Mart Corporation ("Wal-Mart") as well as other national retailers. In 2003,
Kmart and Wal-Mart accounted for approximately 21% and 7%, respectively, of the
Company's total revenues, excluding gains on sale of assets. During 2003 the
Company sold 13 Kmart anchored properties and one Wal-Mart anchored property. As
of December 31, 2003 Kmart and Wal-Mart accounted for 23% and 15%, respectively,
of its gross leasable area ("GLA"). Total GLA was approximately 2.2 million
square feet as of December 31, 2003.

     In January 2002, Kmart filed for bankruptcy protection under Chapter 11 of
the U.S. Bankruptcy Code. As part of its program to close unprofitable stores,
Kmart subsequently closed five of its stores operating in properties owned by
the Company, rejecting four of the leases and assuming and assigning the lease
of the fifth to an independent third party. On May 6, 2003, Kmart announced that
it had emerged from Chapter 11 bankruptcy. As of December 31, 2003, the company
has 5 stores leased to Kmart with an annual average base rent of $2.56 per
square foot.

     During 2003, the Company sold 20 properties in connection with its Plan of
Liquidation. Total proceeds, before property specific debt repayment, on 2003
property sales were $96 million. Through March 26, 2004, the Company has sold
three additional properties and a four acre parcel of vacant land for total
proceeds of $8.9 million and entered into contracts for the sale of 18
additional properties at prices totaling $46.5 million. The Company also has six
remaining properties that are currently not under contract or letter of intent
to sell.

     The Company is currently taxed as a REIT under Section 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the
Company generally is not subject to federal income taxes to the extent it
distributes at least 100% of its real estate investment trust taxable income (as
defined in the

                                        2
<PAGE>

Code) to its shareholders. In order to maintain its status as a REIT, the
Company made a distribution of its estimated 2003 federal taxable income to its
shareholders on January 26, 2004. Although it is expected that the Company will
continue to qualify as a REIT for the period prior to the distribution of the
Company's remaining assets to its shareholders or the formation of a liquidating
trust, given the change in the nature of our assets and in our sources of income
that could result from dispositions of assets and the need to retain assets to
meet liabilities, the Company cannot assure you that the Company will continue
to meet the REIT qualification tests. The Company presently has 12 full-time
employees and believes that its relationship with its employees is good.

     The Company's internet address is http://www.malanreit.com

                                        3
<PAGE>

ITEM 2. PROPERTIES

<Table>
<Caption>
                                 OWNERSHIP                                  GROSS
                                 INTEREST           YEAR                   LEASABLE     PERCENT          ANCHOR TENANTS
                                (EXPIRATION      DEVELOPED/  LAND AREA    AREA (GLA)    LEASED         (LEASE EXPIRATION/
         PROPERTY             INCL. OPTIONS)     RENOVATED    (ACRES)    (SQ. FT.)(A)   OF GLA         OPTION EXPIRATION)
         --------             --------------     ----------  ---------   ------------   -------        ------------------
<S>                         <C>                  <C>         <C>         <C>            <C>     <C>
ILLINOIS(7)
Bricktown Square, Chicago,
 IL                                 Fee          1987/1989     26.00        306,009       94%        Toys "R" Us (2013/2038)
                                                                                                     Marshall's (2005/2015)
                                                                                                      Sportmart (2008/2018)
                                                                                                   Frank's Nursery (2009/2029)
                                                                                                   Capital Fitness (2017/2032)
Wal-Mart Plaza, Champaign,
 IL(C)                              Fee             1994        1.00         11,458       90%       Wal-Mart(B)/Sam's Club(B)
Wal-Mart Plaza, Decatur,
 IL(C)                              Fee          1992/1999      5.95         45,114      100%              Wal-Mart(B)
Fairview Heights, IL        Ground Lease (2051)  1976/1992     12.65         96,268      100%          Rubloff Development
                                                                                                         (2006/2051)(D)
Wal-Mart Plaza,
 Jacksonville, IL(C)                Fee             1995        6.89         52,726       84%     Wal-Mart(B)/Country Market(B)
Kmart Loves Park, IL(C)     Ground Lease (2026)  1971/1991     12.50        106,084      100%           Kmart (2011/2026)
Woodriver Plaza,
 Woodriver, IL(C)                   Fee             1987       19.40        147,470      100%         Wal-Mart (2007/2037)
INDIANA(7)
Cedar Square,
 Crawfordsville, IN(C)              Fee          1991/1996     11.32         25,750       65%              Wal-Mart(B)
Wal-Mart Plaza, Decatur,
 IN(C)                              Fee          1994/1997      5.80         36,300       94%              Wal-Mart(B)
Wal-Mart Plaza,
 Huntington, IN(C)                  Fee             1995        1.00         12,485      100%              Wal-Mart(B)
Broadway Center,
 Merrillville, IN(C)                Fee          1974/1997     19.89        177,692       92%           Kmart (2011/2061)
Flatrock Village,
 Rushville, IN                      Fee             1988       14.00         73,608       96%         Wal-Mart (2008/2038)
Kmart Valparaiso, IN(C)     Ground Lease (2050)  1974/1990      9.61         93,592      100%           Kmart (2011/2050)
Cherry Tree Plaza,
 Washington, IN                     Fee             1988       20.60        143,682       99%         Wal-Mart (2008/2038)
                                                                                                     Jay C Foods (2008/2033)
KANSAS(4)(E)
Wal-Mart Plaza, Chanute,
 KS(C)                              Fee             1995        1.00         15,447       84%              Wal-Mart(B)
Wal-Mart Plaza, El Dorado,
 KS(C)                              Fee             1996        1.70         20,000       72%              Wal-Mart(B)
Orscheln Farm Supply,
 Hays, KS                           Fee             1977        4.96         40,050      100%   Orscheln Farm Supply (2009/2014)
Topeka, KS(C)                       Fee          1974/2000     13.93        108,960       23%      Harbor Freight (2005/2025)
MICHIGAN(3)(F)
Wal-Mart Plaza, Benton
 Harbor, MI(C)                      Fee             1995        1.30         14,280       92%         Wal-Mart(B)/Lowe's(B)
Wal-Mart Plaza, Owosso,
 MI(C)                              Fee          1993/1996     10.00         62,379       76%              Wal-Mart(B)
Wal-Mart Plaza, Sturgis,
 MI(C)                              Fee             1994        1.00         12,000      100%              Wal-Mart(B)
MINNESOTA(1)
Wal-Mart Plaza, Little
 Falls, MN(C)                       Fee             1996        1.00         12,456      100%              Wal-Mart(B)
MISSOURI(1)
Prairie View Plaza, Kansas
 City, MO(G)                Ground Lease (2050)  1975/1992      3.24        104,440      100%           Kmart (2011/2050)
OHIO(2)
Wal-Mart Plaza, Mansfield,
 OH(C)                              Fee          1993/1998      3.90         55,316       88%              Wal-Mart(B)
Shannon Station, Van Wert,
 OH                                 Fee             1989       20.20        145,607       99%         Wal-Mart (2009/2039)
                                                                                                      Roundy's (2010/2030)
WASHINGTON(H)
WISCONSIN(2)
Country Fair Shopping
 Center,
 Hales Corners, WI                  Fee          1960/1991     10.50        152,166       94%           Kmart (2011/2061)
Kmart Milwaukee, WI(I)              Fee             1971       11.23        117,791      100%
                                                                          ---------
 TOTAL, AS OF DECEMBER 31,
   2003                                                                   2,189,130
                                                                          =========
</Table>

-------------------------
(A)Includes only Company owned square footage.

(B)These stores and the underlying pads are owned and managed by third parties
   not related to the Company.

(C)Property currently under contract for sale.

                                        4
<PAGE>

(D)Rubloff Development subleases this property to Hobby Lobby. Property was sold
   to Rubloff 2/12/04.

(E)The Company also owns approximately 4.2 acres of vacant land in Lawrence, KS.
   The sale of this land was completed 1/22/04.

(F)In addition to the operating properties listed, the Company leases
   approximately 6,200 square feet of office space for its headquarters in
   Bingham Farms, Michigan.

(G)This property was sold 3/25/04.

(H)The Company subleases approximately 3,000 square feet of office space in
   Seattle, WA.

(I)This property was sold 3/1/04.

                                        5
<PAGE>

TENANT LEASE EXPIRATIONS AND RENEWALS

     The following table shows tenant lease expirations, as of December 31,
2003, for the next ten years at the Company's properties, assuming that none of
the tenants exercise any of their renewal options:

<Table>
<Caption>
                                                                                                               PERCENTAGE OF
                                                                                             PERCENTAGE OF      TOTAL BASE
                                                         ANNUALIZED        AVERAGE BASE        TOTAL GLA      RENTAL REVENUES
                          NO. OF      APPROXIMATE        BASE RENT       RENT PER SQ. FT.     REPRESENTED       REPRESENTED
     EXPIRATION           LEASES     LEASE AREA IN     UNDER EXPIRING     UNDER EXPIRING      BY EXPIRING       BY EXPIRING
        YEAR             EXPIRING     SQUARE FEET          LEASES             LEASES            LEASES            LEASES
     ----------          --------    -------------     --------------    ----------------    -------------    ---------------
                                     (IN THOUSANDS)    (IN THOUSANDS)
<S>                      <C>         <C>               <C>               <C>                 <C>              <C>
2004.................        40            204             $ 1,324            $ 6.50              9.3%               6.7%
2005.................        44            169               1,789             10.57              7.7                9.1
2006.................        43            121               1,163              9.61              5.5                5.9
2007.................        37            223               1,556              6.98             10.2                7.9
2008.................        37            301               2,315              7.68             13.8               11.8
2009 - 2013..........        29            813               3,296              4.06             37.1               16.8
                            ---          -----             -------            ------             ----               ----
     TOTAL...........       230          1,831             $11,443            $ 6.25             83.6%              58.2%
                            ===          =====             =======            ======             ====               ====
</Table>

Kmart Lease Information

     The following table shows information for leases with Kmart included in the
above table:

<Table>
<Caption>
                                                                                                               PERCENTAGE OF
                                                                                             PERCENTAGE OF      TOTAL BASE
                                                         ANNUALIZED        AVERAGE BASE        TOTAL GLA      RENTAL REVENUES
                          NO. OF      APPROXIMATE        BASE RENT       RENT PER SQ. FT.     REPRESENTED       REPRESENTED
     EXPIRATION           LEASES     LEASE AREA IN     UNDER EXPIRING     UNDER EXPIRING      BY EXPIRING       BY EXPIRING
        YEAR             EXPIRING     SQUARE FEET          LEASES             LEASES            LEASES            LEASES
     ----------          --------    -------------     --------------    ----------------    -------------    ---------------
                                     (IN THOUSANDS)    (IN THOUSANDS)
<S>                      <C>         <C>               <C>               <C>                 <C>              <C>
2011.................        5            496              $1,271               $2.56            22.7%              6.45%
</Table>

Wal-Mart Lease Information

     The following table shows information for leases with Wal-Mart included in
the above table:

<Table>
<Caption>
                                                                                                               PERCENTAGE OF
                                                                                             PERCENTAGE OF      TOTAL BASE
                                                         ANNUALIZED        AVERAGE BASE        TOTAL GLA      RENTAL REVENUES
                          NO. OF      APPROXIMATE        BASE RENT       RENT PER SQ. FT.     REPRESENTED       REPRESENTED
     EXPIRATION           LEASES     LEASE AREA IN     UNDER EXPIRING     UNDER EXPIRING      BY EXPIRING       BY EXPIRING
        YEAR             EXPIRING     SQUARE FEET          LEASES             LEASES            LEASES            LEASES
     ----------          --------    -------------     --------------    ----------------    -------------    ---------------
                                     (IN THOUSANDS)    (IN THOUSANDS)
<S>                      <C>         <C>               <C>               <C>                 <C>              <C>
2007.................        1            121              $  369               $3.05             5.5%              1.9%
2008.................        2            138                 589                4.27             6.3               3.0
2009.................        1             66                 250                3.79             3.0               1.3
                             --           ---              ------               -----            ----               ---
     TOTAL...........        4            325              $1,208               $3.72            14.8%              6.2%
                             ==           ===              ======               =====            ====               ===
</Table>

ITEM 3. LEGAL PROCEEDINGS

     In the ordinary course of business, the Company is involved in routine
litigation, none of which is expected to have a material adverse effect on the
results of operations, financial position or cash flows of the Company. The
Company was involved in a lawsuit filed on November 13, 2000 by Anthony S.
Gramer, its former President and Chief Executive Officer, seeking more than $1
million for breach of an employment agreement.

                                        6
<PAGE>

     In July 2003, the Michigan Court of Appeals upheld a previous decision by
the circuit court in Oakland County, Michigan granting summary disposition in
favor of Gramer. The Court of Appeals affirmed the decision that Gramer is
entitled under his agreements with the Company to both change in control
payments and termination payments through December 2003, in a lump sum. The
Company filed a petition with the Michigan Supreme Court to review the appellate
court decision.

     In January 2004, the Company announced that the Michigan Supreme Court had
denied its request to reconsider the previous decision upheld by the Michigan
Court of Appeals. The decision by the Supreme Court denying Malan's appeal
effectively upheld the lower courts' rulings and required the Company to pay
Gramer a lump-sum payment of approximately $1.4 million, including interest and
certain other court costs. Malan previously recorded a liability on its books of
$1.4 million in the event of an unfavorable decision by the court. On February
18, 2004, the Company paid approximately $1.4 million to Gramer in satisfaction
of the summary judgement.

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

     None.

                                    PART II

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

     The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "MAL". As of March 21, 2004 the Company had approximately 98
shareholders of record. The following table sets forth, for the periods
indicated, the high and low sales price as reported on the New York Stock
Exchange and the dividends declared by the Company per common share for each
such period:

<Table>
<Caption>
                                                                                   LIQUIDATING
                            2002                                HIGH      LOW     DISTRIBUTIONS
                            ----                                ----      ---     -------------
<S>                                                             <C>      <C>      <C>
First Quarter...............................................    $6.65    $4.20
Second Quarter..............................................    $5.77    $3.55
Third Quarter...............................................    $4.80    $3.92
Fourth Quarter..............................................    $4.70    $3.95
<Caption>
                            2003
                            ----
<S>                                                             <C>      <C>      <C>
First Quarter...............................................    $4.30    $3.61
Second Quarter..............................................    $4.52    $3.82
Third Quarter...............................................    $5.25    $4.20        $.51
Fourth Quarter..............................................    $5.30    $4.40         .30
                                                                                  -------------
  Total.....................................................                          $.81
                                                                                  =============
</Table>

     The Company expects that it will transfer its remaining assets to a
liquidating trust no later than the end of the third quarter of 2004. Each
shareholder will receive a distribution of one unit in the liquidating trust for
each share of common stock they then own. The distributions will be a taxable
event to shareholders.

     Interests in the liquidating trust will not be transferable. Accordingly,
shareholders who may need or wish liquidity with respect to their Company common
stock before the liquidating trust makes liquidating distributions should look
into selling their shares while the common stock is still traded on an
established market.

     The Company had paid regular quarterly distributions on its Common Stock to
its shareholders of $.425 per share dating from July 1, 1994 through March 31,
2001 and $.25 per share from April 1 through December 31, 2001. In March 2002,
the Company announced that it was suspending regular quarterly cash
distributions to shareholders in conjunction with its proposed Plan of
Liquidation.

                                        7
<PAGE>

     The Company does not intend to make liquidating distributions to
shareholders until all of its debts have been provided for unless required to do
so in order to maintain its status as a real estate investment trust (REIT). In
order to maintain its status as a REIT, the Company was required to make a
distribution of its 2002 federal taxable income to its shareholders during 2003.
A distribution of $.51 per share was declared September 9, 2003 and was paid
September 30, 2003 to shareholders of record as of September 19, 2003. The
distribution was based on the Company's 2002 taxable income of $2.6 million and
is considered a liquidating distribution to shareholders for federal income tax
purposes. The Company also declared a distribution of $.30 per share on December
19, 2003, payable to shareholders of record at December 31, 2003. The
distribution was based on the Company's 2003 projected taxable income and was
paid January 26, 2004.

                                        8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
    The following table sets forth selected financial information for the
Company on a historical basis and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this Form 10-K.

