<PAGE>

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

                                  FORM 10-K/A
(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, 2001

                                       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           New York Stock Exchange
                       2004
</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:

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $21,900,000 (computed on the basis of $5.05 per
share), which was the last sale price on the New York Stock Exchange on February
28, 2002. (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 February 28, 2002, 5,121,370 shares of Common Stock, Par Value $0.01
Per Share, and $42,743,000 aggregate principal 9 1/2% Convertible Subordinated
Debentures due 2004, were outstanding.

     This amendment is being filed to correct the word losses to loans in the
second paragraph of the independent auditors report on page 18 of the previously
filed 10-K.

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

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                          PAGE NO.
                                                                          --------
<S>         <C>                                                           <C>
            PART I
Item 1.     Business....................................................      2
Item 2.     Properties..................................................      3
Item 3.     Legal Proceedings...........................................      5
Item 4.     Submission of Matters to a Vote of Security Holders.........      5
            PART II
Item 5.     Market for Registrant's Common Stock and Related Stockholder
            Matters.....................................................      6
Item 6.     Selected Financial Data.....................................      7
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................      8
Item 8.     Consolidated Financial Statements and Supplementary Data....     17
Item 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................     42
            PART III
Item 10.    Directors and Executive Officers of the Registrant..........     42
Item 11.    Executive Compensation......................................     44
Item 12.    Security Ownership of Certain Beneficial Owners and
            Management..................................................     48
Item 13.    Certain Relationships and Related Transactions..............     49
            PART IV
Item 14.    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. The Company's operating units are comprised of approximately 58
community shopping centers, free-standing retail stores and theater complexes.
All financial results are aggregated into one operating segment since the
properties have similar economic characteristics. The Company also manages
properties owned by unrelated third parties on a limited basis.

     The Company's major tenants include Kmart Corporation ("Kmart") and
Wal-Mart Corporation ("Wal-Mart") as well as other national retailers and
theater operators. In 2001, Kmart and Wal-Mart accounted for approximately 27.6%
and 5.4%, respectively, of the Company's total revenues and 46.8% and 8.5%,
respectively, of its gross leasable area ("GLA") at December 31, 2001. Total GLA
was approximately 5.5 million square feet as of December 31, 2001.

     In January 2002, Kmart Corporation filed for bankruptcy protection under
Chapter 11 of the U.S. Bankruptcy Code. The Company has a total of 27 stores
under lease to Kmart, with an average annual base rent of $2.78 per square foot,
which account for revenues totaling approximately $11.2 million annually. Under
the bankruptcy laws, within a specified time frame, Kmart could reject and
terminate any of their leases or affirm a lease with the ability to assign the
lease or re-lease the space to a third party. In February 2002, Kmart affirmed
one of its leases with the Company. Subsequently in March 2002, Kmart announced
the closure of 284 of its operating stores including four stores owned by the
Company. As of March 27, 2002, Kmart had neither affirmed nor rejected the
leases on these stores.

     During 2001, the Company began a plan of selling assets to retire various
debt obligations which mature over the next several years. As a result of
several factors including the Company's debt obligations, substantial
over-leverage of one of the Company's other properties, impediments to the
redevelopment of another property, as well as the Kmart bankruptcy, the
Company's Board of Directors voted in March 2002 to recommend a plan of
liquidation to its shareholders. The proposed plan contemplates the sale of all
of the Company's properties and other assets and is subject to shareholder
approval as well as to agreements with some of the Company's lenders. While the
Company will undertake to proceed expeditiously, the liquidation process could
take up to twenty-four months or more. It is anticipated that cash generated
from operations and property sales during this period will be used first to make
required repayments of debt and other liabilities and then distributed to common
shareholders.

     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 90% of its real estate investment trust taxable income (as
defined in the Code) to its shareholders.

     The Company presently has 20 full-time employees and believes that its
relationship with its employees is good.

                                        2
<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(15)
Bricktown Square, Chicago,          Fee          1987/1989     26.00        306,009       94%        Toys "R" Us (2013/2038)
 IL                                                                                                  Kids "R" Us (2014/2039)
                                                                                                     Marshall's (2005/2015)
                                                                                                      Sportmart (2003/2018)
                                                                                                   Frank's Nursery (2009/2029)
                                                                                                   Capital Fitness (2017/2032)
Wal-Mart Plaza, Champaign,          Fee             1994        1.00         11,458       90%       Wal-Mart(B)/Sam's Club(B)
 IL
Kmart Chicago, IL                   Fee             1977        8.51         96,268      100%           Kmart (2011/2061)
Wal-Mart Plaza, Decatur, IL         Fee          1992/1999      5.95         45,114      100%              Wal-Mart(B)
Fairview Heights, IL        Ground Lease (2051)  1976/1992     12.65         96,268      100%         Kmart (2006/2051)(C)
Kmart Franklin Park, IL             Fee             1975        9.84         96,268      100%           Kmart (2011/2061)
Wal-Mart Plaza,                     Fee             1995        6.89         52,726       84%     Wal-Mart(B)/Country Market(B)
 Jacksonville, IL
Kmart Lansing, IL                   Fee          1976/1992     10.48         96,268      100%           Kmart (2011/2061)
Lincoln, IL                         Fee          1975/1999      4.86         39,797       62%            Staples (2009)
Kmart Loves Park, IL        Ground Lease (2026)  1971/1991     12.50        106,084      100%           Kmart (2011/2026)
Cinemark Theatre, Melrose   Ground Lease (2048)  1973/1999     10.90         69,313      100%       Cinemark USA (2019/2034)
 Park, IL
Tinseltown 17, North                Fee          1967/1998     11.36         60,560      100%       Cinemark USA (2018/2033)
 Aurora, IL
Kmart Rockford, IL                  Fee          1971/1991     10.70        110,471      100%           Kmart (2011/2061)
Sherwood Plaza,                     Fee          1975/1991     13.85        124,885       93%           Kmart (2011/2061)
 Springfield, IL
Woodriver Plaza, Woodriver,         Fee             1987       19.40        147,470      100%         Wal-Mart (2007/2037)
 IL
INDIANA(8)
Cedar Square,                       Fee          1991/1996     11.32         25,750       65%              Wal-Mart(B)
 Crawfordsville, IN
Clifty Crossing, Columbus,          Fee             1989       19.90        190,919       96%         Wal-Mart (2009/2039)
 IN                                                                                                  Jay C Foods (2009/2034)
Wal-Mart Plaza, Decatur, IN         Fee          1994/1997      5.80         36,300       94%              Wal-Mart(B)
Wal-Mart Plaza, Huntington,         Fee             1995        1.00         12,485      100%              Wal-Mart(B)
 IN
Broadway Center,                    Fee          1974/1997     19.89        177,692       92%           Kmart (2011/2061)
 Merrillville, IN
Flatrock Village,                   Fee             1988       14.00         73,608       96%         Wal-Mart (2008/2038)
 Rushville, IN
Kmart Valparaiso, IN        Ground Lease (2050)  1974/1990      9.61         93,592      100%           Kmart (2011/2050)
Cherry Tree Plaza,                  Fee             1988       20.60        143,682       99%         Wal-Mart (2008/2038)
 Washington, IN                                                                                      Jay C Foods (2008/2033)
KANSAS(12)
Ace Hardware, Arkansas              Fee          1976/1999      4.41         39,797       56%     Westlake Hardware (2009/2019)
 City, KS
Wal-Mart Plaza, Chanute, KS         Fee             1995        1.00         15,447       84%              Wal-Mart(B)
Wal-Mart Plaza, El Dorado,          Fee             1996        1.70         20,000       72%              Wal-Mart(B)
 KS
Big Lots, Emporia, KS               Fee             1976        6.55         39,797      100%         Big Lots (2007/2012)
Ace Hardware, Garden City,          Fee          1977/2000      5.60         39,797       60%     Westlake Hardware (2010/2020)
 KS
Orscheln Farm Supply, Hays,         Fee             1977        4.96         40,050      100%   Orscheln Farm Supply (2004/2014)
 KS
Independence, KS                    Fee          1976/1990      4.12         39,797        0%                  (E)
Pine Ridge Plaza Lawrence,          Fee          1974/2001     31.57        250,533      100%           Kmart (2018/2068)
 KS                                                                                                    Kohl's (2019/2055)
                                                                                                       Old Navy(2006/2016)
Southwind Theater,                  Fee             1997        7.89         42,497      100%    Hollywood Theaters (2017/2027)
 Lawrence, KS
Kmart Salina, KS                    Fee             1978       16.00         87,406      100%           Kmart (2011/2061)
Kmart Topeka, KS                    Fee          1974/2000     13.93        108,960      100%           Kmart (2011/2049)
South City Center, Wichita,         Fee             1976       13.74        130,380       86%           Kmart (2011/2061)
 KS
MARYLAND(1)
Kmart Forestville, MD               Fee             1979        8.00         84,180      100%           Kmart (2011/2061)
</Table>

                                        3
<PAGE>

<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>
MICHIGAN(7)(D)
Wal-Mart Plaza, Benton              Fee             1995        1.30         14,280       92%         Wal-Mart(B)/Lowe's(B)
 Harbor, MI
Orchard-14 Shopping Center          Fee             1973       11.49        139,670       73%           Kmart (2011/2061)
 Farmington Hills, MI
Clinton Pointe Shopping             Fee             1992       11.72        135,330       97%        Office Max (2007/2017)
 Center,                                                                                          Sports Authority (2017/2067)
 Clinton Township, MI                                                                                       Target(B)
The Shops at Fairlane               Fee             1987       17.73        137,508       92%         Best Buy (2009/2024)
 Meadows,                                                                                            Kids "R" Us (2003/2018)
 Dearborn, MI                                                                                               Target(B)
                                                                                                           Mervyn's(B)
Wal-Mart Plaza, Owosso, MI          Fee          1993/1996     10.00         62,379       76%              Wal-Mart(B)
Wal-Mart Plaza, Sturgis, MI         Fee             1994        1.00         12,000      100%              Wal-Mart(B)
Westland Shopping Center,           Fee             1996        6.99         85,000       78%   Dick's Sporting Goods (2011/2026)
 Westland, MI
MINNESOTA(1)
Wal-Mart Plaza, Little              Fee             1996        1.00         12,456      100%              Wal-Mart(B)
 Falls, MN
MISSOURI(4)
Kmart Cape Girardeau, MO            Fee          1974/1991      5.68         79,856      100%           Kmart (2011/2061)
Kmart Jefferson City, MO            Fee          1973/1991      9.76        124,798      100%           Kmart (2011/2061)
Prairie View Plaza,         Ground Lease (2050)  1975/1992      3.24        104,440      100%           Kmart (2011/2050)
 Kansas City, MO
Kmart Plaza, Springfield,           Fee          1978/1991      7.41         98,878      100%           Kmart (2011/2061)
 MO
OHIO(2)
Wal-Mart Plaza, Mansfield,          Fee          1993/1998      3.90         55,316       88%              Wal-Mart(B)
 OH
Shannon Station, Van Wert,          Fee             1989       20.20        145,607       99%         Wal-Mart (2009/2039)
 OH                                                                                                   Roundy's (2010/2030)
WISCONSIN(8)
Kmart Plaza, Ft. Atkinson,          Fee             1979        8.90         88,608       69%           Kmart (2004/2054)
 WI
Country Fair Shopping               Fee          1960/1991     10.50        152,166       94%           Kmart (2011/2061)
 Center,
 Hales Corners, WI
Kmart Janesville, WI                Fee          1968/1991     13.78        104,000      100%           Kmart (2003/2038)
Kmart Plaza, Kenosha, WI            Fee          1973/1994      9.95        119,726      100%           Kmart (2011/2061)
Westland Plaza, Madison, WI         Fee          1978/1992     12.40        122,534       98%           Kmart (2003/2053)
Northway Mall, Marshfield,  Ground Lease (2022)  1978/1994     21.63        287,267       96%           Kmart (2011/2022)
 WI                                                                                                   JC Penney (2004/2019)
                                                                                                      Younkers (2004/2019)
Kmart Milwaukee, WI                 Fee             1971       11.23        117,791      100%           Kmart (2011/2061)
Kmart Oshkosh, WI                   Fee          1968/1992     10.00        104,000      100%           Kmart (2003/2038)
                                                                          ---------
   TOTAL                                                                  5,455,238
                                                                          =========
</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) Kmart subleases this property.

(D) 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.

(E) This property is currently vacant.

                                        4
<PAGE>

TENANT LEASE EXPIRATIONS AND RENEWALS

     The following table shows tenant lease expirations 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>
2002.................     67             167            $ 1,874             $11.24              3.1%              6.6%
2003.................     74             546              3,334               6.11             10.0              11.8
2004.................     80             414              2,956               7.13              7.6              10.5
2005.................     37             163              1,680              10.33              3.0               6.0
2006.................     43             294              1,911               6.51              5.4               6.8
2007 and
  thereafter.........     75           2,999             11,958               3.99             55.0              42.4
                         ---           -----            -------                                ----              ----
     TOTAL...........    376           4,583            $23,713             $ 5.17             84.1%             84.1%
                         ===           =====            =======             ======             ====              ====
</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>
2003.................      3             296            $   562             $ 1.90              5.4%              2.0%
2004.................      1              56                166               2.96              1.0               0.6
2006.................      1              96                296               3.08              1.8               1.0
2011(21) and
  thereafter(1)......     22           2,108              6,073               2.88             38.6              21.5
                         ---           -----            -------                                ----              ----
     TOTAL...........     27           2,556            $ 7,097             $ 2.78             46.8%             25.1%
                         ===           =====            =======             ======             ====              ====
</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
Company. The Company also is currently involved in a lawsuit filed on November
13, 2000 by Anthony S. Gramer, its former President and Chief Executive Officer.
In May 2001 the Circuit Court in Oakland County, Michigan granted summary
disposition in favor of Gramer in litigation seeking more than $1 million for
breach of an employment agreement. The Court upheld the decision in September
2001 ruling in Gramer's favor in a lump sum amount. The Company believes that
the order was entered in error and has filed an appeal with the Michigan Court
of Appeals.

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

     None.

                                        5
<PAGE>

                                    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 February 28, 2002 the Company had approximately 159
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, the dividends declared and paid by the Company per common share for
each such period, and the income tax treatment of such distributions:

<Table>
<Caption>
                                                                             ORDINARY     RETURN       CAPITAL
                                                                              TAXABLE       OF           GAIN
                  2000                       HIGH      LOW      DIVIDENDS    DIVIDENDS    CAPITAL    DISTRIBUTION
                  ----                       ----      ---      ---------    ---------    -------    ------------
<S>                                         <C>       <C>       <C>          <C>          <C>        <C>
First Quarter...........................    $13.44    $11.88     $0.425          --%        83.8%        16.2%
Second Quarter..........................    $14.13    $13.94      0.425          --         83.8         16.2
Third Quarter...........................    $13.00    $12.81      0.425          --         83.8         16.2
Fourth Quarter..........................    $12.88    $10.63      0.425          --         83.8         16.2
                                                                 ------
                                                                 $ 1.70
                                                                 ======
<Caption>
                  2001
                  ----
<S>                                         <C>       <C>       <C>          <C>          <C>        <C>
First Quarter...........................    $11.00    $ 8.90     $0.425         5.3%        44.1%        50.6%
Second Quarter..........................    $ 9.40    $ 7.60       0.25         5.3         44.1         50.6
Third Quarter...........................    $ 9.24    $ 7.90       0.25         5.3         44.1         50.6
Fourth Quarter..........................    $ 7.97    $ 6.44       0.25         5.3         44.1         50.6
                                                                 ------
                                                                 $1.175
                                                                 ======
</Table>

     Prior to the second quarter 2001, the Company paid regular quarterly
distributions on its Common Stock to its shareholders of $.425 per share dating
back to its initial public offering in June 1994. In June 2001, the Company
began paying quarterly distributions of $.25 per share based on its estimated
cash available for distribution ("CAD"). The Company defines CAD as funds from
operations ("FFO") as defined by the National Association of Real Estate
Investment Trusts (NAREIT) plus non-cash expenses not added back to net income
in calculating FFO, less recurring capital expenditures and payments of mortgage
principal amortization. In March 2002, the Company announced that it was
suspending regular quarterly cash distributions to shareholders in conjunction
with its proposed plan of liquidation.

                                        6
<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

<Table>
<Caption>
                                                                            YEAR ENDED DECEMBER 31,
                                                              ----------------------------------------------------
                                                                2001       2000       1999       1998       1997
                                                                ----       ----       ----       ----       ----
                                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>        <C>        <C>        <C>        <C>
OPERATING DATA
Revenues
 Minimum rent...............................................  $ 28,217   $ 29,430   $ 30,662   $ 28,084   $ 24,092
 Percentage and overage rents...............................     1,369      1,531      1,307      1,215      1,177
 Recoveries from tenants....................................    10,076     10,222     10,688      9,954      9,271
 Interest and other income..................................       399        661        615        311        443
 Gain on sale of real estate................................     3,830      3,158      1,602
                                                              --------   --------   --------   --------   --------
Total revenues..............................................    43,891     45,002     44,874     39,564     34,983
Operating expenses
 Property operating and maintenance.........................     3,317      3,215      3,115      2,876      2,867
 Other operating expenses...................................     1,848      2,151      1,752      1,615      1,493
 Real estate taxes..........................................     8,310      8,409      8,612      8,134      7,891
 General and administrative.................................     2,979      2,156      2,024      2,068      1,545
 Proxy contest and related costs............................                3,200
 Depreciation and amortization..............................     6,808      6,795      6,368      5,633      5,068
 Impairment of real estate..................................    15,266        190                   431
                                                              --------   --------   --------   --------   --------
Total operating expenses....................................    38,528     26,116     21,871     20,757     18,864
                                                              --------   --------   --------   --------   --------
Operating income............................................     5,363     18,886     23,003     18,807     16,119
Interest expense............................................    17,710     17,962     17,550     16,770     15,576
                                                              --------   --------   --------   --------   --------
Income (loss) before extraordinary item and cumulative
 effect of change in accounting principal...................   (12,347)       924      5,453      2,037        543
Extraordinary item
 Loss on extinguishment of debt.............................                  (93)      (289)      (191)
                                                              --------   --------   --------   --------   --------
Income (loss) before cumulative effect of change in
 accounting principle.......................................   (12,347)       831      5,164      1,846        543
Cumulative effect of change in accounting principles........      (450)                 (522)
                                                              --------   --------   --------   --------   --------
Net income (loss)...........................................  $(12,797)  $    831   $  4,642   $  1,846   $    543
                                                              ========   ========   ========   ========   ========
Basic and diluted earnings (loss) per share.................  $  (2.49)  $   0.16   $   0.90   $   0.41   $   0.15
                                                              ========   ========   ========   ========   ========
Weighted -- average basic shares............................     5,138      5,173      5,170      4,507      3,546
                                                              ========   ========   ========   ========   ========
Weighted -- average diluted shares(1).......................     5,138      5,180      5,170      4,524      3,591
                                                              ========   ========   ========   ========   ========
PRO FORMA DATA(3)
Pro forma amount assuming the change in accounting method is
 applied retroactively:
Income (loss) before extraordinary item.....................  $(12,347)             $  5,453   $  1,970   $    475
                                                              ========              ========   ========   ========
Basic and diluted earnings (loss) per share before
 extraordinary item.........................................  $  (2.40)             $   1.05   $   0.44   $   0.13
                                                              ========              ========   ========   ========
Net income (loss)...........................................  $(12,347)             $  5,164   $  1,779   $    475
                                                              ========              ========   ========   ========
Basic and diluted earnings (loss) per share.................  $  (2.40)             $   1.00   $   0.39   $   0.13
                                                              ========              ========   ========   ========
CASH FLOW DATA
Cash provided by operating activities.......................  $  9,333   $  5,217   $ 10,872   $ 10,069   $  5,149
Cash provided by (used for) investing activities............     3,875      4,373     (4,623)   (40,627)    (8,216)
Cash provided by (used for) financing activities............   (12,380)   (10,626)    (7,290)    31,739     (2,182)
                                                              --------   --------   --------   --------   --------
 Net increase (decrease) in cash and cash equivalents.......  $    828   $ (1,036)  $ (1,041)  $  1,181   $ (5,249)
                                                              ========   ========   ========   ========   ========
OTHER DATA
Funds from operations -- Basic(2)...........................  $  5,861   $  4,747   $ 10,214   $  8,094   $  5,581
                                                              ========   ========   ========   ========   ========
Cash distributions declared per basic common share..........  $  1.175   $   1.70   $   1.70   $   1.70   $   1.70
Total gross leasable area at period end.....................     5,455      5,921      6,038      6,209      5,653
                                                              ========   ========   ========   ========   ========
BALANCE SHEET DATA
Real estate, before accumulated depreciation................  $248,053   $265,566   $267,117   $261,783   $215,785
Total assets................................................   225,326    243,983    253,480    256,837    216,138
Mortgage indebtedness.......................................   120,390    125,011    126,601    122,279     88,585
Convertible debentures......................................    42,743     42,743     42,743     44,925     56,680
Convertible notes...........................................    27,000     27,000     27,000     27,000     27,000
Shareholders' equity........................................    19,915     39,084     47,141     51,237     33,942
</Table>

-------------------------
(1) 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.