                            SELECTED FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                    SEPTEMBER 30,
                     YEAR ENDED     2002 THROUGH
                    DECEMBER 31,    DECEMBER 31,
                        2003            2002
                    ------------    -------------
<S>                 <C>             <C>
STATEMENT OF
 CHANGES IN NET
 ASSETS IN
 LIQUIDATION
 DATA(1):
Net Assets in
 liquidation,
 beginning of
 period.........      $26,430          $31,677
Changes in net
 assets in
 liquidation....        1,503           (5,247)
                      -------          -------
Net Assets in
 liquidation,
 end of
 period.........      $27,933          $26,430
                      =======          =======
</Table>

<Table>
<Caption>
                                                                  JANUARY 1
                                                                   THROUGH          YEAR ENDED DECEMBER 31,
                                                                SEPTEMBER 30,    ------------------------------
                                                                    2002           2001       2000       1999
                                                                -------------      ----       ----       ----
<S>                                                             <C>              <C>         <C>        <C>
OPERATING DATA
Revenues
 Minimum rent...............................................       $17,493       $ 27,167    $28,093    $29,212
 Percentage and overage rents...............................           633          1,365      1,498      1,261
 Recoveries from tenants....................................         6,697          9,775      9,938     10,380
 Interest and other income..................................           175            396        657        610
 Gain on sale of real estate................................                        3,830      3,158      1,602
                                                                   -------       --------    -------    -------
Total revenues..............................................        24,998         42,533     43,344     43,065
Operating expenses
 Property operating and maintenance.........................         2,061          3,116      3,044      2,945
 Other operating expenses...................................         3,151          1,840      2,021      1,740
 Real estate taxes..........................................         5,446          7,982      8,081      8,282
 General and administrative.................................         2,134          2,979      2,156      2,024
 Proxy contest and related costs............................                                   3,200
 Depreciation and amortization..............................         3,668          6,440      6,368      5,994
 Impairment of real estate..................................         5,793         14,052        190
                                                                   -------       --------    -------    -------
Total operating expenses....................................        22,253         36,409     25,060     20,985
                                                                   -------       --------    -------    -------
Operating income............................................         2,745          6,124     18,284     22,080
Interest expense............................................        11,467         17,650     17,719     17,550
                                                                   -------       --------    -------    -------
INCOME (LOSS) FROM CONTINUING OPERATIONS....................        (8,722)       (11,526)       565      4,530
DISCONTINUED OPERATIONS:
Income (loss) from properties sold or held for sale.........        (1,498)          (821)       359        923
Gain on sale of properties sold.............................         2,989
                                                                   -------       --------    -------    -------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS..................         1,491           (821)       359        923
Income (loss) before extraordinary item and cumulative
 effect of change in accounting principle...................        (7,231)       (12,347)       924      5,453
Extraordinary item
 Loss on extinguishment of debt.............................                                     (93)      (289)
                                                                   -------       --------    -------    -------
Income (loss) before cumulative effect of change in
 accounting principle.......................................        (7,231)       (12,347)       831      5,164
Cumulative effect of change in accounting principle.........                         (450)                 (522)
                                                                   -------       --------    -------    -------
Net income (loss)...........................................       $(7,231)      $(12,797)   $   831    $ 4,642
                                                                   =======       ========    =======    =======
Basic and diluted earnings (loss) per share.................       $ (1.41)      $  (2.49)   $  0.16    $  0.90
                                                                   =======       ========    =======    =======
Weighted-average basic shares...............................         5,121          5,138      5,173      5,170
                                                                   =======       ========    =======    =======
Weighted-average diluted shares(2)..........................         5,126          5,138      5,180      5,170
                                                                   =======       ========    =======    =======
OTHER DATA
Cash distributions declared per basic common share..........            --       $  1.175    $  1.70    $  1.70
                                                                   =======       ========    =======    =======
Total gross leasable area at period end.....................         4,434          5,455      5,921      6,038
                                                                   =======       ========    =======    =======
</Table>

<Table>
<Caption>
                                                                                      DECEMBER 31,
                                                                --------------------------------------------------------
                                                                  2003        2002        2001        2000        1999
                                                                  ----        ----        ----        ----        ----
<S>                                                             <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA
Real estate held for sale...................................    $ 97,350    $191,802
Real estate, before accumulated depreciation................                            $248,053    $265,566    $267,117
Total assets................................................     113,949     207,946     225,326     243,983     253,480
Mortgage indebtedness.......................................      52,198      91,330     120,390     125,011     126,601
Convertible debentures......................................      19,593      42,593      42,743      42,743      42,743
Convertible notes...........................................                  27,000      27,000      27,000      27,000
Net assets in liquidation...................................      27,933      26,430
Shareholders' equity........................................                              19,915      39,084      47,141
</Table>

-------------------------
(1) As a result of the shareholder approval of the Plan of Liquidation, the
    liquidation basis of accounting and financial statement presentation has
    been adopted beginning September 30, 2002.
(2) In 2001, the Company changed its method of accounting for derivative
    financial instruments in accordance with SFAS 133 "Accounting for Derivative
    Instruments and Hedging Activities." See Note 10 in the accompanying
    financial statements. In 1999, the Company changed its method of accounting
    for percentage rental revenue in accordance with SEC Staff Accounting
    Bulletin No. 101, "Revenue Recognition in Financial Statements."
(3) In accordance with Statement of Financial Accounting Standards, No. 128,
    "Earnings per Share", conversion of all of the debt securities would be
    antidilutive and as such are not included in the weighted average diluted
    shares reported above.

                                        9
<PAGE>

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

OVERVIEW

     The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Form 10-K.

     In August 2002, the Company's shareholders approved a complete Plan of
Liquidation of the Company (See "Plan of Liquidation" below). As a result, the
Company adopted the liquidation basis of accounting for periods beginning after
September 30, 2002. Accordingly, the Company ceased to record revenues and
expenses after that date, and reports only the changes in Net Assets in
Liquidation for the periods thereafter.

CHANGES IN NET ASSETS IN LIQUIDATION

January 1, 2003 to December 31, 2003

     Net Assets in Liquidation increased $1.503 million from January 1 2003, to
December 31, 2003. Operating income, including income from properties and
interest expense on corporate and property specific debt, was $6.324 million.
Included in operating income is a $1.4 million charge relating to an unfavorable
court decision against the Company issued in July 2003 (see "Litigation" below)
and a reduction in estimated environmental investigation and remediation costs
of $1.5 million based on actual costs and revisions in estimated remediation
costs at several of the properties based on test results and further
investigation of the issues. Realized loss from the sale of assets was
approximately $532,000 and the estimated fair value on the remaining properties
held for sale increased $2.1 million based on executed contracts and estimated
valuations. The reserve for estimated liquidation costs increased approximately
$3.799 million and is primarily due to extending the time period estimated to
wind down the business and the associated costs. A distribution to shareholders
of $2.611 million was made September 30, 2003.

September 30, 2002 to December 31, 2002

     Net Assets in Liquidation decreased $5.247 million from September 30, 2002
to December 31, 2002. Operating income, including income from properties and
interest expense on corporate and property specific debt, was $1.317 million
during the period. The fair value of real estate decreased $6.304 million due to
changes in anticipated proceeds from future property sales based on current
trends in the retail real estate market. The Company realized a net loss of
$185,000 on the sale of five properties during the period. The reserve for
estimated liquidation costs increased $75,000 primarily from changes in
assumptions in personnel costs and professional fees.

RESULTS OF OPERATIONS

Comparison of the Period January 1 through September 30, 2002 to the Year Ended
December 31, 2001

     The following discussion of results of operations from January 1 through
September 30, 2002 compared to the year ended December 31, 2001 do not contain
comparable periods; however such comparison is provided to present a discussion
of general trends in the operating results of the Company.

     Total revenues from continuing operations decreased approximately $17.535
million from 2001. Minimum rents decreased approximately $9.674 million due to
the sale of 13 properties executed between July 2001 and September 2002 offset
by rents received on the re-lease of a vacant space at Bricktown Square,
Chicago, Illinois and the reclassification of revenue from assets held for sale
as required under Statement of Financial Accounting Standards (SFAS) No. 144 to
discontinued operations, as discussed below. Percentage rents decreased $732,000
and recoveries from tenants decreased $3.078 million, also as a result of the
property sales. A gain on the sale of real estate of $3.830 million was recorded
for the year ended December 2001.

     Total operating expenses from continuing operations decreased approximately
$14.156 million from December 31, 2001 to September 30, 2002. Other operating
expenses increased approximately $1.311 million due to a provision for
environmental investigation and remediation costs at several properties.
Property operating and maintenance and real estate taxes decreased $1.055
million and $2.536 million, respectively, due

                                        10
<PAGE>

to the sale of properties offset by an increase in taxes due to taxes assumed by
the Company on leases rejected by Kmart Corporation in bankruptcy. Impairment of
real estate decreased $8.259 million.

     Under the provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which was adopted by the Company January 1, 2002,
all dispositions of properties and the results of operations of assets held for
sale will be reported as discontinued operations in the period in which they
occur and prior periods will be restated to conform with the current
presentation for comparison purposes. Income from discontinued operations
increased $2.312 million primarily from the gain on the sale of properties
offset by an increase in a provision for environmental costs recorded in
September 2002 of $3.1 million. Also included in discontinued operations for the
nine months ended September 30, 2002 is an impairment of real estate in
accordance with SFAS No. 144 of $114,000 reducing the carrying value of Emporia,
Kansas based on a contract for sale of the property.

     Interest expense (including related amortization of deferred financing
costs) decreased approximately $6.183 million primarily due to the partial
pay-down and refinance of the balance of the Securitized Mortgage Loan, the
payoff of a line of credit in November 2001 and the reclassification of interest
paid on a loan secured by Lawrence, Kansas to discontinued operations.

     The cumulative effect of a change in accounting principle under SFAS No.
133 was a reduction in net income of $450,000 as of January 1, 2001.

     Overall, net loss decreased $5.566 million in the period ended 2002
primarily as a result of a decrease in impairment of real estate and interest
expense offset by an increase in environmental investigation and remediation
costs.

CRITICAL ACCOUNTING POLICIES

     As a result of the adoption of the Plan of Liquidation and its approval by
the Company's shareholders, the Company adopted the liquidation basis of
accounting for all periods beginning after September 30, 2002. On September 30,
2002, in accordance with the liquidation basis of accounting, assets were
adjusted to estimated net realizable value and liabilities were adjusted to
estimated settlement amounts, including estimated costs associated with carrying
out the liquidation. The valuation of real estate held for sale is based on
current contracts, estimates and other indications of sales value net of
estimated selling costs. Actual values realized for assets and settlement of
liabilities may differ materially from the amounts estimated. Due to the
uncertainty in timing of anticipated sales of property, no provision has been
made for estimated future cash flows from property operations.

     Under the liquidation basis of accounting, the Company is required to
estimate and record the costs associated with executing the Plan of Liquidation
as a liability. These amounts can vary significantly due to, among other things,
the timing and realized proceeds from property sales, the costs of retaining
personnel, the costs of insurance, the timing and amounts associated with
discharging known and contingent liabilities and the costs associated with
cessation of the Company's operations. These costs are estimates and are
expected to be paid out over the liquidation period.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to approval by its shareholders in August 2002 of the Plan of
Liquidation, cash flow from operations was the principal source of capital to
fund the Company's ongoing operations. Since adoption of the Plan of
Liquidation, efforts to increase cash flow for repayment and retirement of
impending debt maturities have centered on disposition of assets, refinancing of
unencumbered properties and the leasing of vacant space and retention of
existing tenants.

     The Company anticipates that its cash flow from operations and sales of
property will be sufficient to fund its cash needs for payment of expenses
during the liquidation period, capital expenditures, recurring debt service
payments and repayment of debt maturities. Because of differences between the
timing of property sales and the maturity of certain debt obligations coming due
in 2004, the Company may need to refinance

                                        11
<PAGE>

some properties and/or request extensions of existing financing agreements or
obtain back-up financing arrangements in order to meet debt maturities (see
"Financings" below).

     The Company does not intend to make liquidating distributions to
shareholders until all of its debts have been provided for unless required to do
so in order to maintain its status as a REIT. To maintain its REIT status the
Company made a distribution of its 2002 federal taxable income to its
shareholders in 2003. The distribution of $.51 per share was paid on September
30, 2003. On December 19, 2003 the Company declared a distribution of $.30 per
share based on the estimated 2003 taxable income. The distribution was paid
January 26, 2004.

Developments and Redevelopments

     Consistent with the Plan of Liquidation discussed below, the Company does
not anticipate any further new developments or redevelopments. Selected
redevelopment consistent with the Plan of Liquidation may occur.

CAPITAL EXPENDITURES

     The Company incurs capital expenditures in the ordinary course of business
in order to maintain its properties. Such capital expenditures typically include
roof, parking lot and other structural repairs, some of which are reimbursed by
tenants. For the year ended December 31, 2003, the Company incurred $259,000 of
capital expenditures, which were funded out of reserves required under the
Company's collateralized mortgages and operating cash flow. Approximately
$870,000 is anticipated to be incurred in 2004 for capital expenditures, also to
be funded from similar sources.

     In order to procure new tenants or negotiate extensions of expiring leases
with current tenants, the Company may provide inducements such as building
allowances or space improvements and may pay leasing commissions to outside
brokers in accordance with prevailing market conditions. The total cost of these
expenditures in 2003 was $187,000. Anticipated costs for 2004 are estimated to
be approximately $700,000. These expenditures are generally funded by operating
cash flows.

Sources of Capital

     The Company anticipates that its cash flow from operations will be
sufficient to fund its cash needs for payment of operating expenses and
anticipated capital expenditures. However, the Company has substantial debt
obligations maturing during 2004, which will require refinancing or sale of
assets to satisfy (See "Financings" below).

     The Company has in place a Stock Repurchase Plan for up to 500,000 shares
of its Common Stock, such purchases to be made in the open market, with the
timing dependent upon market conditions, pending corporate events and
availability of funds. There were no repurchases during the twelve months ended
December 31, 2003.

     The Company had outstanding as of December 31, 2003 $19.593 million of 9.5%
Convertible Debentures ("Debentures") which are convertible into shares of
Common Stock at a price of $17 per share. In January 2002, Moody's Investor
Services, Inc. downgraded its rating of the Debentures from B3 to CAA and
simultaneously withdrew its rating. The Debentures are due July 2004.

     The Company had a plan in place to repurchase, on the open market, up to
$15 million aggregate principal of Debentures. Through December 31, 2002, the
Company had repurchased $11.957 million of Debentures under the plan. During the
twelve months ended December 31, 2002 the Company repurchased $150,000 aggregate
principal of Debentures. In 2003 open market purchases ceased and Debentures
were retired using a redemption process. During 2003, $23 million aggregate
principal of Debentures were called and retired.

                                        12
<PAGE>

     The Company sold the following properties in 2003 (in thousands):

<Table>
<Caption>
                                                                                 GROSS                       NET PROCEEDS
                                                                               LEASABLE                     (AFTER PROPERTY
                                                                                 AREA                        SPECIFIC DEBT
        DATE            PROPERTY                        LOCATION               (SQ. FT.)   CONTRACT PRICE     REPAYMENT)
        ----            --------                        --------               ---------   --------------   ---------------
<S>                     <C>                             <C>                    <C>         <C>              <C>
3/31/03..............   Strip Center                    Springfield, MO             98        $    425          $    --
4/29/03..............   Vacant -- Former Kmart          Forestville, MD             84           2,900            2,877
6/4/03...............   Kmart Building                  Rockford, IL               110           2,100               --
6/5/03...............   Southwind Theater               Lawrence, KS                43           5,000            1,414
6/23/03..............   Kmart Building                  Springfield, MO             99           2,135               --
7/9/03...............   Kmart                           Cape Girardeau, MO          80           1,400               --
7/11/03..............   Northway Mall                   Marshfield, WI             287           3,600            3,287
7/11/03..............   Clinton Pointe Shopping         Clinton Twp., MI           135          11,600               --
                        Center
7/28/03..............   Kmart                           Oshkosh, WI                104           1,550               --
8/13/03..............   Kmart                           Franklin Park, IL           96           3,550               --
8/13/03..............   Cinemark 10                     Melrose Park, IL            69           5,664            5,365
8/14/03..............   Wal-Mart Plaza                  Columbus, IN               190           7,050            6,745
9/12/03..............   The Shops at Fairlane Meadows   Dearborn, MI               137          19,350            7,007
9/15/03..............   Orchard-14 Shopping Center      Farmington Hills, MI       139           6,200            5,765
10/20/03.............   Kmart                           Lansing, IL                 96           4,200            4,094
11/6/03..............   Kmart Plaza                     Kenosha, WI                120           2,800            2,639
11/6/03..............   Kmart Plaza                     Ft. Atkinson, WI            89           1,000              910
11/6/03..............   Kmart                           Chicago, IL                 96           3,400            3,273
11/16/03.............   Cinemark Tinseltown             North Aurora, IL            61           6,300              732
12/2/03..............   Westland Plaza                  Madison, WI                123           4,300            4,089
12/5/03..............   Westland Center                 Westland, MI                85           5,900              183
                                                                                 -----        --------          -------
     Total:.................................................................     2,341        $100,424          $48,380
                                                                                 =====        ========          =======
</Table>

     Net cash generated from the sales was used for general working capital
purposes, to pay down the outstanding balances on the Company's debt obligations
and to make required distributions to shareholders.