(2) Management considers funds from operations ("FFO") to be a standard
    supplemental measure of performance of an equity real estate investment
    trust. The Company calculates FFO as net income or (loss) excluding gains
    and losses from sales of operating property, further adjusted for certain
    non-cash items including depreciation, amortization and impairment of real
    estate assets. It is the opinion of management that reduction for or
    inclusion of these items is not meaningful in evaluating income-producing
    real estate which, in general, has historically not depreciated. FFO does
    not represent cash generated from operating activities in accordance with
    generally accepted accounting principles and is not necessarily indicative
    of cash available to fund cash needs, including distributions. FFO should
    not be considered as an alternative to net income as an indicator of the
    Company's operating performance or as an alternative to cash flow as a
    measure of liquidity or the ability to pay distributions but rather as a
    supplemental tool to be used in conjunction with these factors in analyzing
    the Company's overall performance. See "Funds From Operations" in Item
    7 -- "Management's Discussion and Analysis of Financial Condition and
    Results of Operations."

(3) 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." See Note 11
    in the accompanying financial statements.

                                        7
<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.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000

     The total gross leasable area ("GLA") of the Company decreased from
approximately 5.921 million square feet at December 31, 2000 to approximately
5.455 million square feet at December 31, 2001 due to the sale of properties in
2001. The percentage of GLA leased at December 31, 2001 remained at 94% compared
to December 31, 2000. Total revenue decreased $1.111 million from 2000. Minimum
rents and recoveries from tenants decreased $1.359 million primarily due to the
closure of a theater tenant at Bricktown Square and the sale of six properties
in 2001. Percentage and overage rents decreased $162,000 due to the receipt in
2000 of a one-time settlement of percentage rents offset by an overall increase
in 2001 percentage rents from the Company's anchor tenants. Interest and other
income decreased $262,000 primarily due to non-recurring lease termination
income from tenants recognized in 2000. Net gains on the sale of real estate
increased $672,000 in 2001.

     Total operating expenses increased $12.412 million in 2001. Property and
operating maintenance expense increased $102,000 primarily due to the higher
cost of snow removal and overall increases in utilities and insurance offset by
decreases due to properties sold. Other operating expenses decreased $303,000 in
2001 primarily due to a state tax refund received in 2001 and a decrease in bad
debt expense from 2000. Nonrecurring expenses included $3.2 million incurred in
2000 relating to a proxy contest and related expenses and an impairment of real
estate of approximately $15.266 million recorded in 2001. The impairment of real
estate relates to a reduction in the carrying value in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121 of the Company's interests in
twenty-seven assets. Under SFAS No. 121, aggregate impairment losses cannot be
reduced by unrealized appreciation of other properties. General and
administrative expenses increased $823,000 primarily due to (1) legal fees
related to tenancy issues at Bricktown Square and other litigation and (2)
professional fees related to the development of and execution of the Company's
strategic plan.

     Interest expense (including related amortization of deferred financing
costs) decreased approximately $252,000 primarily due to a reduction in
amortization of rate cap costs as a result of the adoption of SFAS No. 133,
which addresses accounting for derivative instruments and hedging activities,
and lower interest rates on the Company's variable rate financing offset by an
increase in amortization of deferred financing costs on new financing. 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.

     On a same-store basis, property-operating revenues, consisting of minimum
and percentage rents and recoveries from tenants decreased approximately
$377,000 from 2000 to 2001 due to an overall increase in tenant vacancies.
Property operating expenses, consisting of property operating and maintenance
and real estate taxes increased approximately $283,000 as a result of increased
snowplowing and increases in real estate taxes at several properties. Overall
property net operating income decreased approximately $660,000 on a same-store
basis from 2000.

     Overall, net income decreased $13.628 million resulting primarily from
charges for impairment of real estate and the cumulative effect of a change in
accounting principle and a decrease in rents due to a closure of a theater
tenant and sales of properties offset by a decrease in costs related to a proxy
contest and related expenses and an increase in net gains on sale of real
estate.

                                        8
<PAGE>

Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999

     The total GLA of the Company decreased from approximately 6.034 million
square feet at December 31, 1999 to approximately 5.921 million square feet at
December 31, 2000 due to the sale of a property in 2000. The percentage of GLA
leased at December 31, 2000 decreased to 94% from 95% at December 31, 1999.
Total revenue increased $128,000 from 1999. Minimum rents and recoveries from
tenants decreased $1.698 million primarily due to sales of properties in 1999
and 2000 and lease termination agreements executed with four tenants in late
1999 and early 2000. Percentage rent increased approximately $224,000 from 1999
primarily due to a settlement of additional percentage rents from prior years
and an overall increase in percentage rents from the Company's anchor tenants.
Interest and other income increased approximately $46,000 primarily from the
receipt of nonrecurring lease termination fees from two tenants in 2000. Net
gains on sales of properties increased $1.556 million over 1999. Total operating
expenses increased $4.245 million from 1999 primarily due to proxy contest and
related costs totaling $3.2 million. Property operating and maintenance expense
increased $100,000 primarily due to extraordinary snow removal costs incurred in
December 2000. Other operating expenses increased $399,000 primarily due to an
increase in bad debt expense to provide for the potential uncollectibility of
past due rents from a former theater tenant at Bricktown Square. General and
administrative costs increased $132,000 primarily due to legal and professional
fees incurred in connection with the Company's strategic operational review of
the Company performed in early 2000. Depreciation and amortization increased
$427,000 primarily due to capital improvements and redevelopments that were
completed in 1999 and 2000 offset by decreases attributable to property sales.
Real estate taxes decreased approximately $203,000 due to the sale of a property
in Manchester, Missouri in June 2000. In 2000, the Company recorded a loss on
impairment of real estate of approximately $190,000 due to the reduction of the
Company's carrying value of its interest in its property in Great Bend, Kansas
to its net realizable value in accordance with SFAS No. 121.

     Interest expense (including related amortization of deferred financing
costs) increased approximately $412,000 due to increases in interest rates on
the Company's lines of credit in 2000 and additional borrowings. Interest
capitalized on redevelopment projects in 2000 was $32,000 compared to $161,000
in 1999.

     The Company recorded a loss on early extinguishment of debt in 2000 of
$93,000 related to the repayment of debt in connection with the sale of property
in Manchester, Missouri. In 1999, the Company recorded a net extraordinary loss
of $289,000 on the early extinguishment of debt in connection with the repayment
of a portion of the Company's Securitized Mortgage Loan and repurchases of its
9 1/2 percent Subordinated Convertible Debentures due 2004.

     In 1999, the Company elected to apply the provisions of SEC Staff
Accounting Bulletin No. 101, which addresses the proper recognition of certain
revenue items including contingent (percentage) rents. The cumulative effect of
the change in accounting principle was a reduction in percentage rental revenue
of $522,000 as of January 1, 1999.

     Overall, net income decreased approximately $3.811 million in 2000
primarily as a result of nonrecurring items related to costs associated with a
proxy contest and related payments offset, in part, by an increase in gains on
property sales and reductions in losses on extinguishment of debt and the
cumulative effect of a change in accounting principle.

Impact of Recently Adopted Accounting Standards

     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
                                        9
<PAGE>

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 expects the operations of all
properties sold or classified as held for sale after December 31, 2001 to be
shown as discontinued operations. In addition, operations for such properties
for all prior periods presented will be reclassified to discontinued operations.
The Company does not expect this statement to have a material impact on the
consolidated financial position or results of operations.

Funds From Operations

     Management considers Funds From Operations ("FFO") to be a standard
supplemental measure of performance of an equity real estate investment trust.
The Company uses the method of calculating FFO prescribed by the October 1999
White Paper issued by the National Association of Real Estate Investment Trusts
(NAREIT) which utilizes net income or loss excluding gains and losses from sales
of depreciable operating property, further adjusted for certain non-cash items
including depreciation, amortization and impairment of real estate assets and
including items from nonrecurring events except for those that are defined as
extraordinary items under generally accepted accounting principles.

     FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not necessarily
indicative of cash available to fund cash needs, including distributions. FFO
should not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flow as a measure
of liquidity or the ability to pay distributions but rather, as a supplemental
tool to be used in conjunction with these factors in analyzing the Company's
overall performance.

     The Company reports FFO on both a basic and diluted basis. The Company no
longer considers its Convertible Debentures and Convertible Notes to be common
stock equivalents for purposes of calculating diluted FFO because management
believes that conversion of these securities is remote at this time based upon
the conversion price of the securities in relation to the current market price
of the Company's Common Stock. Prior years amounts have been restated to conform
with the current year presentation.

     The following table shows the components that comprise the Company's FFO
for each of the three years ended December 31, 2001.

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31,
                                                                ------------------------------
                                                                  2001       2000       1999
                                                                  ----       ----       ----
                                                                        (IN THOUSANDS)
<S>                                                             <C>         <C>        <C>
NET INCOME (LOSS)...........................................    $(12,797)   $   831    $ 4,642
Depreciation of buildings and improvements..................       5,998      6,255      6,044
Amortization of tenant allowances and improvements..........         564        365        173
Amortization of leasing costs...............................         210        171        146
Gain on sale of real estate.................................      (3,830)    (3,158)    (1,602)
Impairment of real estate...................................      15,266        190
Loss on extinguishment of debt..............................                     93        289
Cumulative effect of change in accounting principle.........         450                   522
                                                                --------    -------    -------
FUNDS FROM OPERATIONS, BASIC AND DILUTED....................       5,861      4,747     10,214
                                                                ========    =======    =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.......................................................       5,138      5,173      5,170
Diluted.....................................................       5,138      5,180      5,170
</Table>

CRITICAL ACCOUNTING POLICIES

     The consolidated financial statements are prepared in accordance with
generally accepted accounting principles, which requires the Company to make
certain estimates and assumptions. A summary of the

                                        10
<PAGE>

Company's significant accounting policies is provided in Note 1 to the
consolidated financial statements. The following section is a summary of certain
aspects of those accounting policies that require management estimates and
judgment.