     Subsequent to December 31, 2003 the following properties have been sold:

<Table>
<S>                     <C>                             <C>                    <C>         <C>              <C>
1/21/04..............   Vacant Land                     Lawrence, KS                          $   635         $   594
2/11/04..............   Hobby Lobby                     Fairview Heights, IL        96          2,300           2,298
3/1/04...............   Former Kmart                    Milwaukee, WI              118          2,700           2,550
3/25/04..............   Prairie View Plaza              Kansas City, MO            104          3,565           3,411
                                                                                 -----        -------         -------
     Total:.................................................................       318          9,200         $ 8,853
                                                                                 =====        =======         =======
</Table>

                                        13
<PAGE>

     As of March 21, 2004, the following properties were under contract for
sale:

<Table>
<Caption>
   PROPERTY            LOCATION        CONTRACT PRICE
   --------            --------        --------------
                                       (IN THOUSANDS)
<S>              <C>                   <C>
Wal-Mart Plaza      Wood River, IL        $ 6,200
Harbor Freight        Topeka, KS            1,000
Broadway Center    Merrillville, IN         6,700
     Kmart          Loves Park, IL          1,550
     Kmart          Valparaiso, IN          2,025



Wal-Mart Plaza    Benton Harbor, MI
Wal-Mart Plaza      Champaign, IL
Wal-Mart Plaza       Chanute, KS
Wal-Mart Plaza    Crawfordsville, IL
Wal-Mart Plaza       Decatur, IL
Wal-Mart Plaza       Decatur, IN
Wal-Mart Plaza      El Dorado, KS
Wal-Mart Plaza      Huntington, IN
Wal-Mart Plaza     Jacksonville, IL
Wal-Mart Plaza     Little Falls, MN
Wal-Mart Plaza      Mansfield, OH
Wal-Mart Plaza        Owosso, MI
Wal-Mart Plaza       Sturgis, MI           29,000
                                          -------
     Total                                $46,475
                                          =======
</Table>

     Some of the above contracts are subject to due diligence and other
contingencies and are expected to close within the next 30 to 120 days if the
purchaser waives such contingencies.

Financings

     The Company's line of credit with Bank One, collateralized by Orchard-14
Shopping Center in Farmington Hills, Michigan, was cancelled effective with the
sale of that property on September 15, 2003. The line was used to collateralize
two separate standby letters of credit issued by the bank. The Company has
subsequently extinguished both letters of credit.

     During 2003, the Company retired the following debt:

     $27 million 8.5% Secured Convertible Notes due July 15, 2003 -- In July
2003 the notes were retired utilizing a combination of proceeds from property
sales and a $20.5 million loan with UBS Warburg Real Estate Investments, Inc.
which is collateralized by the Company's interest in Bricktown Square Shopping
Center in Chicago, Illinois. The loan is for a two year term, maturing August
11, 2005, with interest payable monthly at a rate of 350 basis points over LIBOR
with a floor of 6.5% per annum. In addition, the loan requires monthly payments
of principal equal to $30,000 during the first year and the greater of $30,000
or 50% of net cash flow from the property as defined in the loan agreement in
the second year.

     JDI Loan -- In July 2003 the Company completed the sales of two Kmart
buildings located in Cape Girardeau, Missouri and Oshkosh, Wisconsin. Net
proceeds generated from the sales of $1.339 million and $1.462 million,
respectively, were utilized to pay down the JDI loan to a balance of
approximately $5.512 million. The remaining balance of the loan was repaid in
August 2003 out of available working capital.

     Cohen Financial Loan -- In July 2003 the Company completed the sale of a
Kmart building in Franklin Park, Illinois. The net proceeds of $3.187 million
were utilized to pay down the Cohen loan to a balance of $5.367 million. The
remaining balance of the loan was repaid in February 2003 out of available
working capital.

                                        14
<PAGE>

     Also in July 2003 the Company completed the sale of Clinton Pointe Shopping
Center generating proceeds of approximately $10.929 million, which were utilized
to pay down a loan with Salomon Brothers Realty Corp to a balance of
approximately $12.071 million. This loan had an original due date of February
11, 2003. The Company negotiated an extension of the loan to August 11, 2004
with substantially similar terms.

     During 2003 the Company announced three partial redemption calls on the
9.5% Convertible Subordinated Debentures. The portion of the Debentures being
called were redeemed at par, plus accrued but unpaid interest, and retired. The
redemption activity was as follows:

<Table>
<Caption>
CALL DATE  AMOUNT CALLED   REDEMPTION DATE
---------  -------------   ---------------
<S>        <C>             <C>
9/25/03    $10.0 million      10/27/03
11/7/03     13.0 million      12/18/03
12/11/03     7.5 million       1/20/04
</Table>

     After the January 2004 redemption the balance of the Debentures is $12.1
million.

     Subsequent to year end the Company announced another partial redemption of
$5,000,000 on March 4, 2004 to be redeemed April 14, 2004 bringing the balance
after the April redemption to $7.1 million.

     Approximate scheduled principal payments on all of the Company's debt
obligations for the years subsequent to December 31, 2003 are as follows (in
thousands):

<Table>
<S>                                                             <C>
2004........................................................    $32,275
2005........................................................     20,295
2006........................................................        297
2007........................................................        320
2008........................................................        341
2009 and thereafter.........................................     18,263
                                                                -------
Total.......................................................    $71,791
                                                                =======
</Table>

     The Company intends to satisfy its debt maturing in 2004 primarily through
proceeds of property sales (see "Sources of Capital" above). In the event that
such sales fail to materialize or close prior to the due dates of the loans, the
Company intends to obtain back-up financing through the refinance of certain
properties sufficient to retire the existing debt or through the extension of
existing facilities.

     Thirteen of the Company's properties are encumbered by a cross
collateralized loan, which contains restrictions on prepayment. The Company
intends to sell these properties in a single transaction subject to the
underlying debt and obtain lender consent for assignment of the debt. On those
properties that are encumbered by loans that do not contain such restrictive
provisions or in which prepayment penalties are insignificant or insubstantial,
the Company intends to utilize proceeds from the sale of the property to retire
such debt.

     Certain of the Company's debt obligations contain cross-default and
cross-acceleration provisions.

Litigation

     The Company was involved in a lawsuit filed on November 13, 2000 by Anthony
S. Gramer, its former President and Chief Executive Officer, seeking more than
$1 million for breach of an employment agreement.

     In July 2003, the Michigan Court of Appeals upheld a previous decision by
the circuit court in Oakland County, Michigan granting summary disposition in
favor of Gramer. The Court of Appeals affirmed the decision that Gramer is
entitled under his agreements with the Company to both change in control
payments and termination payments through December 2003, in a lump sum. The
Company filed a petition with the Michigan Supreme Court to review the appellate
court decision.

     In January 2004, the Company announced that the Michigan Supreme Court had
denied its request to reconsider the previous decision upheld by the Michigan
Court of Appeals. The decision by the Supreme

                                        15
<PAGE>

Court denying Malan's appeal effectively upheld the lower courts' rulings and
required the Company to pay Gramer a lump-sum payment of approximately $1.4
million, including interest and certain other court costs. Malan previously
recorded a liability on its books of $1.4 million in the event of an unfavorable
decision by the court.

     On February 18, 2004, the Company paid approximately $1.4 million to Gramer
in satisfaction of the summary judgement.

Kmart Bankruptcy

     In January 2002, Kmart filed for bankruptcy protection under Chapter 11 of
the U.S. Bankruptcy Code. As part of its program to close unprofitable stores,
Kmart subsequently closed five of its stores owned by the Company, rejecting
four of the leases and assuming and assigning the lease of a fifth to an
independent third party. On May 6, 2003, Kmart announced that it had emerged
from Chapter 11 bankruptcy. As of December 31, 2003, the company has five stores
leased to Kmart with an annual average base rent of $2.56 per square foot.

Environmental Issues

     Prospective buyers of the Company's properties have raised environmental
questions on certain properties during the due diligence period of purchase
contracts. The issues generally involve residual contamination from (1)
underground storage tanks removed from the properties a number of years ago or
(2) solvents used by dry cleaner tenants. The Company has, with assistance from
its environmental consultants, assessed the extent of contamination, the
potential costs of any required remediation, and the viability of
indemnification from third parties for all its properties. The Company's
original estimates of the total costs related to investigation, assessment,
review of these issues and remediation of known contamination was approximately
$3.1 million at December 31, 2002. During 2003 the Company reduced its estimate
of environmental investigation and remediation costs by approximately $1.5
million based on actual costs and revisions in estimated remediation costs at
several of the properties based on test results and further investigation of the
issues. The Company has incurred approximately $1.2 million through December 31,
2003 and has a remaining accrual of anticipated costs of $631,000.

Plan Of Liquidation

     In August 2002, the Company's shareholders approved the Plan of Liquidation
of the Company. The Plan of Liquidation provides for the orderly sale of assets
for cash or such other form of consideration as may be conveniently distributed
to shareholders, payment of or establishing reserves for the payment of
liabilities and expenses, distribution of net proceeds of the liquidation to
common shareholders, and wind up of operations and dissolution of the company.
The liquidation process is expected to take up to twenty-four months from the
date of approval to complete, although it could take longer. In 2002, to assist
in disposing its assets under the Plan of Liquidation, the Company hired CB
Richard Ellis, Inc., a leading national real estate brokerage firm, under an
exclusive sales listing agreement, for the sale of substantially all of its real
estate assets.

     The Company is continuing to liquidate its assets and currently expects
that no later than the end of the third quarter, and possibly as early as the
second quarter of 2004, any then remaining assets and liabilities will be
transferred to a liquidating trust. Each shareholder of the Company will
automatically become the holder of one unit of beneficial interest in the trust
for each share of Company common stock, and all outstanding shares of Company
common stock will automatically be deemed cancelled. The Company will seek
relief for the trust from registering the units under Section 12(g) of the
Securities Exchange Act of 1934, as amended, and its obligation to file periodic
reports. Subject to limited exceptions related to transfer by will, intestate
succession or operation of law, the units will not be transferable. As a result,
the beneficial interest in the liquidating trust will not be listed on any
securities exchange or quoted on any automated quotation system of a registered
securities association.

                                        16
<PAGE>

     As a result of the approval of the Plan of Liquidation, the Company adopted
the liquidation basis of accounting for all periods beginning after September
30, 2002. On September 30, 2002, in accordance with the liquidation basis of
accounting, assets were adjusted to estimated net realizable value and
liabilities were adjusted to estimated settlement amounts, including estimated
costs associated with carrying out the liquidation. The valuation of real estate
held for sale is based on current contracts, estimates and other indications of
sales value net of estimated selling costs. Actual values realized for assets
and settlement of liabilities may differ materially from the amounts estimated.

     Under the liquidation basis of accounting, the Company is required to
estimate and record the costs associated with executing the Plan of Liquidation
as a liability. These amounts can vary significantly due to, among other things,
the timing and realized proceeds from property sales, the costs of retaining
personnel, the costs of insurance, the timing and amounts associated with
discharging known and contingent liabilities and the costs associated with
cessation of the Company's operations. These costs are estimates and are
expected to be paid out over the liquidation period.

     The change in the Company's Reserve for Estimated Liquidation Costs for the
year ended December 31, 2003 is detailed as follows (in thousands):

<Table>
<Caption>
                                                   BALANCE                                        BALANCE
                                               JANUARY 1, 2003    PAYMENTS    ADJUSTMENTS    DECEMBER 31, 2003
                                               ---------------    --------    -----------    -----------------
<S>                                            <C>                <C>         <C>            <C>
Severance, Retention and Bonus.............        $1,748         $  (643)      $ (131)           $  974
Payroll and Personnel Costs................         2,987          (1,737)        (282)              968
Provision for State Taxes..................           697            (259)          (3)              435
Professional Fees..........................         1,246          (1,407)       1,904             1,743
Office & Administrative Expenses...........           904            (734)       2,311             2,481
                                                   ------         -------       ------            ------
     Total:................................        $7,582         $(4,780)      $3,799            $6,601
                                                   ======         =======       ======            ======
</Table>

     The adjustment for the period is primarily due to an increase in the time
period anticipated to fully liquidate the Company.

     During the process of adopting the Plan of Liquidation in 2002, the Company
estimated that total liquidating distributions would be in the range of $4.75 to
$8.50 per share. Subsequently, in July 2003 the Company revised this estimate
downward to a range of $4.50 - $6.25 per share. The precise timing of
distributions was uncertain. Through March 2004, total distributions have been
$0.81 per share, with $0.51 per share being distributed in September 2003 and an
additional $0.30 per share being distributed in January 2004. The timing of
future distributions remains uncertain, but it is unlikely that there will be
any additional distributions in the first half of 2004.

     The Company's Net Assets in Liquidation as of December 31, 2003 (as shown
in the Consolidated Statement of Net Assets in Liquidation found in Item 8), are
$27.933 million. This equates to approximately $5.45 per share. After adjusting
to reflect the $0.30 per share distribution that was paid January 26, 2004 Net
Assets in Liquidation are $26.4 million or $5.15 per share. Adjusting the range
stated in the previous paragraph for the $0.81 already distributed the remaining
anticipated distributions fall within the adjusted range of $3.69 to $5.44.

     The stated range of shareholder distributions are estimates and actual
results may be higher or lower than estimated. Due to the nature of the
Company's assets and liabilities, there is very little potential for significant
variance on the high end of the range of estimated distributions. This is
because it is unlikely that the balance of the real estate assets owned by the
Company would be sold for markedly more than the value carried on the
Consolidated Statement of Net Assets in Liquidation.

     The potential for variance on either end of the range could occur for the
following reasons, 1) although every effort has been made to anticipate all of
the costs associated with the liquidation, it is possible that there will be
unanticipated costs that could reduce net assets actually realized, 2) If the
Company were to wind up business significantly faster than anticipated some of
the anticipated costs may not be necessary and net assets could be higher, 3)
although all of the remaining real estate assets are being valued based upon the
Company's

                                        17
<PAGE>

best current estimate of what the assets are worth, circumstances may change and
the actual net proceeds realized from the sale of some of the assets might be
less, or significantly less, than currently estimated. Two possible reasons
could be the discovery of new environmental issues or loss of a tenant, although
there could be other reasons.

     The Board of Directors approved a severance and retention bonus plan (the
"Severance Plan") for its employees, which became effective upon approval of the
Plan of Liquidation by the shareholders in August 2002. With the exception of
the Chief Executive Officer and former Chief Financial Officer (both of whom
were covered by employment agreements), and employees who worked at the Northway
Mall in Marshfield, Wisconsin, each regular employee whose employment is
involuntarily terminated pursuant to the Plan of Liquidation was eligible to
participate in the Severance Plan unless the employee is terminated for cause.

     On September 1, 2003, six employees were terminated and a total of $403,000
in severance was paid to the terminated and retained employees. The Company
currently has 12 employees.

Employment Contract

     In May 2003, the Board of Directors approved an amendment to extend its
employment agreement with its President and Chief Executive Officer, Jeffrey D.
Lewis, through September 30, 2004. Terms of the amendment include an increase in
base salary to $275,000 per year, a non-renewal payment of $50,000 and a
liquidation bonus based upon aggregate liquidating distributions to
shareholders.