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.

Impairment of Real Estate

     The Company reviews its properties on a quarterly basis for impairment and
provides a provision if impairments are determined. To determine if impairment
may exist, the Company reviews its properties and identifies those that have had
either an event of change or event of circumstances warranting further
assessment of recoverability. If further assessment of recoverability is needed,
the Company estimates the future net cash flows expected to result from the use
of the property and its eventual disposition, on an individual property basis.
If the sum of the expected future net cash flows (undiscounted and without
interest charges) over the Company's anticipated holding period of the asset is
less than the carrying amount of the property on an individual property basis,
the Company will recognize an impairment loss based upon the estimated fair
value of such properties. Aggregate impairment losses are not reduced by
unrealized appreciation of other assets.

LIQUIDITY AND CAPITAL RESOURCES

     Cash flow from operations is the principal source of capital to fund the
Company's ongoing operations. Recent efforts to increase cash flow have centered
on redevelopment opportunities at certain of the Company's existing properties,
disposition of non-core assets and refinancing of unencumbered properties.

Developments and Redevelopments

     Phase II of the redevelopment of the Pine Ridge Plaza in Lawrence, Kansas
is complete. The Company completed its work on the construction of a 22,000
square foot Old Navy and a 12,000 square foot Famous Footwear in April 2001.
Both stores opened in the second quarter 2001. Total costs of construction
through December 31, 2001 were approximately $2.2 million. Construction of Phase
III, an additional freestanding building of 23,500 square feet, was completed in
December 2001. Approximately 10,000 square feet has been leased and it is
anticipated the balance will be subdivided into spaces ranging from 2,500 to
5,000 square feet each. Total costs for Phase II and Phase III were
approximately $4.6 million and were funded partially through a $10 million loan
with Cohen Financial discussed further below and draws on the Company's line of
credit.

     In February 2001, the Company began redevelopment of 34,600 square feet of
formerly vacant space at the Company's property in Wichita, Kansas. Total
estimated costs of the redevelopment are approximately $600,000 of which
$240,000 were incurred through December 31, 2001. The project is anticipated to
be completed in June 2002.

     In March 2001, the Company obtained city approval to redevelop up to 90
acres of property in Farmington Hills, Michigan, contiguous to and inclusive of
the Company's existing 12 acre Orchard-14 Shopping Center, under a Planned Unit
Development agreement with the city. Prior to approval by the city, the Company
signed an agreement to enter into a joint development with Grand/Sakwa
Acquisition, L.L.C. ("Grand /Sakwa") to acquire and redevelop portions of the 90
acres in various phases through a joint venture. In June 2001, Grand/Sakwa filed
suit in the Circuit Court in Oakland County, Michigan seeking to declare the
joint development agreement unenforceable. The Company denied the contention
that the agreement is unenforceable and filed a counter-claim seeking specific
performance of the agreement, alleging breach of contract and claiming a breach
of duty by Grand/Sakwa to negotiate in good faith. In December 2001 the

                                        11
<PAGE>

Company entered into a settlement agreement with Grand/Sakwa whereby each party
agreed to forego any claims against the other and discontinue the joint
development

     Consistent with its proposed plan of liquidation (See "Proposed Plan of
Liquidation" below) the Company does not anticipate any further new developments
or redevelopments.

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 twelve months ended December 31, 2001, the Company incurred
$729,000 of capital expenditures, which were funded out of reserves required
under the Company's collateralized mortgages and operating cash flows.
Approximately $720,000 is anticipated to be incurred in 2002 for capital
expenditures, also to be funded from similar sources.

     In order to procure new tenants or renegotiate expiring leases with current
tenants the Company will provide inducements including building allowances and
space improvements and pay leasing commissions to outside brokers in accordance
with prevailing market conditions. The total cost of these expenditures in 2001
was approximately $682,000. Anticipated costs for 2002 are estimated to be
approximately $1.5 million. 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 over the next several years 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. During the twelve months ended December 31, 2001, the
Company repurchased 48,100 shares at an average cost of $8.26 per share.

     The Company has outstanding as of December 31, 2001 and December 31, 2000
$42.743 million of 9.5% Convertible Debentures ("Debentures") and $27 million of
8.5% Convertible Notes ("Notes") 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 and the Notes are due July
2003.

     The Company has in place a plan to repurchase and retire up to $15 million
aggregate principal of Debentures. Through December 31, 2001, the Company had
repurchased $11.807 million of Debentures under the plan. No Debentures were
repurchased during the twelve months ended December 31, 2001 or 2000. The
Company may make additional purchases in the future consistent with its proposed
plan of liquidation as funds become available.

                                        12
<PAGE>

     The Company sold the following properties in 2001 (in thousands):

<Table>
<Caption>
                                                                        NET SALES       DEBT       NET CASH
      DISPOSITION DATE           PROPERTY NAME         LOCATION         PROCEEDS     REPAYMENTS    GENERATED
      ----------------           -------------         --------         ---------    ----------    ---------
<S>                             <C>                <C>                  <C>          <C>           <C>
5/8/01......................    Standard Supply    Liberal, KS           $   418                    $   418
6/8/01......................    Kmart Plaza        Green Bay, WI           3,108                      3,108
7/26/01.....................    Kmart Plaza        Madison, WI             1,597       $(370)         1,227
7/26/01.....................    Kmart Plaza        New Lenox, IL           4,979        (370)         4,609
11/5/01.....................    Vacant Building    Great Bend, KS            259                        259
11/15/01....................    Kmart Plaza        Stevens Point, WI       1,296                      1,296
11/26/01....................    Outlot             North Aurora, IL          379                        379
                                                                         -------       -----        -------
                                                                         $12,036       $(740)       $11,296
                                                                         =======       =====        =======
</Table>

     Net cash generated from the sales was used for general working capital
purposes and to pay down the outstanding balance on the Company's lines of
credit.

Financings

     In September 2001, the Company extended its line of credit with Bank One
(the "Bank One Line") through September 30, 2002. The Bank One Line is a
revolving line of credit, which calls for monthly payments of interest at the
Bank's prime rate or 200 basis points over LIBOR, at the Company's option, and
is collateralized by the Company's interest in Orchard-14 Shopping Center in
Farmington Hills, Michigan. In October 2001, the available borrowing was reduced
by approximately $1.573 million as a condition of the issuance of a letter of
credit by Bank One required for an appeal bond in connection with litigation
with the Company's former president and CEO (See "Litigation" below). There were
no borrowings outstanding on the line as of December 31, 2001. As of December
31, 2001, the Company was in violation of two corporate financial covenants on
the Bank One Line as the result of an impairment of assets under SFAS No. 121
recorded in 2001. Subsequent to year-end the Company received a waiver of the
covenants from Bank One for the fourth quarter.

     The Company's line of credit with Greenwich Capital Markets, Inc., a
revolving line of credit, expired November 2001. The Company made a final
payment to satisfy its remaining obligation from proceeds from the above
property sales prior to the due date.

     In May 2001, the Company entered into a $10 million loan agreement with
Oaktree CF Lender, L.L.C., an affiliate of Cohen Financial. The loan is for a
term of 12 months with interest at the rate of 400 basis points over the 30-day
LIBOR rate and a floor of 8% per annum. The loan is collateralized by the Pine
Ridge Plaza shopping center development in Lawrence, Kansas. Initial funding of
approximately $7.6 million was received upon closing in May 2001 and the balance
of the loan is to be disbursed as construction of the additional retail space in
the center is completed and tenant leases are executed. An additional draw on
the loan totaling approximately $1.9 million was received in January 2002. The
Company is currently negotiating an extension of the loan with the lender and
anticipates that the loan will be paid off through a subsequent sale of the
property. The loan agreement contains a provision whereby the Company is
required to deposit cash or a letter of credit in the amount of $2 million with
the lender should Kmart cease to be open for business in its space at the
shopping center. As of March 27, 2002, the Kmart store remained in operation and
was not slated for closure by Kmart at that time (See "Kmart Bankruptcy" below).

     The Company has several large debt obligations coming due in the near term
and over the next several years which it intends to satisfy through the sale of
assets consistent with its strategic plan adopted in 2001. Approximately $58
million is due August 10, 2002 on the Securitized Mortgage Loan which is
collateralized by twenty-three of the Company's properties. The Company has
listed its real estate assets for sale and expects to sell properties generating
sufficient proceeds to pay off the Securitized Mortgage Loan by the due date.
The Company is also negotiating with several lenders to refinance the
Securitized Mortgage Loan on a short-term basis in the event that all or a
portion of the loan is not retired by the due date. In the event that the

                                        13
<PAGE>

Securitized Mortgage Loan is not completely satisfied by the due date, the
lender may institute foreclosure proceedings against the collateral.

     Approximate scheduled principal payments for the years subsequent to
December 31, 2001 are as follows (in thousands):

<Table>
<S>                                                             <C>
2002........................................................    $ 66,272
2003........................................................      27,735
2004........................................................      43,522
2005........................................................         847
2006........................................................       3,804
2007 and thereafter.........................................      47,953
                                                                --------
Total.......................................................    $190,133
                                                                ========
</Table>

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

Bricktown Square Shopping Center

     The Company owns Bricktown Square in Chicago, Illinois which collateralizes
two loans, the 8.5% Secured Convertible Notes due July 2003 (the "Convertible
Notes") and the City of Chicago UDAG Loan (the "UDAG Loan") with outstanding
balances of $27 million and approximately $7.8 million, respectively, at
December 31, 2001. The UDAG Loan is secondary to the Convertible Notes and is
nonrecourse to the Company. Net operating income and cash flows from Bricktown
have declined significantly since 1998.

     The Company believes the current value of Bricktown Square is substantially
below the debt obligations that it collateralizes. In March 2001, the Company
entered into a standstill agreement with the City of Chicago to suspend payments
on the UDAG Loan until December 2001. In December 2001, the Company failed to
make a required payment of interest and principal totaling approximately
$370,000 after its request for an extension of the standstill agreement was
denied by the City. The Company did not make an additional payment of interest
and principal totaling approximately $185,000 due in March 2002. Under the UDAG
Loan agreement, the City has the right to declare the Company in default for
nonpayment of the amounts due. If such default remains uncured, further defaults
could result under the Convertible Notes and certain other of the Company's debt
agreements thereby causing potential acceleration of amounts due under these
agreements. The City has not declared the Company in default of the UDAG Loan
Agreement as of March 27, 2002.

     In May 2001, the Company executed a lease at the property with a health
club for a 35,000 square foot space formerly occupied by a theater tenant. In
2001, the Company recorded an impairment of real estate of approximately $ 4.6
million to reduce its carrying value in Bricktown Square to its net realizable
value in accordance with SFAS No. 121. The Company is currently marketing
Bricktown Square for sale.

Litigation

     In May 2001 the Circuit Court in Oakland County, Michigan granted summary
disposition in favor of Anthony S. Gramer, Malan's former president and CEO, in
litigation brought by Gramer seeking more than $1 million for breach of an
employment agreement. The Court upheld the decision in September 2001 ruling in
Gramer's favor in a lump sum amount. The Company believes that the order was
entered in error and has filed an appeal with the Michigan Court of Appeals.

     Gramer contends that he 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 has not recorded a liability related to this
lawsuit and intends to vigorously pursue all available avenues open in the
litigation because the Company strongly believes that it has met all obligations
under the employment agreement.

     In October 2001, the Company posted a bond totaling approximately $1.573
million with the court representing maximum potential damages and anticipated
interest should the Company be unsuccessful in its

                                        14
<PAGE>

appeal. Requirements of the bond include an irrevocable letter of credit in the
total amount of the bond. The letter of credit, which was issued by Bank One,
included a reduction in the available borrowing on the Company's line of credit
in the principal amount of the letter.

Kmart Bankruptcy

     In January 2002, the Company's major tenant, Kmart Corporation, filed a
voluntary petition for reorganization relief under Chapter 11 of the U.S.
Bankruptcy Code. The Company has a total of 27 stores under lease to Kmart with
an average annual base rent of $2.78 per square foot. Leases with Kmart account
for approximately 25 percent of the Company's annualized minimum rent and 47
percent of its gross leasable area. Under the bankruptcy laws, within a
specified time frame, Kmart could reject and terminate any of their leases or
affirm a lease with the ability to assign the lease or re-let the space to a
third party. In February 2002, Kmart affirmed its lease with the Company for the
store located in Fairview Heights, Illinois.

     Kmart has stated in its bankruptcy filings that it expects "to emerge from
Chapter 11 having improved their operations and rationalized their capital
structure". As part of its plan of reorganization, Kmart announced in March 2002
that it intended to close 284 of its operating stores including four stores
owned by the Company. Revenues derived from the four stores, which are located
in Topeka, Kansas, Forestville, Maryland and Madison and Marshfield, Wisconsin,
total approximately $1.5 million annually.

     Three of these four properties also have other in-line tenants that may be
adversely affected by the closures. The effect on future cash flows resulting
from these closures cannot be determined at this time, however, in preparing the
accompanying the financial statements, management has made estimates and
assumptions that affect the reported amounts of assets and liabilities.
Nevertheless, actual results may differ from these estimates under different
assumptions or conditions.

     Kmart has announced that it may close additional stores in the future.
Should Kmart reject the leases on the above stores it intends to close, or close
additional stores in the Company's portfolio, future cash flows may be
materially impacted. As of March 27, 2002, Kmart had neither affirmed nor
rejected the leases on any of the four stores mentioned above.

Proposed Plan of Liquidation

     As a result of several factors including the Company's debt structure,
including the over-leverage of Bricktown Square, impediments to the
redevelopment of the property in Farmington Hills, Michigan, and the bankruptcy
filing of Kmart Corporation, the Company's Board of Directors voted in March
2002 to recommend a plan of liquidation to its shareholders. The proposed plan
contemplates the sale of all the Company's properties and other assets and will
be subject to shareholder approval at the 2002 annual meeting of shareholders,
as well as to agreements from some of the Company's lenders. If the plan is
approved by the shareholders, the Company expects to achieve reductions in
operating costs during the liquidation period. While the Company will undertake
to proceed expeditiously, the liquidation process could take up to twenty-four
months or longer to complete. In conjunction with the recommendation to
liquidate, the Board announced that it was indefinitely suspending regular
quarterly cash distributions. It is currently contemplated that cash generated
from operations and property sales during the liquidation period will be used
first to make required payments of debt and other liabilities and then
distributed to common shareholders. The Company has entered into listing
agreements for its real estate assets consistent with its previously announced
strategic plan.

MANAGEMENT CHANGES

     In January 2002, in response to the discontinuation of its acquisition and
development plans, the Company entered into a separation agreement with its
president, Michael Kaline which supercedes its previous employment agreement
with Mr. Kaline. As part of the agreement Mr. Kaline resigned as an employee of
the Company and was placed on leave of absence until August 9, 2002. In
addition, he received a lump sum payment of $54,000 in February 2002, will
continue to draw his salary of $15,000 per month until August 9, 2002 and will
receive an additional lump sum payment of $15,000 immediately following August
10,
                                        15
<PAGE>

2002. He will also be entitled to certain other benefits during this period. In
March 2002, Jeffrey D. Lewis assumed the title of president in addition to his
responsibilities as chief executive officer.

SAFE HARBOR STATEMENT

     Each of the above statements regarding anticipated operating 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
the results of the Company's restructuring of the Bricktown Square debt
described above, the Company's ability to retire or refinance its other
indebtedness as it comes due, the Company's success in selling assets and
implementing its strategic plan, economic downturns, bankruptcies and other
financial difficulties of tenants, including the ultimate disposition of lease
agreements with Kmart Corporation, leasing activities, the outcome of the
litigation filed by the Company's former president, and other risks associated
with the commercial real estate business, and as detailed in the Management's
Discussion and Analysis of Financial Condition and Results of Operations.

INFLATION

     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 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
the Company's exposure to increases in costs and operating expenses resulting
from inflation.

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, 2001, a one percent increase or decrease in interest rates would
no have no effect on the Company's earnings or cash flows or the fair value of
the debt outstanding at that date.

                                        16
<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                     INDEX

<Table>
<Caption>
                                                                 PAGE
                                                                NUMBER
                                                                ------
<S>                                                             <C>
Reports of Independent Accountants..........................      18
Consolidated Balance Sheets as of December 31, 2001 and
  2000......................................................      20
Consolidated Statements of Operations for Each of the Three
  Years in the Period Ended December 31, 2001...............      21
Consolidated Statements of Shareholders' Equity for Each of
  the Three Years in the Period Ended December 31, 2001.....      22
Consolidated Statements of Cash Flows for Each of the Three
  Years in the Period Ended December 31, 2001...............      23
Notes to Consolidated Financial Statements..................      24
Report of Independent Accountants -- Financial Statement
  Schedules.................................................      38
Consolidated Financial Statement Schedule II -- Valuation
  and Qualifying Accounts...................................      39
Consolidated Financial Statement Schedule III -- Real Estate
  and Accumulated Depreciation..............................      40
</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.

                                        17
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

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

     In our opinion, the accompanying consolidated balance sheet as of December
31, 2001 and the related consolidated statements of operations, of shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Malan Realty Investors, Inc. and its subsidiaries at December 31,
2001, and the results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America. 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 audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements of
the Company as of December 31, 2000 and 1999 and for the years then ended were
audited by other independent accountants whose report dated January 31, 2001
expressed an unqualified opinion on those statements.

     As discussed in Note 2 to the financial statements, the Company is
delinquent with respect to required payments on a mortgage loan which could
result in the acceleration of certain other loans. Additionally, the Company has
significant debt obligations coming due in the near term. As discussed in Note
15 to the financial statements, the Company's largest tenant has filed for
bankruptcy protection. As discussed in Note 15 to the financial statements, the
Company's Board of Directors has recommended a plan of liquidation to its
shareholders. The financial statements do not include any adjustments that might
result from the outcome of these matters.

     As discussed in Note 10 to the financial statements, the Company changed
its method for accounting for interest rate cap agreements.

PricewaterhouseCoopers LLP

Chicago, Illinois
March 27, 2002

                                        18
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

     We have audited the accompanying consolidated balance sheets of Malan
Realty Investors, Inc. and subsidiaries (the "Corporation") as of December 31,
2000 and the related consolidated statements of operations, shareholders'
equity, cash flows and consolidated financial statement schedules listed at Item
8 for the years ended December 31, 2000 and 1999. These financial statements and
financial statement schedules are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules 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 misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Malan Realty Investors, Inc.
and subsidiaries as of December 31, 2000, and the results of their operations
and their cash flows for the years ended December 31, 2000 and 1999, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules, when
considered in relation to the basis consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.

     As discussed in Note 11 to the financial statements, in 1999 the Company
changed its method of accounting for percentage rents.