     The Company elected not to exercise an option to extend its employment
agreement with its Chief Financial Officer, Secretary and Treasurer, Elliott J.
Broderick. The Company and Mr. Broderick have an agreement for Mr. Broderick to
provide consulting services subsequent to the agreement expiration date of
September 30, 2003. The original term of the agreement was from October 1, 2003
through January 31, 2004. The agreement has been extended on a month to month
basis. For the period October 1, 2003 to December 31, 2000 Mr. Broderick
received $18,900 under this agreement.

Inflation

     Some of the Company's long-term leases contain provisions to mitigate the
adverse impact of inflation on its results from operations. Such provisions
include clauses entitling the Company to receive (i) scheduled base rent
increases and (ii) percentage rents based upon tenants' gross sales, which
generally increase as prices rise. In addition, many of the Company's non-anchor
leases are for terms of less than ten years, which permits the Company to seek
increases in rents upon re-rental at the then current market rates if rents
provided in the expiring leases are below then existing market rates. Most of
the Company's leases require tenants to pay a share of operating expenses,
including common area maintenance, real estate taxes, insurance and utilities,
thereby reducing, but not eliminating, the Company's exposure to increases in
costs and operating expenses resulting from inflation.

Safe Harbor Statement

     Each of the above statements regarding anticipated results are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes the statements and
projections are based upon reasonable assumptions, actual results may differ
from those projected.

     Key factors that could cause actual results to differ materially include
uncertainties regarding the length of time required to sell the Company's
properties and execute the Plan of Liquidation and expenses incurred during the
liquidation period, the Company's ability to retire or refinance its
indebtedness as it comes due, the Company's success in selling assets, and the
changing market conditions affecting the sales price of its properties, the
effect of changes in proceeds from property sales on liquidating distributions
due to the Company's capital structure, economic downturns, leasing activities,
bankruptcies and other financial difficulties of tenants, the cost of addressing
environmental concerns, unforeseen contingent liabilities, and

                                        18
<PAGE>

other risks associated with the commercial real estate business, and as detailed
in Management's Discussion and Analysis of Financial Conditions and Results of
Operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     The Company has exposure to interest rate risk on its debt obligations and
interest rate instruments. Based on the Company's outstanding variable rate debt
at December 31, 2003, a one percent increase or decrease in interest rates would
decrease or increase, respectively, the Company earnings and cash flows by
approximately $325,000 on an annualized basis.

     The interest expense increase associated with a rise in interest rates
would only occur to the extent that notes rose to a level that cause the
interest rate charged to exceed the interest rate floor with respect to the UBS
Warburg loan. Currently interest rates are at a level such that interest expense
is being paid based upon the "floor" of 6.5%.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

                                     INDEX

<Table>
<Caption>
                                                                 PAGE
                                                                NUMBER
                                                                ------
<S>                                                             <C>
Report of Independent Auditors..............................      20
Consolidated Statements of Net Assets in Liquidation
  (Liquidation Basis) As of December 31, 2003 and 2002......      21
Consolidated Statements of Changes in Net Assets in
  Liquidation (Liquidation Basis) for the twelve months
  ended December 31, 2003 and the period September 30, 2002
  through December 31, 2002.................................      22
Consolidated Statements of Operations (Going Concern Basis)
  for the period ended September 30, 2002 and the year ended
  December 31, 2001.........................................      23
Consolidated Statements of Shareholders' Equity (Going
  Concern Basis) for the Period Ended September 30, 2002 and
  the year ended December 31, 2001..........................      24
Consolidated Statements of Cash Flows (Going Concern Basis)
  for the Period Ended September 30, 2002 and the year ended
  December 31, 2001.........................................      25
Notes to Consolidated Financial Statements..................      26
Report of Independent Auditors on Financial Statement
  Schedule..................................................      40
Schedule II -- Valuation and Qualifying Accounts and
  Reserves..................................................      41
</Table>

     Schedules other than the ones above are omitted because they are not
applicable, not required, or the information required to be set forth therein is
included in the consolidated financial statements or the notes thereto.

                                        19
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and
Shareholders of Malan Realty Investors, Inc.

     We have audited the consolidated statements of net assets in liquidation of
Malan Realty Investors, Inc. as of December 31, 2003 and December 31, 2002, and
the related consolidated statements of changes in net assets in liquidation for
the year ended December 31, 2003 and for the period from September 30, 2002
through December 31, 2002. In addition, we have audited the consolidated
statements of operations, shareholders' equity, and cash flows for the period
from January 1, 2002 through September 30, 2002 and the year ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

     As described in Note 1 to the consolidated financial statements, these
financial statements have been prepared on the liquidation basis of accounting,
which requires management to make significant assumptions and estimates
regarding the fair value of assets, the resolution of disputed claims, the
estimate of liquidating costs to be incurred, and the resolution and valuation
of current and potential litigation. Because of the inherent uncertainty related
to these estimates and assumptions, there will likely be differences between
these estimates and the actual results and those differences may be material.
Also, as discussed in Note 10 to the consolidated financial statements, on
January 1, 2002, the Company adopted the provisions of the Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Malan Realty Investors, Inc. for the period January 1, 2002
through September 30, 2002 and the year ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America
and the consolidated net assets in liquidation as of December 31, 2003 and
December 31, 2002, and the changes in consolidated net assets in liquidation for
the year ended December 31, 2003 and the period from September 30, 2002 through
December 31, 2002 applied on the basis described in the preceding paragraph.
PricewaterhouseCoopers LLP

Detroit, Michigan
March 12, 2004

                                        20
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
                              (LIQUIDATION BASIS)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                DECEMBER 31,    DECEMBER 31,
                                                                    2003            2002
                                                                ------------    ------------
<S>                                                             <C>             <C>
ASSETS
  Real estate held for sale.................................      $ 97,350        $191,802
  Cash and cash equivalents.................................         9,794          10,008
  Restricted cash -- litigation.............................         1,831              --
  Restricted cash -- mortgage escrow deposits...............         2,635           1,753
  Accounts receivable.......................................         1,635           3,761
  Other assets..............................................           704             622
                                                                  --------        --------
     Total Assets...........................................      $113,949        $207,946
                                                                  --------        --------
LIABILITIES
  Mortgages.................................................      $ 52,198        $ 91,330
  Convertible debentures....................................        19,593          42,593
  Convertible notes.........................................                        27,000
  Accounts payable and other................................         7,624          13,011
  Reserve for estimated liquidation costs...................         6,601           7,582
                                                                  --------        --------
     Total Liabilities......................................        86,016         181,516
                                                                  --------        --------
     NET ASSETS IN LIQUIDATION..............................      $ 27,933        $ 26,430
                                                                  ========        ========
</Table>

                 See Notes to Consolidated Financial Statements

                                        21
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

        CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
                              (LIQUIDATION BASIS)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                 TWELVE MONTHS      PERIOD SEPTEMBER 30,
                                                                     ENDED                THROUGH
                                                               DECEMBER 31, 2003     DECEMBER 31, 2002
                                                               -----------------    --------------------
<S>                                                            <C>                  <C>
Net Assets in Liquidation beginning of period..............         $26,430               $31,677
Operating Income...........................................           6,324                 1,317
Changes in net assets in liquidation:
  Distribution to shareholders.............................          (2,611)
  Realized loss on sale of assets..........................            (532)                 (185)
  Increase (decrease) in fair value of real estate.........           2,121                (6,304)
  Increase in reserve for estimated liquidation costs......          (3,799)                  (75)
                                                                    -------               -------
Net Assets in Liquidation end of period....................         $27,933               $26,430
                                                                    =======               =======
</Table>

                 See Notes to Consolidated Financial Statements

                                        22
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             (GOING CONCERN BASIS)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<Table>
<Caption>
                                                                   PERIOD FROM         YEAR ENDED
                                                                JANUARY 1 THROUGH     DECEMBER 31,
                                                                SEPTEMBER 30, 2002        2001
                                                                ------------------    ------------
<S>                                                             <C>                   <C>
REVENUES
  Minimum rent (Note 5).....................................         $17,493            $ 27,167
  Percentage and overage rents..............................             633               1,365
  Recoveries from tenants...................................           6,697               9,775
  Interest and other income.................................             175                 396
  Gain on sale of real estate...............................                               3,830
                                                                     -------            --------
     TOTAL REVENUES.........................................          24,998              42,533
                                                                     -------            --------
EXPENSES
  Property operating and maintenance........................           2,061               3,116
  Other operating expenses..................................           3,151               1,840
  Real estate taxes.........................................           5,446               7,982
  General and administrative................................           2,134               2,979
  Depreciation and amortization.............................           3,668               6,440
  Impairment of real estate (Note 9)........................           5,793              14,052
                                                                     -------            --------
     TOTAL OPERATING EXPENSES...............................          22,253              36,409
                                                                     -------            --------
OPERATING INCOME............................................           2,745               6,124
Interest expense............................................          11,467              17,650
                                                                     -------            --------
LOSS FROM CONTINUING OPERATIONS.............................          (8,722)            (11,526)
DISCONTINUED OPERATIONS:
  Loss from properties sold or held for sale................          (1,498)               (821)
  Gain on sale of properties sold...........................           2,989
                                                                     -------            --------
     INCOME (LOSS) FROM DISCONTINUED OPERATIONS.............           1,491                (821)
                                                                     -------            --------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE.................................................          (7,231)            (12,347)
Cumulative Effect of Change in Accounting Principle (Note
  10).......................................................                                (450)
                                                                     -------            --------
NET LOSS....................................................         $(7,231)           $(12,797)
                                                                     =======            ========
BASIC AND DILUTED EARNINGS PER SHARE:
  Loss from continuing operations...........................         $ (1.70)           $  (2.24)
  Earnings (loss) from discontinued operations..............            0.29               (0.16)
  Cumulative effect of change in accounting principle.......                               (0.09)
                                                                     -------            --------
  LOSS PER SHARE............................................         $ (1.41)           $  (2.49)
                                                                     =======            ========
</Table>

                 See Notes to Consolidated Financial Statements

                                        23
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (GOING CONCERN BASIS)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                                 ACCUMULATED
                                                                               DISTRIBUTIONS IN        TOTAL
                                                    PAR       ADDITIONAL          EXCESS OF        SHAREHOLDERS'
                                                   VALUE    PAID-IN CAPITAL       NET INCOME          EQUITY
                                                   -----    ---------------    ----------------    -------------
<S>                                                <C>      <C>                <C>                 <C>
BALANCE, JANUARY 1, 2001.......................     $52         $74,078            $(35,046)         $ 39,084
  Stock grant paid to officer..................                      70                                    70
  Repurchase of common stock...................      (1)           (397)                                 (398)
  Distributions -- $1.175 per share............                                      (6,044)           (6,044)
  Net loss.....................................                                     (12,797)          (12,797)
                                                    ---         -------            --------          --------
BALANCE, DECEMBER 31, 2001.....................      51          73,751             (53,887)           19,915
  Net loss.....................................                                      (7,231)         $ (7,231)
                                                    ---         -------            --------          --------
BALANCE, SEPTEMBER 30, 2002....................     $51         $73,751            $(61,118)         $ 12,684
                                                    ===         =======            ========          ========
</Table>

                 See Notes to Consolidated Financial Statements

                                        24
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (GOING CONCERN BASIS)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                    PERIOD FROM
                                                                 JANUARY 1 THROUGH        YEAR ENDED
                                                                SEPTEMBER 30, 2002     DECEMBER 31, 2001
                                                                ------------------     -----------------
<S>                                                             <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  NET LOSS..................................................         $ (7,231)             $(12,797)
                                                                     --------              --------
  Adjustments to reconcile net income to net cash flows
     provided by operating activities:
     Depreciation and amortization..........................            4,618                 6,808
     Amortization of deferred financing costs...............            1,369                 1,600
     Officer compensation issued in stock...................                                     70
     Directors compensation issued in stock
     Net gains on sales of real estate......................           (2,989)               (3,830)
     Impairment of real estate..............................            6,697                15,266
     Loss on extinguishment of debt
     Cumulative effect of change in accounting principle....                                    450
     Change in operating assets and liabilities that
       provided (used) cash:
       Accounts receivable and other assets.................           (2,073)               (4,286)
       Accounts payable, deferred income and other accrued
          liabilities.......................................              901                 6,052
                                                                     --------              --------
     Total adjustments......................................            8,523                22,130
                                                                     --------              --------
     NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES........            1,292                 9,333
                                                                     --------              --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Real estate developed, acquired or improved...............             (594)               (7,711)
  Additions to leasehold improvements and equipment.........              (12)                  (59)
  Decrease (increase) in restricted cash....................            1,129                  (391)
  Proceeds from sales of real estate........................           27,990                12,036
                                                                     --------              --------
     NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES........           28,513                 3,875
                                                                     --------              --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Draws on lines of credit..................................              900                 5,500
  Repayment of lines of credit..............................             (900)              (17,195)
  Principal payments on mortgages...........................          (66,682)                 (545)
  Debt extinguishment costs.................................
  Net proceeds from mortgages...............................           45,600                 7,618
  Distributions to shareholders.............................           (1,280)               (6,963)
  Debt issuance costs.......................................           (2,135)                 (397)
  Repurchases of common stock...............................                                   (398)
                                                                     --------              --------
     NET CASH FLOWS USED FOR FINANCING ACTIVITIES...........          (24,497)              (12,380)
                                                                     --------              --------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................            5,308                   828
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............            1,649                   821
                                                                     --------              --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................         $  6,957              $  1,649
                                                                     ========              ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- CASH
  PAID FOR INTEREST DURING THE PERIOD.......................         $ 11,918              $ 15,713
                                                                     ========              ========
</Table>

                 See Notes to Consolidated Financial Statements
                                        25
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

     In August 2002, based upon approval and recommendation of its Board of
Directors, the Company's shareholders approved a plan of complete liquidation
(the "Plan of Liquidation") of the Company. The Plan of Liquidation provides for
the orderly sale of assets for cash or such other form of consideration as may
be conveniently distributed to shareholders, payment of or establishing reserves
for the payment of liabilities and expenses, distribution of net proceeds of the
liquidation to common shareholders, and wind up of operations and dissolution of
the company. The liquidation process is expected to take up to twenty-four
months to complete from the date of approval, although it could take longer.

LIQUIDATION BASIS OF ACCOUNTING

     As a result of the adoption of the Plan of Liquidation and its approval by
the Company's shareholders, the Company adopted the liquidation basis of
accounting for all periods beginning after September 30, 2002. On September 30,
2002, in accordance with the liquidation basis of accounting, assets were
adjusted to estimated net realizable value and liabilities were adjusted to
estimated settlement amounts, including estimated costs associated with carrying
out the liquidation. The valuation of real estate held for sale is based on
current contracts, estimates and other indications of sales value net of
estimated selling costs. Actual values realized for assets and settlement of
liabilities may differ materially from the amounts estimated. Due to the
uncertainty in timing of anticipated sales of property, no provision has been
made for estimated future cash flows from property operations.

BASIS OF COMBINATION AND PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the activity of
the Company and its wholly owned subsidiaries, Malan Mortgagor, Inc., Malan
Meadows, Inc., Malan Revolver, Inc., Malan Aurora Corp., Malan Pine Ridge LLC ,
Malan Midwest, LLC, Malan Standby LLC, Malan WSC, LLC, and Malan KMSC, LLC and
Bricktown Malan LLC. All significant inter-company balances and transactions
have been eliminated.

RECLASSIFICATIONS

     Certain reclassifications have been made to prior years financial
statements presented on a going concern basis, in order to conform to the
presentation for the period through September 30, 2002.