DELOITTE & TOUCHE LLP

Detroit, Michigan
January 31, 2001

                                        19
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2001        2000
                                                                  ----        ----
<S>                                                             <C>         <C>
ASSETS:
  Real Estate (Notes 2 and 8):
     Land...................................................    $ 28,277    $ 29,291
     Buildings and improvements.............................     219,776     236,275
                                                                --------    --------
       Total................................................     248,053     265,566
       Less: accumulated depreciation.......................     (36,570)    (32,020)
                                                                --------    --------
       Total................................................     211,483     233,546
  Other Assets:
     Accounts receivable (net of allowance of $386 and $505
      at December 31, 2001 and 2000)........................       4,275       1,095
     Deferred financing and other...........................       5,427       6,420
     Cash and cash equivalents..............................       1,649         821
     Restricted cash -- mortgage escrow deposits............       2,492       2,101
                                                                --------    --------
       TOTAL ASSETS.........................................    $225,326    $243,983
                                                                ========    ========
LIABILITIES:
  Mortgages (Note 2)........................................    $120,390    $125,011
  Convertible debentures (Note 2)...........................      42,743      42,743
  Convertible notes (Note 2)................................      27,000      27,000
  Accounts payable and other................................       2,844       2,763
  Accrued distributions payable.............................       1,280       2,199
  Accrued property taxes....................................       6,965       1,310
  Accrued interest payable..................................       4,189       3,873
                                                                --------    --------
       Total liabilities....................................     205,411     204,899
                                                                --------    --------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY (NOTE 3)
  Common stock ($.01 par value, 30 million shares
     authorized, 5,121,370 and 5,162,920 shares issued and
     outstanding as of December 31, 2001 and 2000)..........          51          52
  Additional paid in capital................................      73,751      74,078
  Accumulated distributions in excess of net income.........     (53,887)    (35,046)
                                                                --------    --------
       Total shareholders' equity...........................      19,915      39,084
                                                                --------    --------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...........    $225,326    $243,983
                                                                ========    ========
</Table>

                 See Notes to Consolidated Financial Statements

                                        20
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

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

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31,
                                                                ------------------------------
                                                                  2001       2000       1999
                                                                  ----       ----       ----
<S>                                                             <C>         <C>        <C>
REVENUES
  Minimum rent (Note 5).....................................    $ 28,217    $29,430    $30,662
  Percentage and overage rents (Note 11)....................       1,369      1,531      1,307
  Recoveries from tenants...................................      10,076     10,222     10,688
  Interest and other income.................................         399        661        615
  Gain on sale of real estate...............................       3,830      3,158      1,602
                                                                --------    -------    -------
       TOTAL REVENUES.......................................      43,891     45,002     44,874
                                                                --------    -------    -------
EXPENSES
  Property operating and maintenance........................       3,317      3,215      3,115
  Other operating expenses..................................       1,848      2,151      1,752
  Real estate taxes.........................................       8,310      8,409      8,612
  General and administrative................................       2,979      2,156      2,024
  Proxy contest and related costs (Note 14).................                  3,200
  Depreciation and amortization.............................       6,808      6,795      6,368
  Impairment of real estate (Note 9)........................      15,266        190
                                                                --------    -------    -------
       TOTAL OPERATING EXPENSES.............................      38,528     26,116     21,871
                                                                --------    -------    -------
OPERATING INCOME............................................       5,363     18,886     23,003
INTEREST EXPENSE............................................      17,710     17,962     17,550
                                                                --------    -------    -------
Income (loss) before extraordinary item and cumulative
  effect of change in accounting principle..................     (12,347)       924      5,453
Extraordinary Item
     Loss on extinguishment of debt.........................                    (93)      (289)
                                                                --------    -------    -------
Income (loss) before cumulative effect of change in
  accounting principle......................................     (12,347)       831      5,164
Cumulative Effect of Change in Accounting Principle (Notes
  10 & 11)..................................................        (450)                 (522)
                                                                --------    -------    -------
NET INCOME (LOSS)...........................................    $(12,797)   $   831    $ 4,642
                                                                ========    =======    =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE BEFORE
  EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLE (NOTE 13)............................    $  (2.40)   $  0.18    $  1.05
                                                                ========    =======    =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE BEFORE
  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NOTE
  13).......................................................    $  (2.40)   $  0.16    $  1.00
                                                                ========    =======    =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (NOTE 13).......    $  (2.49)   $  0.16    $  0.90
                                                                ========    =======    =======
PRO FORMA (NOTES 10 & 11)
PRO FORMA AMOUNT ASSUMING THE CHANGE IN ACCOUNTING METHOD IS
  APPLIED RETROACTIVELY:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.....................    $ 12,347               $ 5,453
                                                                ========               =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE BEFORE
  EXTRAORDINARY ITEM........................................    $  (2.40)              $  1.05
                                                                ========               =======
NET INCOME (LOSS)...........................................    $(12,347)              $ 5,164
                                                                ========               =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE.................    $  (2.40)              $  1.00
                                                                ========               =======
</Table>

                 See Notes to Consolidated Financial Statements

                                        21
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     (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, 1999.......................     $52         $74,117            $(22,932)         $ 51,237
  Directors compensation paid in stock.........                      48                                    48
  Repurchase of common stock...................                       4                                     4
  Distributions -- $1.70 per share.............                                      (8,790)           (8,790)
  Net income...................................                                       4,642             4,642
                                                    ---         -------            --------          --------
BALANCE, DECEMBER 31, 1999.....................      52          74,169             (27,080)           47,141
  Directors compensation paid in stock.........                      24                                    24
  Repurchase of common stock...................                    (115)                                 (115)
  Distributions -- $1.70 per share.............                                      (8,797)           (8,797)
  Net income...................................                                         831               831
                                                    ---         -------            --------          --------
BALANCE, DECEMBER 31, 2000.....................      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
                                                    ===         =======            ========          ========
</Table>

                 See Notes to Consolidated Financial Statements

                                        22
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                    YEARS ENDED DECEMBER 31,
                                                                --------------------------------
                                                                  2001        2000        1999
                                                                  ----        ----        ----
<S>                                                             <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  NET INCOME (LOSS).........................................    $(12,797)   $    831    $  4,642
                                                                --------    --------    --------
  Adjustments to reconcile net income (loss) to net cash
     flows provided by operating activities:
     Depreciation and amortization..........................       6,808       6,795       6,368
     Amortization of deferred financing costs...............       1,600       1,673       1,849
     Officer compensation issued in stock...................          70
     Directors compensation issued in stock.................                      24          48
     Net gains on sales of real estate......................      (3,830)     (3,158)     (1,602)
     Impairment of real estate..............................      15,266         190
     Loss on extinguishment of debt.........................                      93         289
     Cumulative effect of change in accounting principle....         450
     Change in operating assets and liabilities that
       provided (used) cash:
       Accounts receivable and other assets.................      (4,286)     (1,379)        677
       Accounts payable, deferred income and other accrued
          liabilities.......................................       6,052         148      (1,399)
                                                                --------    --------    --------
     Total adjustments......................................      22,130       4,386       6,230
                                                                --------    --------    --------
     NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES........       9,333       5,217      10,872
                                                                --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Real estate developed, acquired or improved............      (7,711)     (2,406)    (12,516)
     Additions to leasehold improvements and equipment......         (59)        (38)
     Decrease (increase) in restricted cash.................        (391)        286         (57)
     Proceeds from sales of real estate.....................      12,036       6,531       7,950
                                                                --------    --------    --------
       NET CASH FLOWS PROVIDED BY (USED FOR) INVESTING
          ACTIVITIES........................................       3,875       4,373      (4,623)
                                                                --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Draws on lines of credit...............................       5,500       5,500      17,400
     Repayment of lines of credit...........................     (17,195)     (5,000)    (21,206)
     Principal payments on mortgages........................        (545)     (2,090)     (4,153)
     Debt extinguishment costs..............................                     (34)       (233)
     Net proceeds from mortgages............................       7,618                  12,281
     Distributions paid to shareholders.....................      (6,963)     (8,795)     (8,793)
     Debt issuance costs....................................        (397)        (92)       (622)
     Proceeds from stock options exercised..................                                   4
     Repurchases of common stock............................        (398)       (115)
     Repurchases of debentures..............................                              (1,968)
                                                                --------    --------    --------
       NET CASH FLOWS USED FOR FINANCING ACTIVITIES.........     (12,380)    (10,626)     (7,290)
                                                                --------    --------    --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........         828      (1,036)     (1,041)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..............         821       1,857       2,898
                                                                --------    --------    --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................    $  1,649    $    821    $  1,857
                                                                ========    ========    ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- CASH
  PAID FOR INTEREST DURING THE YEAR.........................    $ 15,713    $ 16,201    $ 15,976
                                                                ========    ========    ========
</Table>

                 See Notes to Consolidated Financial Statements

                                        23
<PAGE>

                 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements of the Company are prepared in
conformity with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the use of estimates,
judgments, and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. The significant accounting
principles which management believes are the most important to aid in fully
understanding and evaluating the Company's reported financial results are the
following:

     General -- The Company is engaged in the ownership, management, leasing,
acquisition, development and redevelopment of shopping centers and entertainment
facilities and leases space to tenants pursuant to lease agreements. The lease
agreements provide for terms ranging from one to 25 years and, in some cases,
for annual rentals, which are subject to upward adjustment based on operating
expense levels and sales volume.

     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 and Malan Midwest, LLC.
All significant inter-company balances and transactions have been eliminated.

     Reclassifications -- Certain reclassifications have been made to prior
years financial statements in order to conform to the current year presentation.

     Real Estate is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line
basis over the estimated useful lives of the assets as follows:

<Table>
<S>                                                             <C>
Buildings...................................................       40 years
Improvements................................................    10-40 years
</Table>

     Maintenance and repairs are charged to expense as incurred. Renovations,
which improve or extend the life of the asset are capitalized. Interest costs,
real estate taxes and other directly related costs incurred during construction
periods are capitalized and depreciated commencing with the date placed in
service, on the same basis as the related assets.

     The Company reviews its properties on a quarterly basis for impairment and
provides a provision if impairments are determined. To determine if impairment
may exist, the Company reviews its properties and identifies those that have had
either an event of change or event of circumstances warranting further
assessment of recoverability. If further assessment of recoverability is needed,
the Company estimates the future net cash flows expected to result from the use
of the property and its eventual disposition, on an individual property basis.
If the sum of the expected future net cash flows (undiscounted and without
interest charges) over the Company's anticipated holding period is less than the
carrying amount of the property on an individual property basis, the Company
will recognize an impairment loss based upon the estimated fair value of such
properties. Aggregate impairment losses are not reduced by unrealized
appreciation of other assets. See Note 9 for the impairment of real estate.

     Real Estate Held For Sale -- The Company classifies real estate as held for
sale at the time it executes a binding contract for the sale of the asset. At
that point, the Company no longer records depreciation expense on the asset. If
the sale is not completed within the time period specified in the sale agreement
(including any extensions of time) the asset is reclassified as used in a trade
or business and depreciation expense resumed from the point that the contract
becomes null and void.

     Gain on Sale of Real Estate is recognized using the full accrual method. As
the assets are sold, their costs and related accumulated depreciation are
removed from the accounts with resulting gains or losses reflected in

                                        24
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net income or loss. Estimated future costs to be incurred by the Company after
completion of each sale are included in the determination of the gains on sales.

     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.

     Deferred Financing and Other consists primarily of deferred financing costs
and lease procurement costs. Deferred financing costs at December 31, 2001 and
2000 of $12,243,000 and $11,846,000, respectively, are amortized on a
straight-line basis over the terms of the applicable debt agreements.
Accumulated amortization of deferred financing costs at December 31, 2001 and
2000 was $10,300,000 and $8,250,000, respectively. Amortization expense is
included in interest expense in the Consolidated Statement of Operations.