REAL ESTATE

     Prior to the adoption of the liquidation basis of accounting, real estate
was stated at cost or, in the case of real estate which management believed was
impaired, at the lower fair value of such properties. Additions, renovations and
improvements were capitalized. The Company reviewed real estate for impairment
whenever events or changes in circumstances indicated that an asset's book value
exceeded the undiscounted expected future cash flows to be derived from that
asset. Whenever undiscounted expected future cash flows were less than the book
value, the asset was reduced to a value equal to the net present value of the
expected future cash flows and an impairment loss was recognized. Accordingly,
during 2002, the Company recorded a non-cash charge of $6.697 million for
impairment of certain real estate properties. The impairment charge was based
upon a comprehensive review of all of the Company's properties, taking into
account the Company's intention to have shareholders vote to approve the Plan of
Liquidation, the Company's implementation of several steps in contemplation of a
liquidation, a significantly shortened holding period for the properties, and
current market conditions. As such, the carrying values of certain properties
were written down to the Company's

                                        26
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimates of fair value. Fair value was based on recent offers, or other
estimates of fair value, such as estimated discounted future cash flow.

     Maintenance and repairs, which did not extend asset lives, were expensed as
incurred. Depreciation was computed using the straight-line method over
estimated useful lives ranging 10 to 40 years for improvements, and 40 years for
buildings.

     Under the provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which was adopted by the Company January 1, 2002,
all dispositions of properties and the results of operations of assets held for
sale will be reported as discontinued operations in the period in which they
occur and prior periods are restated to conform with the current presentation
for comparison purposes.

     Prior to the adoption of the liquidation basis of accounting, real estate
assets that were under contract were adjusted to their estimated net realizable
value and classified as real estate held for sale.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company's financial instruments include short-term investments and
mortgage loans payable. The fair values of the short-term investments were not
materially different from their carrying or contract values due to the short
term nature of these financial instruments. See Note 6 for the fair values of
the mortgage loans payable.

REVENUE RECOGNITION

     Minimum rents are recognized on a straight-line basis over the terms of the
leases. The Company records percentage rental revenue when lessees' specified
sale targets are achieved. Recoveries from tenants are recognized as revenue in
the period that applicable costs are chargeable to tenants.

INCOME TAXES

     The Company has elected to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). As a
REIT, the Company generally will not be subject to federal income taxation at
the corporate level to the extent it distributes annually at least 100% of its
real estate investment trust taxable income, as defined in the Code, to its
shareholders and satisfies certain other requirements. Accordingly, no provision
has been made for federal income taxes in the accompanying financial statements.

DISTRIBUTIONS

     Distributions of $.81 per common share were declared in the year ended
December 31, 2003.

     The distributions made in 2003 are considered liquidating distributions and
are treated by shareholders as a return of capital to the extent of a
shareholder's basis in the Company's stock. Distributions in excess of the
shareholder's basis are treated as a capital gain.

     Distributions of $1.175 per common share were declared for the year ended
December 31, 2001, of which $.52 represented a return of capital for federal
income tax purposes. There were no distributions paid to shareholders during
2002.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of deposits in banks and certificates of
deposit with maturities of three months or less at the date of purchase.

                                        27
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MANAGEMENT ESTIMATES

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

SEGMENT INFORMATION

     The Company's operating units were comprised of approximately 58 commercial
retail properties (of which 20 were disposed of in 2003 and 11 were disposed of
in 2002). As of December 31, 2003 there were 27 commercial retail properties
remaining. All financial results are aggregated into one operating segment since
the properties have similar economic characteristics.

2. MORTGAGES, DEBENTURES AND NOTES

     The following tables set forth certain information regarding the Company's
debt:

<Table>
<Caption>
                                                                                                  BALANCE
                                                                                               DECEMBER 31,
                                                RECOURSE (R)      INTEREST     MATURITY      -----------------
       MORTGAGES              COLLATERAL      NONRECOURSE(N)(1)     RATE         DATE         2003      2002
       ---------              ----------      -----------------   --------     --------       ----      ----
<S>                      <C>                  <C>               <C>            <C>           <C>       <C>
Salomon Bros. Realty
  Corp.................  4 Wal-Mart anchored          N         LIBOR +250      8/2004(2)    $12,071   $23,000
                         shopping centers                       Basis Points
JDI Loans LLC..........  8 Kmart anchored             R         Prime + 7.25%   8/2003            --    12,750
                         shopping centers,                      (11% floor
                         Columbus, IN                           13% cap)
                         Fairview Heights, IL
Cohen Financial........  5 Kmart anchored             R         LIBOR +350      9/2003            --     9,100
                         shopping centers                       Basis Points,
                                                                Floor of 7%
US Bank................  Lawrence, KS-                R         7.49%           2/2006            --     3,404
                         Southwind Theater
Daiwa Finance Corp.....  The Shops at                 N         8.18%           2/2007            --    12,123
                         Fairlane Meadows
Wells Fargo Bank.......  Westland Shopping            N         8.02%          11/2007            --     5,598
                         Ctr.
Bank of America, USA...  North Aurora, IL-            N         8.7%           11/2009            --     5,371
                         Tinseltown Theater
Wells Fargo Bank.......  13 Retail Properties         N         7.55%           6/2028(3)     19,747    19,984
UBS Warburg............  Bricktown Square             N         LIBOR +350      8/2005        20,380        --
                                                                basis points,
                                                                Floor of 6.5%
                                                                                             -------   -------
TOTAL MORTGAGES........
                                                                                             $52,198   $91,330
                                                                                             =======   =======
Convertible
  Debentures...........  Unsecured                              9.5%            7/2004       $19,593   $42,593
                                                                                             =======   =======
Convertible Notes......  Bricktown Square             R         8.5%            7/2003            --   $27,000
                                                                                                       =======
</Table>

-------------------------
(1) Nonrecourse loans may contain customary carve-out provisions that are
    recourse to the Company, including fraud, misappropriation and
    misapplication of funds.

(2) The original due date of the loan was February 2003. A provision to extend
    the loan for an additional 6 months was exercised in 2003. The loan was
    subsequently extended to 8/2004.

                                        28
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) Loan is a 30-year loan expiring June 11, 2028. The loan is pre-payable at
    the end of 15 years, or June 11, 2013. Subsequent to that date, all cash
    flow from the property in excess of operating expenses is to be applied
    against accrued interest and principal with the balance of the loan due no
    later than June 11, 2028.

FINANCINGS

     The Company's line of credit with Bank One, collateralized by Orchard-14
Shopping Center in Farmington Hills, Michigan, was cancelled effective with the
sale of that property on September 15, 2003. The line was used to collateralize
two separate standby letters of credit issued by the bank. The Company has
subsequently extinguished both letters of credit.

     During 2003, the Company retired the following debt:

     $27 million 8.5% Secured Convertible Notes due July 15, 2003 -- In July
2003 the notes were retired utilizing a combination of proceeds from property
sales and a $20.5 million loan with UBS Warburg Real Estate Investments, Inc.
which is collateralized by the Company's interest in Bricktown Square Shopping
Center in Chicago, Illinois. The loan is for a two year term, maturing August
11, 2005, with interest payable monthly at a rate of 350 basis points over LIBOR
with a floor of 6.5% per annum. In addition, the loan requires monthly payments
of principal equal to $30,000 during the first year and the greater of $30,000
or 50% of net cash flow from the property as defined in the loan agreement in
the second year.

     JDI Loan -- In July 2003 the Company completed the sales of two Kmart
buildings located in Cape Girardeau, Missouri and Oshkosh, Wisconsin. Net
proceeds generated from the sales of $1.339 million and $1.462 million,
respectively, were utilized to pay down the JDI loan to a balance of
approximately $5.512 million. The remaining balance of the loan was repaid in
February 2003 out of available working capital.

     Cohen Financial Loan -- In July 2003 the Company completed the sale of a
Kmart building in Franklin Park, Illinois. The net proceeds of $3.187 million
were utilized to pay down the Cohen loan to a balance of $5.367 million. The
remaining balance of the loan was repaid in August 2003 out of available working
capital.

     Also in July 2003 the Company completed the sale of Clinton Pointe Shopping
Center generating proceeds of approximately $10.929 million, which were utilized
to pay down the Salomon Brothers Realty Corp. loan to a balance of approximately
$12.071 million. This loan had an original due date of February 11, 2003. The
Company negotiated an extension of the loan to August 11, 2004 with
substantially similar terms.

     The Company has Convertible Debentures (the "Debentures"), which are
convertible into shares of Common Stock at a price of $17 per share. The
Debentures are unsecured general obligations of the Company due July 15, 2004.
In January 2002, Moody's Investors Services, Inc. downgraded its rating of the
Debentures from B3 to CAA and simultaneously withdrew its rating. The Debentures
are redeemable by the Company at par.

     The Company has in place a plan to repurchase and retire up to $15 million
aggregate principal of Debentures. The Company repurchased $150,000 aggregate
principal of Debentures in 2002. Approximately $11.957 million principal of
Debentures has been repurchased under the plan.

                                        29
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During 2003 the company announced three partial redemption calls of
Debentures. The portion of the Debentures being called were redeemed at par,
plus accrued, but unpaid, interest and retired. The redemption activity was as
follows:

<Table>
<Caption>
CALL DATE                                            AMOUNT CALLED    REDEMPTION DATE
---------                                            -------------    ---------------
<S>                                                  <C>              <C>
9/25/03..........................................    $10.0 million       10/27/03
11/7/03..........................................     13.0 million       12/18/03
12/11/03.........................................      7.5 million        1/20/04
                                                     -------------
                                                     $30.5 million
                                                     =============
</Table>

     After the January 2004 redemption the balance of the Debentures is $12.1
million.

     Subsequent to year end the Company announced another partial redemption of
$5,000,000 on March 4, 2004 to be redeemed April 14, 2004 bringing the balance
after the April redemption to $7.1 million.

     Approximate scheduled principal payments on all of the Company's debt
obligations for the years subsequent to December 31, 2003 are as follows (in
thousands):

<Table>
<S>                                                             <C>
2004........................................................    $32,275
2005........................................................     20,295
2006........................................................        297
2007........................................................        320
2008........................................................        341
2009 and thereafter.........................................     18,263
                                                                -------
Total.......................................................    $71,791
                                                                =======
</Table>

     The Company intends to satisfy its debt maturing in 2004 primarily through
proceeds of property sales. In the event that such sales fail to materialize or
close prior to the due dates of the loans, the Company intends to obtain back-up
financing through the refinance of certain properties sufficient to retire the
existing debt or through the extension of existing facilities.

     Thirteen of the Company's properties are encumbered by a cross
collateralized loan, which contains restrictions on prepayment. The Company
intends to sell these properties in a single transaction subject to the
underlying debt and obtain lender consent for assignment of the debt. On those
properties that are encumbered by loans that do not contain such restrictive
provisions or in which prepayment penalties are insignificant or insubstantial,
the Company intends to utilize proceeds from the sale of the property to retire
such debt.

     Certain of the Company's debt obligations contain cross-default and
cross-acceleration provisions.

     Interest capitalized as part of the cost of redevelopment projects totaled
$1,000 and $84,000 in 2002 and 2001 respectively. There were no redevelopments
in 2003.

3. STOCK OPTION AND COMPENSATION PLANS

EMPLOYEE OPTION PLAN

     The Company has a stock option plan (the "Employee Option Plan") to enable
its employees to participate in the ownership of the Company. Under the Employee
Option Plan, executive officers and employees of the Company may be granted
options to acquire shares of Common Stock of the Company ("Options"). The
Employee Option Plan is administered by the Compensation Committee of the Board
of Directors (the "Board"), which is authorized to select the executive officers
and other employees to whom Options are to be granted. No member of the
Compensation Committee is eligible to participate in the

                                        30
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employee Option Plan. The aggregate number of shares of Common Stock that may be
issued upon the exercise of all Options is 400,000 shares.

     The exercise price of each Option granted is equal to the fair market value
of the underlying shares on the date of grant. With the exception of those
granted on the date of the Company's initial public offering, which vested over
a three-year period at the rate of 33 1/3% per year, Options vest over a
five-year period at the rate of 20% per year, beginning on the first anniversary
of the date of grant and are exercisable until the tenth anniversary of the date
of grant. All options that were granted but not vested at the time the current
board was elected in May 2000 became 100% vested at that time.

DIRECTORS OPTION PLAN

     The Company has a stock option plan for non-employee directors (the
"Directors Option Plan"). Under the Directors Option Plan, following each Annual
Meeting of the Board each non-employee Director is automatically granted an
option to purchase 1,000 shares of Common Stock.

     All Options granted under the Directors Option Plan will have an exercise
price equal to the fair market value of the underlying shares on the date of the
grant. Each Option granted will vest immediately upon grant but will not become
exercisable by the Director until six months following the date of grant.
Options granted to a Director will remain exercisable until the tenth
anniversary of the date of grant, or if earlier, until one year after the
Director ceases to be a member of the Board for any reason. The aggregate number
of shares that may be issued under the Directors Option Plan is 80,000 shares.

     The following table summarizes the activity for the Company's Stock Option
Plans:

<Table>
<Caption>
                                          EMPLOYEE OPTION PLAN                             DIRECTORS OPTION PLAN
                              ---------------------------------------------    ----------------------------------------------
                               SHARES                           WEIGHTED        SHARES                            WEIGHTED
                               SUBJECT     EXERCISE PRICE         AVG.          SUBJECT     EXERCISE PRICE          AVG.
                              TO OPTION      PER SHARE       EXERCISE PRICE    TO OPTION       PER SHARE       EXERCISE PRICE
                              ---------    --------------    --------------    ---------    --------------     --------------
<S>                           <C>          <C>               <C>               <C>          <C>                <C>
Balance, January 1,
  2001....................     234,016     $13.375-$17.00       $14.903          20,792     $13.375-$17.688       $15.529
Options Granted 2001......     100,000     $7.04                $  7.04           5,000     $8.80                 $  8.80
Options Forfeited 2001....      (2,710)    $13.375-$17.00       $ 14.09         (17,792)    $13.375-$17.688       $ 15.99
                              --------                                          -------                           -------
Balance, December 31,
  2001....................     331,306     $13.375-$17.00       $ 12.54           8,000     $8.80-$13.875         $ 10.70
Options Granted 2002......      20,000     $3.60                $  3.60           2,000     $4.20                 $  4.20
Options Forfeited 2002....    (104,150)    $13.375-$17.00       $ 15.27              --
                              --------                                          -------
Balance, December 2002....     247,156     $3.60-$17.00         $10.942          10,000     $4.20-$13.875         $ 9.403
Options Granted 2003......                                                        2,000     $4.00                 $  4.00
Options Forfeited.........      (5,710)    $13,375-$17.00       $ 13.75
Options Cancelled 2003....    (192,600)    $3.60-$17.00
                              --------
Balance, December 2003....      48,846     $13.375-$17.00       $14.405          12,000     $4.00-$13.875         $ 8.502
                              ========                          =======         =======                           =======
Options Exercisable at
  December 31, 2003.......      36,446                          $14.734          12,000                           $ 8.502
                              ========                          =======         =======                           =======
</Table>

     The Company has elected to report compensation by applying the requirements
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and therefore has recorded no charge to income for stock options. The
effect on the Company's net income and earnings per share for 2001 would have

                                        31
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

been immaterial had the Company recognized compensation expense using the
Black-Scholes option pricing model utilizing the following values and
weighted-average assumptions:

<Table>
<Caption>
                                                                2001
                                                                ----
<S>                                                             <C>
Option value................................................    $.27
Dividend yield..............................................    14.2%
Expected volatility.........................................       1%
Risk-free interest rate.....................................       6%
Expected lives (in years)...................................      10
</Table>

     The outstanding stock options at December 31, 2003 have a weighted average
contractual life of 5.84 years.

STOCK COMPENSATION PLAN

     In order to provide an opportunity for Board members to increase their
ownership, the Company has a stock compensation plan for non-employee directors
(the "Stock Compensation Plan"). Under the Stock Compensation Plan, each
non-employee Director may make an election by June 30 of each year to receive
all or a portion of the Director's compensation for the following calendar year
in the form of Common Stock of the Company in lieu of cash. Once made, the
election is irrevocable for the following year's compensation.

     The number of shares of Common Stock to be paid to a Director instead of
cash compensation will be determined based on the closing price of the Common
Stock on the New York Stock Exchange on the day before the compensation is
earned by the Director (i.e., the day before a Board meeting). A maximum of
100,000 shares may be issued under the Stock Compensation Plan. During 2003,
2002 and 2001 there were no shares issued.

401(K) PLAN

     The Company has a 401(k) retirement plan (the "401(k) Plan") covering all
of its employees. Under the 401(k) plan, participants are able to defer, until
termination of employment with the Company, up to 15% of their annual
compensation up to a limit of $12,000 in 2003. The Company intends to match a
portion of the participant's contributions in an amount to be determined each
year by the Board. In 2003, 2002 and 2001 the Company matched $55,000, $51,000
and $46,000, respectively.

4. STOCK REPURCHASE PLAN

     The Company has in place a Stock Repurchase Plan for up to 500,000 shares
of its Common Stock, such purchases to be made in the open market, with the
timing dependent upon market conditions, pending corporate events and
availability of funds. During the twelve months ended December 31, 2003 and
2002, the Company did not repurchase any shares.

5. COMMITMENTS AND CONTINGENCIES

CREDIT RISK

     As a landlord, the Company is subject to routine levels of credit risk from
national, regional and local tenants. Of particular concern is Kmart due to the
proportion of revenue from this tenant and their weak financial condition.
Revenues derived from Kmart, amounted to 20.6%, and 20.9% of total revenues for
the years ended December 31, 2003 and 2002, respectively. Amounts billed and
owing from Kmart were $354,000 and $246,000 at December 31, 2003 and 2002,
respectively. In addition, at December 31, 2003, Kmart was responsible for
$528,000 in real estate taxes assessed in 2003 payable in 2004.

                                        32
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ENVIRONMENTAL ISSUES

     Prospective buyers of the Company's properties have raised environmental
questions on certain properties during the due diligence period of purchase
contracts. The issues generally involve residual contamination from (1)
underground storage tanks removed from the properties a number of years ago or
(2) solvents used by dry cleaner tenants. The Company has, with assistance from
its environmental consultants, assessed the extent of contamination, the
potential costs of any required remediation, and the viability of
indemnification from third parties for all its properties. The Company's
original estimates of the total costs related to investigation, assessment,
review of these issues and remediation of known contamination was approximately
$3.1 million at December 31, 2002. During 2003 the Company reduced its estimate
of environmental investigation and remediation costs by approximately $1.5
million based on actual costs and revisions in estimated remediation costs at
several of the properties based on test results and further investigation of the
issues. The Company has incurred approximately $1.2 million through December 31,
2003 and has a remaining accrual of anticipated costs of $631,000.

FUTURE OBLIGATIONS

     Approximate future minimum rent due to the Company under operating leases,
in which the Company is the lessor, for the years subsequent to December 31,
2003, assuming no new or renegotiated leases or option extensions, are as
follows (in thousands):

<Table>
<S>                                                             <C>
2004........................................................    $11,900
2005........................................................     11,170
2006........................................................      9,563
2007........................................................      8,194
2008........................................................      7,050
2009 and thereafter.........................................     17,103
                                                                -------
  Total.....................................................    $64,980
                                                                =======
</Table>

     Approximate future minimum rental payments due from the Company under the
terms of all non-cancelable operating leases in which the Company is the lessee,
principally for ground leases and office rent, subsequent to December 31, 2003,
are as follows (in thousands):

<Table>
<S>                                                             <C>
2004........................................................    $316
2005........................................................     188
2006........................................................     104
2007........................................................      53
2008........................................................      53
2009 and thereafter.........................................     119
                                                                ----
  Total.....................................................    $833
                                                                ====
</Table>

     Rent expense for operating leases for the years ended December 31, 2003,
2002 and 2001 was $303,000, $481,000 and $476,000, respectively.

LITIGATION

     The Company was involved in a lawsuit filed on November 13, 2000 by Anthony
S. Gramer, its former President and Chief Executive Officer, seeking more than
$1 million for breach of an employment agreement.

     In July 2003, the Michigan Court of Appeals upheld a previous decision by
the circuit court in Oakland County, Michigan granting summary disposition in
favor of Gramer. The Court of Appeals affirmed the decision that Gramer is
entitled under his agreements with the Company to both change in control
payments

                                        33
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and termination payments through December 2003, in a lump sum. The Company filed
a petition with the Michigan Supreme Court to review the appellate court
decision.

     In January 2004, the Company announced that the Michigan Supreme Court had
denied its request to reconsider the previous decision upheld by the Michigan
Court of Appeals. The decision by the Supreme Court denying Malan's appeal
effectively upheld the lower courts' rulings and required the Company to pay
Gramer a lump-sum payment of approximately $1.4 million, including interest and
certain other court costs. Malan previously recorded a liability on its books of
$1.4 million in the event of an unfavorable decision by the court.

     On February 18, 2004, the Company paid approximately $1.4 million to Gramer
in satisfaction of the summary judgement..

OTHER

     The Company is obligated to provide lifetime health insurance benefits to
its former CEO Anthony Gramer. The Company currently has approximately $116,000
reserved for this purpose although the actual amount could be greater.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosure of estimated fair value was determined using
available market information and appropriate valuation methodologies.

CASH AND CASH EQUIVALENTS

     The carrying amount for cash and cash equivalents approximates fair value
due to the short maturity of these instruments.

MORTGAGES

     The fair value of the mortgages is based on the present value of
contractual cash flows limited by the value of the underlying collateral and is
as follows at December 31 (in thousands):

<Table>
<Caption>
                                                                   2003                      2002
                                                          ----------------------    ----------------------
                                                          CARRYING    ESTIMATED     CARRYING    ESTIMATED
                                                           AMOUNT     FAIR VALUE     AMOUNT     FAIR VALUE
                                                          --------    ----------    --------    ----------
<S>                                                       <C>         <C>           <C>         <C>
UBS Warburg...........................................    $20,380      $20,380                        --
Daiwa Finance Corp....................................                              $12,123      $12,123
Wells Fargo...........................................     19,747       19,747       19,984       19,984
Wells Fargo Bank......................................         --           --        5,598        5,598
Bank of America.......................................         --           --        5,371        5,371
US Bank...............................................         --           --        3,404        3,404
Cohen Financial.......................................         --           --        9,100        9,100
Salomon Bros. Realty..................................     12,071       12,071       23,000       23,000
JDI Loans LLC.........................................         --           --       12,750       12,750
                                                          -------      -------      -------      -------
TOTAL.................................................    $52,198      $52,198      $91,330      $91,330
                                                          =======      =======      =======      =======
</Table>

CONVERTIBLE DEBENTURES AND CONVERTIBLE NOTES

     The fair value of the Convertible Debentures is based on par value at
December 31, 2003 and 2002. The carrying value and the estimated fair value of
the Debentures was $19.693 million and $42.593 million at December 31, 2003 and
2002, respectively. Management believes that the carrying value of the
Convertible Notes as of December 31, 2002 approximates the fair value.

                                        34
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The fair value estimates presented herein are based on information
available to management as of December 31, 2003 and 2002. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such financial instruments have not been comprehensively revalued
for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.

7. SIGNIFICANT NONCASH TRANSACTIONS

     Significant non-cash transactions for the three years ended December 31,
2003 are as follows:

<Table>
<Caption>
                                                                 2003     2002      2001
                                                                 ----     ----      ----
                                                                     (IN THOUSANDS)
<S>                                                             <C>       <C>      <C>
Distributions declared not yet paid.........................    $1,536    $ --     $1,280
</Table>

                                        35
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. PROPERTY DISPOSITIONS

     During the three years ended December 31, 2003, the Company disposed of the
following properties:

<Table>
<Caption>
                                                                                               NET PROCEEDS
                                                                                  GROSS       (AFTER PROPERTY
                                                                              LEASABLE AREA    SPECIFIC DEBT
  DISPOSITION DATE               PROPERTY                    LOCATION           (SQ. FT.)       REPAYMENT)
  ----------------               --------                    --------         -------------   ---------------
                                                                                      (IN THOUSANDS)
<S>                    <C>                             <C>                    <C>             <C>
5/8/01...............  Standard Supply                 Liberal, KS                  40            $   418
6/8/01...............  Kmart Plaza                     Green Bay, WI               119              3,108
7/26/01..............  Kmart Plaza                     Madison, WI                 106              1,597
7/26/01..............  Kmart Plaza                     New Lenox, IL                89              4,979
11/5/01..............  Vacant Building                 Great Bend, KS               56                259
11/15/01.............  Kmart Plaza                     Stevens Point, WI           109              1,296
11/26/01.............  Outlot                          North Aurora, IL              5                379
5/31/02..............  Kmart Plaza                     Janesville, WI              104              1,141
7/16/02..............  Pine Ridge Plaza                Lawrence, KS                250              3,153
8/8/02...............  Sherwood Plaza                  Springfield, IL             124
8/8/02...............  South City Center               Wichita, KS                 130
8/8/02...............  Kmart                           Salina, KS                   87
8/8/02...............  Kmart                           Jefferson City, MO          124             13,600
                                                                                              ===============
12/24/02.............  ACE Hardware                    Lincoln, IL                  40
12/24/02.............  Vacant Building                 Arkansas, KS                 40
12/24/02.............  Big Logs                        Emporia, KS                  40
12/24/02.............  ACE Hardware                    Garden City, KS              40
12/24/02.............  Vacant Building                 Independence, KS             40              2,596
                                                                                              ===============
3/31/03..............  Strip Center                    Springfield, MO              98                 --
4/29/03..............  Vacant - Former Kmart           Forestville, MD              84              2,877
6/4/03...............  Kmart Building                  Rockford, IL                110                 --
6/5/03...............  Southwind Theater               Lawrence, KS                 43              1,414
6/23/03..............  Kmart Building                  Springfield, MO              99                 --
7/9/03...............  Kmart                           Cape Girardeau, MO           80                 --
7/11/03..............  Northway Mall                   Marshfield, WI              287              3,287
                       Clinton Pointe Shopping
7/11/03..............  Center                          Clinton Twp., MI            135                 --
7/28/03..............  Kmart                           Oshkosh, WI                 104                 --
8/13/03..............  Kmart                           Franklin Park, IL            96                 --
8/13/03..............  Cinemark 10                     Melrose Park, IL             69              5,365
8/14/03..............  Wal-Mart Plaza                  Columbus, IN                190              6,745
9/12/03..............  The Shops at Fairlane Meadows   Dearborn, MI                137              7,007
9/15/03..............  Orchard-14 Shopping Center      Farmington Hills, MI        139              5,765
10/20/03.............  Kmart                           Lansing, IL                  96              4,094
11/6/03..............  Kmart Plaza                     Kenosha, WI                 120              2,639
11/6/03..............  Kmart Plaza                     Ft. Atkinson, WI             89                910
11/6/03..............  Kmart                           Chicago, IL                  96              3,273
11/16/03.............  Cinemark Tinseltown             North Aurora, IL             61                732
12/2/03..............  Westland Plaza                  Madison, WI                 123              4,089
12/5/03..............  Westland Center                 Westland, MI                 85                183
</Table>

                                        36
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following properties were sold subsequent to December 31, 2003:

<Table>
<S>                    <C>                             <C>                    <C>             <C>
1/21/04..............  Vacant Land                     Lawrence, KS                               $   594
2/11/04..............  Hobby Lobby                     Fairview Heights, IL         96              2,298
3/1/04...............  Former Kmart                    Milwaukee, WI               118              2,550
3/25/04..............  Prairie View Plaza              Kansas City, MO             104              3,411
                                                                                   ---            -------
                                                                     TOTAL:        318            $ 8,853
                                                                                   ===            =======
</Table>

     As of March 21, 2004, the following properties were under contract for
sale:

<Table>
<Caption>
   PROPERTY             LOCATION         CONTRACT PRICE
   --------             --------         --------------
                                         (IN THOUSANDS)
<S>               <C>                    <C>
Wal-Mart Plaza      Wood River, IL          $ 6,200
Harbor Freight        Topeka, KS              1,000
Broadway Center    Merrillville, IN           6,700
     Kmart          Loves Park, IL            1,550
     Kmart          Valparaiso, IN            2,025
Wal-Mart Plaza    Benton Harbor, MI
Wal-Mart Plaza      Champaign, IL
Wal-Mart Plaza       Chanute, KS
Wal-Mart Plaza    Crawfordsville, IL
Wal-Mart Plaza       Decatur, IL
Wal-Mart Plaza       Decatur, IN
Wal-Mart Plaza      El Dorado, KS
Wal-Mart Plaza      Huntington, IN
Wal-Mart Plaza     Jacksonville, IL
Wal-Mart Plaza     Little Falls, MN
Wal-Mart Plaza      Mansfield, OH
Wal-Mart Plaza        Owosso, MI
Wal-Mart Plaza       Sturgis, MI             29,000
                                            -------
    Total:                                  $46,475
                                            =======
</Table>

9. IMPAIRMENT OF REAL ESTATE

     During the period ended September 30, 2002, the Company recorded an
impairment of real estate in accordance with SFAS No. 144 of $6.697 million,
reducing the carrying value of several properties. The impairment was based on
management's conclusion that the cost basis of the assets would not be recovered
over their intended holding periods through cash flows associated with future
operations or sale. The conclusions regarding valuation were reflective of
information available at that time provided in sales agreements, sales contract
negotiations and actual or anticipated changes in tenancy including three leases
rejected in bankruptcy by Kmart Corporation and anticipated closure of a store
leased to Wal-Mart Corporation in Columbus, IN.

     In 2001, the Company recorded an impairment of real estate under SFAS No.
121 totaling of $15.266 million related to a reduction in the carrying value of
27 properties. Under SFAS No. 121 and 144, aggregate impairment losses are not
reduced by unrealized appreciation of other assets.

     In accordance with the liquidation basis of accounting adopted September
30, 2002 assets are adjusted to estimated net realizable value subsequent to
adoption. Valuations are reviewed periodically by management and adjusted
accordingly.

                                        37
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CHANGES IN ACCOUNTING METHOD

     In August 2001, the Financial Accounting Standards Board approved SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This
statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." The Statement retains the
previously existing accounting requirements related to the recognition and
measurement of the impairment of long-lived assets to be held and used while
expanding the measurement requirements of long-lived assets to be disposed of by
sale to include discontinued operations. It also expands the previously existing
reporting requirements for discontinued operations to include a component of an
entity that either has been disposed of or is classified as held for sale. SFAS
No. 144 requires that long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. As individual properties will
qualify as components under the provisions of SFAS No. 144, the Company presents
the operations of all properties sold or classified as held for sale after
December 31, 2001 through September 30, 2002 as discontinued operations. In
addition, operations for such properties for all prior periods presented will be
reclassified to discontinued operations. As of the adoption of the Plan of
Liquidation on September 30, 2002 the provisions of SFAS 144 will no longer
apply to the Company.

     On January 1, 2001 the Company adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133, as amended, requires companies to
record derivatives on the balance sheet as assets and liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending on the use of the derivatives and
whether they qualify for hedge accounting. The Company's derivatives consisted
of interest rate cap agreements, which the Company purchased to reduce its
exposure to an increase in rates on its floating rate debt. The cumulative
effect of the adjustment as of January 1, 2001 was a reduction in net income of
$450,000.

11. EARNINGS PER SHARE

     Earnings per share ("EPS") data were computed as follows (in thousands
except per share amounts):

<Table>
<Caption>
                                                                FOR THE PERIOD
                                                                  JANUARY 1
                                                                   THROUGH         YEAR ENDED
                                                                SEPTEMBER 30,     DECEMBER 31,
                                                                     2002             2001
                                                                --------------    ------------
<S>                                                             <C>               <C>
Loss from continuing operations.............................       $(8,722)         $(11,526)
Income (loss) from discontinued operations..................         1,491              (821)
                                                                   -------          --------
Loss before cumulative effect of change in accounting
  principle.................................................       $(7,231)         $(12,347)
Cumulative effect of change in accounting principal.........                            (450)
Loss........................................................       $(7,231)         $(12,797)
                                                                   =======          ========
Weighted Average Shares Outstanding
Basic.......................................................         5,121             5,138
Net options issuable upon exercise of dilutive options......             5
Shares applicable to diluted earnings.......................         5,126             5,138
                                                                   =======          ========
Basis and Diluted EPS:
Loss from continuing operations.............................       $ (1.70)         $  (2.24)
Loss from discontinued operations...........................           .29             (0.16)
Cumulative effect of change in accounting principle.........                           (0.09)
                                                                   -------          --------
Loss per share..............................................       $ (1.41)         $  (2.49)
                                                                   =======          ========
</Table>

                                        38
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Diluted EPS reflects the potential dilution of securities that could share
in the earnings but does not include shares issuable upon conversion of
securities that would have an antidilutive effect on earnings per share.