     Lease procurement costs of $5,912,000 and $4,210,000 at December 31, 2001
and 2000, respectively, consist of direct leasing costs, tenant allowances and
tenant improvements and are amortized on a straight line basis over the terms of
the applicable tenant lease. Accumulated amortization of lease procurement costs
at December 31, 2001 and 2000 was $1,903,000 and $1,157,000, respectively, and
amortization expense for 2001, 2000 and 1999 was $775,000, $536,000 and
$318,000, respectively.

     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 90% (95% prior to 2001) 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.

     Earnings per common share -- Earnings per share ("EPS") are computed on
both a basic and diluted basis. Basic EPS excludes potential share dilution and
is computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period. 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.

     Distributions of $1.175, $1.70 and $1.70 per common share were declared for
each of the years ended December 31, 2001, 2000 and 1999, respectively, of which
$0.52, $1.42 and $0.92, respectively, represent a return of capital for federal
income tax purposes.

     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.

     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 are comprised of
approximately 58 commercial retail properties. All financial results are
aggregated into one operating segment since the properties have similar economic
characteristics.

                                        25
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Impact of Recently Adopted Accounting Standards -- In August 2001, the
Financial Accounting Standards Board approved Statement of Financial Accounting
Standards (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 expects the operations of all properties sold or classified
as held for sale after December 31, 2001 to be shown as discontinued operations.
In addition, operations for such properties for all prior periods presented will
be reclassified to discontinued operations. The Company does not expect this
statement to have a material impact on the consolidated financial position or
results of operations.

2. MORTGAGES, DEBENTURES AND NOTES

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

<Table>
<Caption>
                                                                                                               BALANCE
                                                                                                            DECEMBER 31,
                                                       RECOURSE(R)                                          ------------
                                   COLLATERAL       NONRECOURSE(N)(4)    INTEREST RATE    MATURITY DATE    2001       2000
                                   ----------       -----------------    -------------    -------------    ----       ----
                                                                                                           (IN THOUSANDS)
<S>                            <C>                  <C>                 <C>               <C>            <C>        <C>
Mortgages
Greenwich Capital Line of
  Credit(1)..................  17 Retail                R               LIBOR + 250       November 2001        --   $ 11,694
                               Properties                               Basis Points
UDAG Loan....................  Bricktown Square(5)      N               5% increasing to  March 2023     $  7,827      7,827
                                                                        9%
Securitized Mortgage Loan....  23 Retail                N               7.59%(2)          August 2002      57,875     57,875
                               Properties
Daiwa Finance Corp...........  The Shops at             N               8.18%             February 2007    12,278     12,422
                               Fairlane Meadows
Wells Fargo Bank (formerly
  Bloomfield Acceptance
  Company)...................  13 Retail                N               7.55%             June 2028(3)     20,203     20,405
                               Properties
Wells Fargo Bank.............  Westland Shopping        N               8.02%             November 2007     5,667      5,730
                               Ctr.
Bank of America, USA.........  North Aurora, IL,-       N               8.7%              November 2009     5,410      5,447
                               Tinseltown Theater
US Bank (formerly Firstar
  Bank)......................  Lawrence, KS-            R               7.49%             February 2006     3,512      3,611
                               Southwind Theater
Cohen Financial..............  Lawrence, KS- Pine       N               LIBOR + 400       June 2002         7,618         --
                               Ridge Plaza                              Basis Points,
                                                                        Floor of 8%
                                                                                                         --------   --------
TOTAL MORTGAGES..............                                                                            $120,390   $125,011
                                                                                                         ========   ========
Convertible Debentures.......  Unsecured                R               9.5%              July 2004      $ 42,743   $ 42,743
                                                                                                         ========   ========
Convertible Notes............  Bricktown Square(5)      R               8.5%              July 2003      $ 27,000   $ 27,000
                                                                                                         ========   ========
</Table>

-------------------------
(1) Loan agreement terminated November 2001 and was paid in full.

(2) Overall blended rate. The interest rate on four different tranches are
    either fixed or capped through the use of interest rate cap agreements. The
    effective interest rate is fixed at 7.59% through February 10, 2002;
    thereafter, the interest

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

rate on $38.375 million of mortgage loans converts to a variable rate based on
certain requirements. Net settlement costs paid under interest rate cap
    agreements are recorded on an accrual basis and recognized as an adjustment
    to interest expense.

(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 is 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.

(4) Nonrecourse loans may contain customary carve-out provisions that are
    recourse to the Company.

(5) The Company believes the current value of Bricktown Square is insufficient
    to satisfy the debt obligations it collateralizes.

     The Company has a revolving line of credit, which expires September 2002,
with Bank One which allows for borrowings up to $3.0 million. The line is
collateralized by the Company's interest in Orchard-14 Shopping Center in
Farmington Hills, Michigan. In October 2001, the available borrowing was reduced
by approximately $1.573 million as a condition of the issuance of a letter of
credit by Bank One required for an appeal bond in connection with litigation
with the Company's former president and CEO. As of December 31, 2001 there were
no outstanding borrowings on the line. As of December 31, 2001, the Company was
in violation of two quarterly corporate level loan covenants on the line
primarily as a result of an impairment of real estate under SFAS No. 121
recorded in the fourth quarter 2001. The Company subsequently received a waiver
of the covenants from Bank One for the fourth quarter 2001.

     The Company has Convertible Debentures (the "Debentures") and Convertible
Notes (the "Notes"), 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 Notes are general obligations due July 15, 2003
collateralized by a first mortgage on Bricktown Square in Chicago, Illinois. The
Debentures are redeemable by the Company at par beginning July 15, 2001.

     The Company has in place a plan to repurchase and retire up to $15 million
aggregate principal of Debentures. Approximately $11.807 million principal of
Debentures has been repurchased under the plan. The Company did not make any
repurchases in either 2001 or 2000. An extraordinary gain of approximately
$171,000 was recorded in 1999 related to Debenture repurchases.

     In December 2001, the Company failed to make a required payment of interest
and principal totaling $370,000 on the UDAG loan. Subsequent to year-end the
Company did not make an additional payment due March 2002 totaling approximately
$185,000. Under the UDAG Loan agreement, the City of Chicago has the right to
declare the Company in default for the nonpayment(s). If such default remains
uncured, further defaults could result under the Convertible Notes and certain
other of the Company's debt agreements thereby causing potential acceleration of
amounts due under those agreements. The City has not declared the Company in
default of the UDAG Loan agreement as of March 27, 2002.

     The Company plans on satisfying debt obligations coming due in the near
term and over the next several years through the sale of assets consistent with
its strategic plan adopted in 2001. Approximately $58 million is due August 10,
2002 on the Securitized Mortgage Loan which is collateralized by twenty-three of
the Company's properties. The Company has listed its real estate assets for sale
and expects to sell properties generating sufficient proceeds to pay off the
Securitized Mortgage Loan by the due date. The Company is also negotiating with
several lenders to refinance the Securitized Mortgage Loan on a short-term basis
in the event that all or a portion of the loan is not retired by the due date.
In the event that the Securitized Mortgage Loan is not completely satisfied by
the due date the lender may institute foreclosure proceedings against the
collateral.

     Interest capitalized as part of the cost of redevelopment projects totaled
$84,000, $32,000 and $161,000 in 2001, 2000 and 1999, respectively.

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

     Approximate scheduled principal payments for the years subsequent to
December 31, 2001 are as follows (in thousands):

<Table>
<S>                                                             <C>
2002........................................................    $ 66,272
2003........................................................      27,735
2004........................................................      43,522
2005........................................................         847
2006........................................................       3,804
2007 and thereafter.........................................      47,953
                                                                --------
     Total..................................................    $190,133
                                                                ========
</Table>

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

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 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.

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

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

<Table>
<Caption>
                                          EMPLOYEE OPTION PLAN                       DIRECTORS OPTION PLAN
                                ----------------------------------------    ----------------------------------------
                                 SHARES      EXERCISE        WEIGHTED        SHARES      EXERCISE        WEIGHTED
                                 SUBJECT       PRICE         AVERAGE         SUBJECT       PRICE         AVERAGE
                                TO OPTION    PER SHARE    EXERCISE PRICE    TO OPTION    PER SHARE    EXERCISE PRICE
                                ---------    ---------    --------------    ---------    ---------    --------------
<S>                             <C>          <C>          <C>               <C>          <C>          <C>
Balance, January 1, 1999....     324,216     $13.375 -       $15.422          13,792     $14.375 -       $16.174
                                             $17.00                                      $17.688
Options Granted 1999........                                                   4,000     $15.375         $15.375
Options Forfeited 1999......     (15,000)    $15.375         $15.375
Options Exercised 1999......        (300)    $13.375         $13.375
                                --------                                     -------
Balance, December 31,
  1999......................     308,916     $13.375 -       $15.383          17,792     $14.375 -       $15.994
                                             $17.00                                      $17.688
Options Granted 2000........      53,000     $13.438         $13.438           3,000     $13.375         $13.375
Options Forfeited 2000......    (127,900)    $13.375 -
                                --------                                     -------
                                             $17.00
Balance, December 31,
  2000......................     234,016     $13.375 -       $14.903          20,792     $13.375 -       $15.529
                                             $17.00                                      $17.688
Options Granted 2001........     100,000     $ 7.04          $ 7.04            5,000     $ 8.80          $ 8.80
Options Forfeited 2001......      (2,710)    $13.375 -       $14.09          (17,792)    $13.375 -       $15.99
                                --------                                     -------                     =======
                                             $17.00                                      $17.688
Balance, December 31,
  2001......................     331,306     $13.375 -       $12.54            8,000     $ 8.80 -        $10.70
                                ========                     =======         =======                     =======
                                             $17.00                                      $13.875
Options Exercisable at
  December 31, 2001.........     190,506                     $15.23            8,000                     $10.70
                                ========                     =======         =======                     =======
</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, 2000 and
1999 would have 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       2000       1999
                                                           ----       ----       ----
<S>                                                        <C>        <C>        <C>
Option value.........................................      $ .27      $ .01      $ .12
Dividend yield.......................................       14.2%      12.7%      12.7%
Expected volatility..................................          1%         8%         8%
Risk-free interest rate..............................          6%         6%         6%
Expected lives (in years)............................         10         10         10
</Table>

     The outstanding stock options at December 31, 2001 have a weighted average
contractual life of 6.13 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

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

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 2001 there were no shares issued. During 2000 and 1999, a total of
1,816 and 3,362 shares, respectively, were issued under the plan reflecting
compensation of $24,000 and $48,000, respectively.