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data for the three-month periods indicated
are as follows.

<Table>
<Caption>
                                                           FIRST       SECOND        THIRD
                                                          QUARTER      QUARTER      QUARTER      (1)
                                                          -------      -------      -------      ---
<S>                                                       <C>          <C>          <C>        <C>
2002
----
Revenues(4)...........................................    $ 8,698      $ 8,367      $ 8,063
Revenues as reported..................................    $10,029      $ 8,595      $ 8,019
Net income (loss).....................................    $(1,295)     $(4,623)     $(1,311)
Basic and diluted earnings (loss) per share...........    $  (.25)     $  (.90)     $  (.26)
</Table>

<Table>
<Caption>
                                                            FIRST     SECOND      THIRD      FOURTH
                                                           QUARTER    QUARTER    QUARTER    QUARTER
                                                           -------    -------    -------    -------
                                                                        (2)                   (3)
<S>                                                        <C>        <C>        <C>        <C>
2001
----
Revenues(4)............................................    $ 9,341    $ 9,377    $11,275    $  8,465
Revenues as reported...................................    $10,569    $10,643    $12,565    $ 10,114
Income (loss) before extraordinary item and cumulative
  effect of change in accounting principle.............    $   324    $(3,138)   $ 2,138    $(11,671)
Income (loss) before cumulative effect of change in
  accounting principle.................................    $   324    $(3,138)   $ 2,138    $(11,671)
Net income (loss)......................................    $  (126)   $(3,138)   $ 2,138    $(11,671)
Basic and diluted earnings (loss) per share before
  cumulative effect of change in accounting
  principle............................................    $   .06    $  (.61)   $   .42    $  (2.28)
Basic and diluted earnings (loss) per share............    $  (.02)   $  (.61)   $   .42    $  (2.28)
</Table>

-------------------------
(1) On September 30, 2002 the Company changed to the liquidation basis of
    accounting.

(2) Second quarter 2001 results are impacted by a $3.59 million impairment of
    real estate due to the reduction of the Company's carrying value of
    Bricktown Square in Chicago, Illinois and Stevens Point, Wisconsin.

(3) Fourth Quarter 2001 results are impacted by an $11.447 million impairment of
    real estate due to the reduction of carrying value of 25 properties.

(4) Revenue have been restated to conform with FAS 144 which requires operations
    for properties sold or held for sale to be reclassified to discontinued
    operations.

                                        39
<PAGE>

                       REPORT OF INDEPENDENT AUDITORS ON
                          FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Shareholders of Malan Realty Investors, Inc:

     Our audit of the consolidated financial statements referred to in our
report dated March 12, 2004 of Malan Realty Investors Inc. also included an
audit of the financial statement Schedule II -- Valuation and Qualifying
Accounts and Reserves for the year ended December 31, 2001 on page 41 of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

Detroit, Michigan
March 12, 2004

                                        40
<PAGE>

                          MALAN REALTY INVESTORS, INC.

         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                      FOR THE YEAR ENDED DECEMBER 31, 2001
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                       BALANCE AT
                                                      BEGINNING OF    CHARGED TO                  BALANCE AT
                                                          YEAR         EXPENSE      DEDUCTIONS    END OF YEAR
                                                      ------------    ----------    ----------    -----------
<S>                                                   <C>             <C>           <C>           <C>
Year ended December 31, 2001
  Allowance for uncollectible accounts............        $505           385           504           $386
                                                          ====           ===           ===           ====
</Table>

                   See Notes to Combined Financial Statements

                                        41
<PAGE>

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

     None.

ITEM 9a. CONTROLS AND PROCEDURES

     Under the supervision and with the participation of the company's
management, including the Company's principal executive officer and acting
principal financial officer, the Company conducted an evaluation of its
disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of the end of the period covered by the date of this report. Based on
such evaluation, the Company's principal executive officer and acting principal
accounting officer have concluded that the Company's disclosure controls and
procedures are effective.

     There has been no significant change in the Company's internal controls
over financial reporting identified in connection with the evaluation referred
to above that occurred during the last quarter that has materially affected, or
is reasonably likely to material affect, the Company's internal controls over
financial reporting.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The board of directors currently consists of five members. Under the
Company's Amended and Restated Articles of Incorporation, at least a majority of
the Company's directors must be "independent" (i.e., not employed by the
Company). All directors serve for a term of one year or until the election of
their respective successors. Officers of the Company are hired by and report to
the board of directors.

<Table>
<Caption>
                                                                     YEAR FIRST
NAME OF DIRECTOR                                                ELECTED AS A DIRECTOR
----------------                                                ---------------------
<S>                                                             <C>
Jeffrey D. Lewis............................................            2000
Paul Gray...................................................            2000
Jill Holup..................................................            2000
John P. Kramer..............................................            2000
Edward Russell..............................................            2000
</Table>

     The following provides biographical information for each of the executive
officers and the members of the board of directors.

     Jeffrey D. Lewis, age 58, has been a director of the Company since May
2000, became the Chief Executive Officer of the Company in September 2000 and
was also named President in March 2002. He has been in the real estate business
since 1971. Prior to becoming the Company's Chief Executive Officer in September
2000, Mr. Lewis was a Vice President at Kennedy Associates Real Estate Counsel,
Inc. ("KAREC"), a real estate investment firm. Mr. Lewis joined KAREC in 1998
and was responsible for managing one of the two KAREC national asset management
teams in addition to having direct responsibility for several properties. Prior
to joining KAREC, Mr. Lewis worked in various capacities with the California
Public Employees' Retirement System (CaIPERS) for ten years. When he left he was
a Principal Investment Officer and had general responsibility for the fund's
national office portfolio of 35 properties totaling over 15 million square feet
and values of approximately $1.4 billion. He earned his Bachelor of Science
Degree in Economics from the University of Nevada Los Vegas and a Masters Degree
in Business Administration from Stanford University.

     Melinda M. Hale, age 42, has been the Acting Chief Financial Officer of the
Company since October 2003. Prior to that she was the Controller from May 1997
to October 2003. Ms. Hale oversees the accounting and reporting functions of the
Company, as well as regulatory and tax compliance, short-term investments,
information systems and fiscal planning and budgets. Prior to joining the
Company as

                                        42
<PAGE>

Compliance Manager in 1994, Ms. Hale was employed by national and regional real
estate developers in California. Ms. Hale earned her Bachelor of Science Degree
in Accounting from Central Michigan University. She is a certified public
accountant and a member of the American Institute of Certified Public
Accountants and the Michigan Association of Certified Public Accountants.

     Paul Gray, age 37, has been in the real estate business since 1987. He is
Executive Vice President and co-founder of Kensington Investment Group, Inc., a
registered investment advisor engaged in the business of managing investments in
real estate securities. Mr. Gray has overall responsibility for investment
decision-making on behalf of Kensington's portfolios and is the director of
Kensington's research group. Mr. Gray was previously a partner of Golden State
Financial Services, a mortgage brokerage company, from 1992 to 1994. From 1987
to 1992, Mr. Gray was a senior analyst at Liquidity Fund Investment Corporation
where he managed the firm's REIT portfolios and developed the models used to
evaluate limited partnerships. He was simultaneously Director of Research for
the National Real Estate Index where he was instrumental in designing the
methodology and systems used to track real estate values throughout the United
States. Mr. Gray received a Bachelor of Science in Finance and Real Estate in
1988 from the Haas School of Business at the University of California, Berkeley.
He is a licensed real estate broker in the state of California. Mr. Gray is
Chairman of the Board.

     Jill Holup, age 40, has been in the real estate investment business since
1985. From 1997 to 2003 Ms. Holup was a Partner at John McStay Investment
Counse, an investment management firm. Her responsibilities included research,
portfolio management and new business development. Ms. Holup received her
Masters Degree in Business Administration from the Haas School of Business at
the University of California, Berkeley. She earned her bachelor's degree in
finance at the University of Texas, El Paso in 1985.

     John P. Kramer, age 46, has been in the real estate business since 1985. He
is President and co-founder of Kensington Investment Group, Inc., a registered
investment advisor engaged in the business of managing investments in real
estate securities. He is involved in all aspects of the organization and is
primarily responsible for directing the firm's investment policies. Prior to
co-founding Kensington in 1993, Mr. Kramer was previously Executive Vice
President at Liquidity Fund Investment Corporation where he was responsible for
directing the research, marketing and trading activities of the firm. Mr. Kramer
worked at Liquidity Fund Investment Corporation from 1985 to 1993. Prior to
joining Liquidity Fund in 1985, Mr. Kramer was an associate with Federal Reserve
Chairman Alan Greenspan's economic consulting firm, Townsend-Greenspan & Co. in
New York City, and an account executive at Sutro & Co., Inc. and
Prudential-Bache Securities in San Francisco. Mr. Kramer received his Masters
Degree in Business Administration from the University of California, Berkeley in
1986, receiving an award for his work in real estate finance while at the
Business School. He received a Bachelor of Arts in 1980 from the State
University of New York, Oneonta, in Economics.

     Edward J. Russell, III, age 43, is managing partner of Russell Development
Co., a commercial and residential real estate development company located in
Grosse Pointe Farms, Michigan. Mr. Russell has been employed by Russell
Development in various capacities since 1980. Russell Development's commercial
business focuses on the construction, management, sales and acquisition of
retail strip centers in southeast Michigan anchored by such tenants as CVS
Drugs, Wal-Mart, Blockbuster Video and Lowes. Mr. Russell oversees the areas of
job cost and budget analysis, tenant lease structuring and negotiation, and is
responsible for creating and maintaining tenant relationships and identifying
development opportunities for the company.

AUDIT COMMITTEE

     The audit committee of the Company's board of directors, which has been
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, consists of Paul Gray, Jill Holup and John Kramer. Each of the
members qualifies as an independent director, as defined by the New York Stock
Exchange. The board of directors has determined that John Kramer is an audit
committee financial expert, as defined by the Securities and Exchange
Commission, based upon his education and his 15 years as an investment manager.

                                        43
<PAGE>

CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS

     The Company has adopted a code of ethics that applies to our principal
executive officer, acting principal financial officer, principal accounting
officer and persons performing similar functions. The text of this code of
ethics may be found on our web site at "www.malanreit.com". The Company intends
to post notice of any waiver from, or amendment to, any provision of our code of
ethics on our web site.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities file reports of ownership
and changes in ownership with the Securities and Exchange Commission. These
insiders are required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms that they file. To the Company's knowledge, based solely
on the Company's review of the filings made by the Company's insiders and
written representations, all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than 10% beneficial owners were
satisfied in a timely manner.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

     The Company pays its directors who are not employees of the Company an
annual fee of $12,000 plus $1,000 for each regular or special meeting of the
board of directors attended in person. The Company also reimburses its outside
directors for expenses incurred in attending meetings. John P. Kramer and Paul
Gray have declined all compensation that is payable to non-employee directors.

     Pursuant to the terms of the Malan Realty Investors, Inc. 1995 Stock Option
Plan for Non-Employee Directors, each non-employee director of the Company is
automatically granted a non-qualified stock option to purchase 1,000 shares of
common stock of the corporation following the annual meeting of the board of
directors. In the event a vacancy arises on the board of directors following the
annual meeting of shareholders in any year and a non-employee director is
nominated to fill such vacancy prior to December 31 of the same year, such
non-employee director would automatically be granted an option to acquire 1,500
shares of common stock (instead of the normal 1,000 share grant) immediately
following the next annual meeting of the board of directors. Following each
annual meeting of the board of directors thereafter, the non-employee director
would receive the normal 1,000-share grant, assuming he or she is re-elected to
the board.

     The aggregate number of shares of common stock issuable under the stock
option plan for non-employee directors is 80,000, subject to certain
adjustments. All options granted must have an exercise price equal to the fair
market value of the underlying shares on the date of grant. Options vest upon
grant but do not become exercisable by the director until six months following
the date of grant. Options remain exercisable until the tenth anniversary of the
date of grant or, if earlier, until one year after the director ceases to be a
member of the board.

     Under the Company's 1995 Stock Compensation Plan for Non-Employee
Directors, non-employee directors may make an election each year to receive all
or a portion of their director's compensation for the following calendar year in
the form of common stock of the Company instead of cash. Once made, the election
is irrevocable for the following year's compensation. The number of shares to be
paid to a director in lieu of cash compensation is determined based on the
closing price of the common stock on the New York Stock Exchange on the day
before the compensation is earned by a director (i.e., the closing price on the
day before a board meeting).

EXECUTIVE COMPENSATION

     The following table provides information on the compensation paid or
accrued by the Company for services rendered during the last three fiscal years
to the Company's chief executive officer and most highly compensated executive
officers (the "named executive officers") whose total annual salary and bonus
during the last fiscal year was at least $100,000.

                                        44
<PAGE>

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                                                LONG-TERM
                                                                               COMPENSATION
                                                                               ------------
                                                                                  NUMBER
                                                                  OTHER         OF SHARES
                                       ANNUAL COMPENSATION        ANNUAL        UNDERLYING        ALL OTHER
                                       --------------------    COMPENSATION     OPTIONS(1)     COMPENSATION(2)
NAME & PRINCIPAL POSITION      YEAR     SALARY      BONUS          ($)            ($) )             ($) )
-------------------------      ----     ------      -----      ------------     ----------     ---------------
<S>                            <C>     <C>         <C>         <C>             <C>             <C>
Jeffrey D. Lewis...........    2003    $258,685    $130,000                                       $  8,000
  Chief Executive Officer      2002    $254,000    $100,000                       20,000(3)       $  8,000
                               2001    $238,000    $ 70,000                      100,000(3)       $  6,800
Elliott J. Broderick.......    2003    $125,723    $181,800(4)       --                           $108,000
  Chief Financial Officer      2002    $132,923    $348,000(5)       --                           $  8,000
  (until September 2003)       2001    $121,500    $ 36,000          --                           $  6,300
Alan K. Warnke.............    2003    $ 74,000    $ 25,000          --               --          $ 56,770
  Vice President, Leasing,     2002    $100,000    $ 25,000                           --          $  4,935
  Property Management          2001    $ 95,900    $ 23,000                           --          $  3,800
  and Construction (until
  September 2003)
Melinda Hale(6)............    2003    $ 75,832    $ 64,574(7)
</Table>

-------------------------
(1) See "Stock Option Plan"

(2) Includes (A) employer's contribution to the Malan Realty Investors, Inc.
    401(k) Profit Sharing Plan; (B) severance payments

(3) All options were cancelled in 2003 in lieu of a potential liquidation bonus
    based upon aggregate liquidating distributions to shareholders.

(4) Includes a $91,800 retention bonus.

(5) Includes a stay/signing bonus of $285,000 and a retention bonus of $27,000.

(6) Ms. Hale because acting Chief Financial Officer in October 2003.

(7) Includes a retention bonus of $29,574

<Table>
<Caption>
                                                                              A         B
                                                                              -         -
    <S>                                                             <C>     <C>      <C>
    Jeffrey D. Lewis............................................    2003    8,000
                                                                    2002    8,000
                                                                    2003    6,800
    Elliott J. Broderick........................................    2003    8,000    100,000
                                                                    2002    8,000
                                                                    2001    6,300
    Alan K. Warnke..............................................    2003    5,056     51,714
                                                                    2002    4,935
                                                                    2001    3,800
    Melinda Hale................................................    2003    2,654
</Table>

STOCK OPTION PLAN

     Prior to the Company's initial public offering in June 1994, the Company
adopted the Malan Realty Investors, Inc. 1994 Stock Option Plan to enable
employees of the Company to participate in the ownership of the Company. The
stock option plan is designed to align the interests of management with those of
the shareholders, to provide employees with incentives to stay with the Company,
to attract new employees with outstanding qualifications and to promote the
success of the Company's long-term business objectives.

                                        45
<PAGE>

     Under the stock option plan, executive officers and employees of the
Company may be granted options to acquire shares of common stock of the Company.
The stock option plan is administered by the compensation committee, which is
authorized to select the executive officers and other employees to whom options
are to be granted. No member of the compensation committee is eligible to
participate in the stock option plan.

     The compensation committee determines the number of options to be granted
to an employee. However, in accordance with the requirements of the Internal
Revenue Code for performance-based compensation, the provisions of the stock
option plan limit the total number of option shares that the compensation
committee may grant to an executive officer during any single year to 100,000
shares.

     The exercise price of each option is equal to the fair market value of the
underlying shares on the date of grant. With the exception of those options
granted on the date of the IPO, options vest over a five-year period at the rate
of 20% per year, beginning on the first anniversary of the date of grant. If an
option holder's employment is terminated within the first year of the date of
grant for any reason other than death, disability, or retirement, the right to
exercise the option is forfeited. If an option holder's employment is terminated
more than one year after the date of grant for reasons other than death,
disability, or retirement, the option may be exercised to the extent it was
exercisable at the time of termination of employment unless the termination of
employment is for cause. If the termination of employment is because of death,
disability, or retirement, the option may be exercised in full. No option may be
exercised ten years after the date of grant.

     Notwithstanding the foregoing paragraph, the compensation committee may
accelerate the vesting of any option that has been held by an option holder for
at least six months from the date of grant of the stock option.

OPTION GRANTS

     There were no employee options granted in 2003

TOTAL OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES

     The following table shows the number of shares covered by both exercisable
and non-exercisable stock options held by the named executive officers as of
December 31, 2003. This table also shows the value on that date of the
"in-the-money" options, which is the positive spread, if any, between the
exercise price of existing stock options and $4.85 per share (the closing market
price of the Company's common stock on December 31, 2003.

<Table>
<Caption>
                                                                  NUMBER OF SHARES              VALUE OF UNEXERCISED
                                                               UNDERLYING UNEXERCISED               IN-THE-MONEY
                                   SHARES        VALUE        OPTIONS AT YEAR-END ($)           OPTIONS AT YEAR END
                                  ACQUIRED      REALIZED    ----------------------------    ----------------------------
NAME                             ON EXERCISE       $        EXERCISABLE    UNEXERCISABLE    UNEXERCISABLE    EXERCISABLE
----                             -----------    --------    -----------    -------------    -------------    -----------
<S>                              <C>            <C>         <C>            <C>              <C>              <C>
Jeffrey D. Lewis.............         0            $0             (1)                            $0              $0
Elliott J. Broderick.........         0            $0             (1)                            $0              $0
Alan K. Warnke...............         0            $0         13,000           2,000             $0              $0
Melinda M. Hale..............         0            $0          3,350           2,000             $0              $0
</Table>

-------------------------
(1) Previously granted options were cancelled in 2003 in lieu of a potential
    liquidating bonus based upon aggregate liquidating distributions to
    shareholders.

OTHER COMPENSATION AND BENEFITS

     Mr. Lewis and Ms. Hale also receive medical, group life insurance and other
benefits (including matching contributions under the Company's 401(k) plan) that
are available generally to all of the Company's full-time employees. Messrs.
Broderick and Warnke received the same benefits while they were employed by the
Company.

                                        46
<PAGE>

EMPLOYMENT AGREEMENTS

     In May 2003, the Board of Directors approved an amendment to extend its
employment agreement with its President and Chief Executive Officer, Jeffrey D.
Lewis, through September 30, 2004. Terms of the amendment include an increase in
base salary to $275,000 per year, a non-renewal payment of $50,000 and a
liquidation bonus based upon aggregate liquidating distributions to
shareholders.

     The Company elected not to exercise an option to extend its employment
agreement with its Chief Financial Officer, Secretary and Treasurer, Elliott J.
Broderick. The Company and Mr. Broderick have an agreement for Mr. Broderick to
provide consulting services subsequent to the agreement expiration date of
September 30, 2003. The original term of the agreement was from October 1, 2003
through January 31, 2004. The agreement has been extended on a month to month
basis. For the period October 1, 2003 to December 31, 2003 Mr. Broderick
received $18,900 under this agreement.

ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
         STOCKHOLDER MATTERS

     The following table sets forth information about the Company's equity
compensation plans:

                      EQUITY COMPENSATION PLAN INFORMATION

<Table>
<Caption>
                                           (A)                      (B)                           (C)
                                 -----------------------    --------------------    -------------------------------
                                                                                    NUMBER OF SECURITIES REMAINING
                                 NUMBER OF SECURITIES TO      WEIGHTED-AVERAGE       AVAILABLE FOR FUTURE ISSUANCE
                                 BE ISSUED UPON EXERCISE     EXERCISE PRICE OF      UNDER EQUITY COMPENSATION PLANS
                                 OF OUTSTANDING OPTIONS,    OUTSTANDING OPTIONS,         (EXCLUDING SECURITIES
        PLAN CATEGORY              WARRANTS AND RIGHTS      WARRANTS AND RIGHTS        REFLECTED IN COLUMN (A))
        -------------            -----------------------    --------------------    -------------------------------
<S>                              <C>                        <C>                     <C>
Equity compensation plans
  approved by security
  holders....................
     Employee................            48,846                   $14.405                       350,920
     Directors...............            12,000                   $ 8.502                        63,792
Equity compensation plans not
  approved by security
  holders....................               N/A                       N/A                           N/A
                                         ------                   -------                       -------
       Total.................            60,846                   $13.241                       414,712
                                         ======                                                 =======
</Table>

     The following table sets forth information regarding the beneficial
ownership of the Company's common stock by the Company's directors, named
executive officers and shareholders who own more than 5% of the Company's common
stock as of March 21, 2004. On that date, there were 5,121,370 shares of the
Company's common stock outstanding. In preparing this table, the Company has
relied upon information supplied by its officers, directors, and certain
shareholders and upon information contained in filings with the Securities and
Exchange Commission.

                                        47
<PAGE>

<Table>
<Caption>
                                                                NUMBER OF       RIGHT TO     PERCENT OF
NAME                                                             SHARES        ACQUIRE(1)      SHARES
----                                                            ---------      ----------    ----------
<S>                                                             <C>            <C>           <C>
Jeffrey D. Lewis............................................       5,500                           *
Elliott J. Broderick........................................       8,324(5)          --            *
Melinda Hale................................................          --          3,350            *
Paul Gray...................................................          --             --            *
Jill Holup..................................................       5,000          4,000            *
John Kramer.................................................     600,450(2)          --        11.72%
Edward J. Russell III.......................................      41,000(3)       3,500            *
Alan K. Warnke..............................................          --         13,000            *
Directors and executive officers as a group (a total of
  eight persons)............................................     660,274(4)      23,850        13.36%
Peter T. Kross..............................................     499,460             --         9.75%
248 Grosse Pointe Blvd.
Grosse Pointe Farms, Michigan 48236
Kensington Investment Group, Inc. ..........................     600,450             --        11.72%
4 Orinda Way
Orinda, California 94563
</Table>

-------------------------
 *  Less than 1%

(1) Shares issuable upon exercise of stock options, which by their terms are
    currently exercisable or become exercisable within 60 days. See "Executive
    Compensation -- Stock Option Plan."

(2) These shares are beneficially owned by Kensington Investment Group, Inc. Mr.
    Kramer controls more than a majority of the stock of Kensington and
    accordingly may be deemed to beneficially own the shares of common stock
    owned by Kensington. Mr. Kramer disclaims beneficial ownership of such
    shares.

(3) Includes shares held by Russell & Associates Co. LLC of which Mr. Russell is
    the Managing Member and majority owner.

(4) See Notes 1 through 4 above.

(5) Amount is as of last known filing date as Mr. Broderick is no longer
    required to report ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Aggregate fees for professional services rendered for the Company by
PricewaterhouseCoopers LLP for the years ended December 31, 2003 and 2002 were:

<Table>
<Caption>
                                                               2003        2002
                                                               ----        ----
<S>                                                          <C>         <C>
Audit....................................................    $100,275    $142,075
Tax......................................................      44,000      32,500
All Other................................................      27,490      64,500
                                                             --------    --------
  Total..................................................    $171,765    $239,075
                                                             ========    ========
</Table>

     Audit fees were for professional services rendered for the audits of the
consolidated financial statements of the Company, consents, and assistance with
review of documents filed with the SEC.

     Tax fees were for services related to tax compliance, including the
preparation of tax returns, tax planning, and tax advice

                                        48
<PAGE>

     All Other fees were for services rendered related to the Company's
strategic plan, Plan of Liquidation, and payments to former officers of the
Company.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

     The Company's Audit Committee adopted a pre-approval policy and procedure
for audit and non-audit services effective January 2004. The Audit Committee has
set a limit of $25,000 for services that do not need pre-approval by the
Committee.

                                    PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM
         8-K

     A.  The following documents are filed as part of this report:

          (a)(1) Consolidated Financial Statements:

                 See Index to Consolidated Financial Statements and
                 Supplementary Data on page 23 of this Annual Report on Form
                 10-K.

          (a)(2) Consolidated Financial Statement Schedules:

                 See Index to Consolidated Financial Statements and
                 Supplementary Data on page 23 of this Annual Report on Form
                 10-K.

          (a)(3) Exhibits:

                 The following exhibits listed on the attached Exhibit Index are
                 included as part of this Annual Report on Form 10-K as required
                 by Item 601 of Regulation S-K

          (b)    Reports on Form 8-K:

<Table>
<Caption>
DATED                                     FURNISHED                     PURPOSE OF REPORT
-----                                     ---------                     -----------------
<S>                                   <C>                  <C>
November 7, 2003..................    November 14, 2003    Press release announcing property sales and
                                                           retirement of Convertible Notes
November 17, 2003.................    November 21, 2003    Press release announcing net assets in
                                                           liquidation at the end of the quarter ended
                                                           Sept. 30, 2003
November 19, 2003.................    November 21, 2003    Press Release announcing property sale
December 11, 2003.................    December 17, 2003    Press release announcing property sales and
                                                           retirement of Convertible Notes
December 18, 2003.................    December 22, 2003    Press release announcing liquidating cash
                                                           dividend distribution
</Table>

                                        49
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
                                          MALAN REALTY INVESTORS, INC.

                                          By:     /s/ JEFFREY D. LEWIS
                                            ------------------------------------
                                                      Jeffrey D. Lewis
                                                  Chief Executive Officer
Date: March 26, 2004

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

<Table>
<Caption>
                  SIGNATURE                                      TITLE                         DATE
                  ---------                                      -----                         ----
<C>                                              <S>                                      <C>
            /s/ JEFFREY D. LEWIS                 Chief Executive Officer and Director     March 26, 2004
---------------------------------------------
              Jeffrey D. Lewis

             /s/ MELINDA M. HALE                 Acting Chief Financial Officer and       March 26, 2004
---------------------------------------------    Principal Accounting Officer
               Melinda M. Hale

                      *                          Director                                 March 26, 2004
---------------------------------------------
                  Paul Gray

                      *                          Director                                 March 26, 2004
---------------------------------------------
                 Jill Holup

                      *                          Director                                 March 26, 2004
---------------------------------------------
                 John Kramer

                      *                          Director                                 March 26, 2004
---------------------------------------------
            Edward J. Russell III

          *By: /s/ JEFFREY D. LEWIS
  ----------------------------------------
    Jeffrey D. Lewis, as attorney in fact
</Table>

                                        50
<PAGE>

                          MALAN REALTY INVESTORS, INC.

                                   FORM 10-K

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER
-------
<C>      <S>  <C>
    (2)  --   Plan of Liquidation (incorporated herein by reference to the
              2002 proxy statement dated July 26, 2002.
   3(a)  --   Amended and Restated Articles of Incorporation of Malan
              Realty Investors, Inc.(incorporated herein by reference to
              Exhibit 3(a) filed with the Company's Quarterly Report on
              Form 10-Q for the quarter ended June 30, 1994 (the "1994
              Second Quarter Form 10-Q").
   3(b)  --   Amended and Restated By-Laws of Malan Realty Investors, Inc.
              (incorporated herein by reference to Exhibit 3(b) filed with
              Form 8-K dated September 7, 1999).
   4(a)  --   Indenture, dated as of June 24, 1994, between Malan Realty
              Investors, Inc. and The Bank of New York, as Trustee, with
              respect to the 9 1/2% Convertible Subordinated Debentures
              due 2004 (incorporated herein by reference to Exhibit 4(a)
              filed with the 1994 Second Quarter Form 10-Q).
   4(b)  --   Indenture, dated as of June 24, 1994, between Malan Realty
              Investors, Inc. and IBJ Schroeder, as Trustee, with respect
              to the 8 1/2% Secured Convertible Notes due 2003
              (incorporated herein by reference to Exhibit 4(b) filed with
              the 1994 Second Quarter Form 10-Q).
 *10(a)  --   The Malan Realty Investors, Inc. 1994 Stock Option Plan
              (incorporated herein by reference to Exhibit 10(a) filed
              with the 1994 Second Quarter Form 10-Q).
 *10(b)  --   Employee Agreement, dated as of June 25, 1994, between the
              Company and Anthony S. Gramer (incorporated herein by
              reference to Exhibit 10(b) filed with the 1994 Second
              Quarter Form 10-Q)
 *10(c)  --   Malan Realty Investors, Inc. 1995 Stock Option Plan for
              Non-Employees Directors (incorporated herein by reference to
              Exhibit 10(p) filed with the 1994 Form 10-K).
 *10(d)  --   Malan Realty Investors, Inc. 1995 Stock Compensation Plan
              for Non-Employees Directors (incorporated herein by
              reference to Exhibit 10(q) filed with the 1994 Form 10-K).
  10(e)  --   Purchase and Sale Agreement, dated as of April 13, 1995,
              between the Company and Clinton Pointe Joint Venture
              (incorporated herein by reference to Exhibit 10(s) filed
              with the 1995 First Quarter Form 10-Q).
 *10(f)  --   First Amendment to Employment Agreement, dated as of August
              15, 1997 between the Company and Anthony S. Gramer
              (incorporated herein by reference to Exhibit 10(m) filed
              with the 1997 Form 10-K).
 *10(g)  --   Change in Control Agreement, dated as of August 15, 1997
              between the Company and Michael K. Kaline (incorporated
              herein by reference to Exhibit 10(n) filed with the 1997
              Form 10-K).
  10(h)  --   Loan Agreement among Malan Midwest, LLC., and Bloomfield
              Acceptance Company, LLC., dated as of May 29, 1998
              (incorporated herein by reference to Exhibit 10(s) filed
              with the June 1, 1998 Amendment No. 1 Form S-2).
 *10(i)  --   Second Amendment to Employment Agreement, dated as of
              December 15, 1999 between the Company and A.S. Gramer
              (incorporated herein by reference to Exhibit 10(s) filed
              with the 1999 Form 10-K).
 *10(j)  --   Employment Agreement dated September 26, 2000 by and between
              the Company and Jeffrey Lewis (incorporated herein by
              reference to Exhibit 10 (v) filed with the 2000 Third
              Quarter Form 10-Q).
 *10(k)  --   Employment Agreement dated July 16, 2002 by and between the
              Company and Elliott J. Broderick (incorporated herein by
              reference to Exhibit 10(x) filed with the 2002 Second
              Quarter Form 10-Q).
 *10(l)  --   Amendment No. 1 dated May 13, 2003, to Employment Agreement
              dated September 26, 2000 by and between the Company and
              Jeffrey D. Lewis (incorporated herein by referenced to
              Exhibit (y) filed with the 2003 Second Quarter Form 10-Q).
</Table>

                                        51
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER
-------
<C>      <S>  <C>
 *10(m)  --   Amendment No. 1 dated May 13, 2003, to Employment Agreement
              dated July 16, 2002 by and between the Company and Elliott
              J. Broderick (incorporated herein by referenced to Exhibit
              (z) filed with the 2003 Second Quarter Form 10-Q).
  10(n)  --   Agreement of Sale and Purchase between D. J. Christie, Inc.,
              as Purchaser and Malan Midwest, LLC, as Seller dated as of
              December 10, 2003 filed with this Form 10-K.
  21     --   Subsidiaries
  23     --   Consent of PricewaterhouseCoopers LLP
  24     --   Powers of Attorney
 31.1    --   Certification of the Chief Executive Officer
 31.2    --   Certification of the Acting Chief Financial Officer
 32.1    --   Written Statement of the Chief Executive Officer and Acting
              Chief Financial Officer
</Table>

-------------------------
* A management contract or compensatory plan or arrangement required to be filed
  pursuant to Item 14(c) of Form 10-K.

                                        52