     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 20% of their
annual compensation. The Company intends to match a portion of the participant's
contributions in an amount to be determined each year by the Board. Compensation
expense in connection with the 401(k) Plan for 2001, 2000 and 1999 was $46,000,
$47,000 and $34,000, 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, 2001, the
Company repurchased 48,100 shares at an average cost of $8.26 per share.

5. COMMITMENTS AND CONTINGENCIES

     Revenues derived from the Company's major tenant, Kmart, amounted to 27.7%,
27.2% and 28.8% of total revenues for the years ended December 31, 2001, 2000
and 1999, respectively. Amounts billed and owing from the major tenant were
$99,000 and $135,000 at December 31, 2001 and 2000, respectively. In addition,
at December 31, 2001, Kmart was responsible for $2.162 million in real estate
taxes assessed in 2001 payable in 2002.

     In connection with the mortgage agreement with Bank of America,
collateralized by the Tinseltown Theater in North Aurora, Illinois, the Company
has a standby letter of credit agreement with Bank One in the amount of
$250,000. The letter of credit serves as additional collateral to guarantee
performance of certain environmental remediation of the property, which is the
responsibility of a former tenant.

     The Company's loan agreement with Cohen Financial contains a provision
whereby the Company is required to deposit cash or a letter of credit in the
amount of $2 million with the lender should Kmart cease to be open for business
in its space at Pine Ridge Plaza in Lawrence, Kansas.

     Approximate future minimum rent under operating leases, in which the
Company is the lessor, for the years subsequent to December 31, 2001, assuming
no new or renegotiated leases or option extensions, are as follows (in
thousands):

<Table>
<S>                                                             <C>
2002........................................................    $ 27,232
2003........................................................      22,756
2004........................................................      21,391
2005........................................................      18,141
2006........................................................      17,743
2007 and thereafter.........................................      90,405
                                                                --------
     Total..................................................    $197,668
                                                                ========
</Table>

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

     Approximate future minimum rental payments 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, 2001, are as
follows (in thousands):

<Table>
<S>                                                             <C>
2002........................................................    $  481
2003........................................................       481
2004........................................................       444
2005........................................................       332
2006........................................................       298
2007 and thereafter.........................................     7,069
                                                                ------
     Total..................................................    $9,105
                                                                ======
</Table>

     Rent expense for operating leases for the years ended December 31, 2001,
2000 and 1999 was $476,000, $488,000 and $482,000, respectively.

     The Company, as an owner of real estate, is subject to various
environmental laws. Compliance by the Company with existing laws has not had a
material adverse financial effect during the three-year period ended December
31, 2001, nor does management believe it will have a material impact in the
future. However, management cannot predict the impact of new or changed laws or
regulations on its current properties or properties that it may require.

     In May 2001 the Circuit Court in Oakland County, Michigan granted summary
disposition in favor of Anthony S. Gramer, Malan's former president and CEO, in
litigation brought by Gramer seeking more than $1 million for breach of an
employment agreement. The Court upheld the decision in September 2001 ruling in
Gramer's favor in a lump sum amount. The Company believes that the order was
entered in error and has filed an appeal with the Michigan Court of Appeals.

     Gramer contends that he 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 has not recorded a liability related to this
lawsuit and intends to vigorously pursue all available avenues open in the
litigation because the Company strongly believes that it has met all obligations
under the employment agreement.

     In October 2001, the Company posted a bond totaling approximately $1.573
million with the court representing maximum potential damages and anticipated
interest should the Company be unsuccessful in its appeal. Requirements of the
bond include an irrevocable letter of credit in the total amount of the bond.
Terms of the letter of credit, which was issued by Bank One, included a
reduction in the available borrowing on the Company's line of credit in the
principal amount of the letter.

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.

     Interest Rate Hedging Instruments -- The Company entered into interest rate
agreements to reduce its exposure to changes in the cost of the floating rate
portion of its Securitized Mortgage Loan.

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

     As of December 31, 2001, the following interest rate cap agreements were
outstanding:

<Table>
<Caption>
                 LIBOR   FREQUENCY
   NOTIONAL       CAP     OF RATE
    AMOUNT       RATE     RESETS                 TERM
   --------      -----   ---------               ----
(IN THOUSANDS)
<C>              <C>     <C>         <S>
   $36,875       6.67%   Monthly     July 1995 to February 2002
   $36,875       8.75%   Monthly     February 2002 to August 2002
</Table>

     The Company is exposed to credit risk in the event of nonperformance by the
counter parties to its interest rate cap agreements, but has no off-balance
sheet risk of loss. The Company anticipates that its counter parties will fully
perform their obligations under the agreements.

     The carrying value and fair value of the interest rate caps as of December
31, 2001 was zero. The carrying value and fair value as of December 31, 2000 was
$452,000 and $2,000, respectively.

     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>
                                                                 2001                      2000
                                                        ----------------------    ----------------------
                                                        CARRYING    ESTIMATED     CARRYING    ESTIMATED
                                                         AMOUNT     FAIR VALUE     AMOUNT     FAIR VALUE
                                                        --------    ----------    --------    ----------
<S>                                                     <C>         <C>           <C>         <C>
Greenwich Capital Line of Credit....................          --           --     $ 11,694     $ 11,694
UDAG Loan...........................................    $  7,827           --        7,827        4,668
Securitized Mortgage Loan...........................      57,875     $ 57,875       57,875       57,875
Daiwa Finance Corp..................................      12,278       12,278       12,422       12,422
Wells Fargo Bank (formerly Bloomfield Acceptance
  Company)..........................................      20,203       20,203       20,405       20,405
Wells Fargo Bank....................................       5,667        5,667        5,730        5,730
Bank of America.....................................       5,410        5,410        5,447        5,447
US Bank (formerly Firstar Bank).....................       3,512        3,512        3,611        3,611
Cohen Financial.....................................       7,618        7,618           --           --
                                                        --------     --------     --------     --------
TOTAL...............................................    $120,390     $112,563     $125,011     $121,852
                                                        ========     ========     ========     ========
</Table>

     Convertible Debentures and Convertible Notes -- The fair value of the
Convertible Debentures is based on the traded value at the close of business at
year-end. The carrying value of the Convertible Debentures as of December 31,
2001 and 2000 was $42.743 million for both years. The estimated fair value based
upon the traded value at the close of business on December 31, 2001 and 2000 was
$38.469 million and $35.477 million, respectively. Management believes that the
carrying value of the Convertible Notes as of December 31, 2001 and 2000
approximates the fair value.

     The fair value estimates presented herein are based on information
available to management as of December 31, 2001 and 2000. 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.

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

7. SIGNIFICANT NONCASH TRANSACTIONS

     Significant non-cash transactions for the three years ended December 31,
2001 are as follows:

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                                --------------------------
                                                                 2001      2000      1999
                                                                 ----      ----      ----
                                                                      (IN THOUSANDS)
<S>                                                             <C>       <C>       <C>
Distributions declared not yet paid.........................    $1,280    $2,199    $2,198
</Table>

8. PROPERTY ACQUISITIONS AND DISPOSITIONS

     During the three years ended December 31, 2001, the Company acquired and
disposed of the following properties:

<Table>
<Caption>
                                                                                    GROSS
                                                                                LEASABLE AREA    CAPITALIZED
       ACQUISITION DATE                 PROPERTY               LOCATION           (SQ. FT.)         COSTS
       ----------------                 --------               --------         -------------    -----------
                                                                                       (IN THOUSANDS)
<S>                               <C>                      <C>                  <C>              <C>
1/27/99.......................    Wal-Mart Plaza           Decatur, IL                45           $4,170
2/24/2000.....................    Ground Lease Interest    Topeka, KS                 --              544
<Caption>
                                                                                                     NET
       DISPOSITION DATE                                                                           PROCEEDS
       ----------------                                                                           --------
<S>                               <C>                      <C>                  <C>              <C>
3/24/99.......................    Kmart Plaza              Colma, CA                  94           $7,404
8/6/99........................    Miller Mall              Gary, IN                  130              546
6/29/00.......................    Levitz Furniture         Manchester, MO            117            1,500
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
</Table>

9. IMPAIRMENT OF REAL ESTATE

     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. The impairment is based on management's conclusion that the cost
basis of these assets will not be recovered over their intended holding periods
through cash flows associated with future operations or sale. An impairment of
real estate totaling $190,000 related to one property was recorded in 2000.
Under SFAS No. 121, aggregate impairment losses are not reduced by unrealized
appreciation of other assets.

10. CHANGE IN METHOD OF ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS

     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 consist of
interest rate cap agreements which the Company purchased to reduce its exposure
to 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. The
adjustment reduced the carrying amount of the interest rate caps to $0. The fair
value of the interest rate caps, which mature in 2002 is $0 at December 31,
2001.

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

11. CHANGE IN METHOD OF ACCOUNTING FOR PERCENTAGE RENTAL REVENUE

     In December 1999, the SEC issued SAB No. 101 -- Revenue Recognition in
Financial Statements which addresses the proper recognition of certain revenue
items including contingent (percentage) rents. Certain of the Company's leases
contain provisions whereby additional rent is due from a tenant once the tenant
has achieved a certain sales level i.e. contingent rental.

     Under SAB No. 101, a lessor should not recognize contingent rental income
until the changes in the factors on which the contingent lease payments are
based actually occur. The Company had previously recorded accrued percentage
rental income as lessees' specified sales targets were met or achievement of the
sales target was probable.

     The Company elected to adopt the provisions of SAB No. 101 in the fourth
quarter 1999, effective January 1, 1999. The cumulative effect of such adoption
was a reduction in percentage rental revenue as of January 1, 1999 of
approximately $522,000.

     The effect of the change on the quarters and year-end 1999 is as follows
(in thousands, except per share amounts):

<Table>
<Caption>
                                                        THREE MONTHS ENDED
                                     ---------------------------------------------------------     YEAR ENDED
                                     MARCH 31,      JUNE 30,      SEPTEMBER 30,   DECEMBER 31,    DECEMBER 31,
                                       1999           1999            1999            1999            1999
                                     ---------      --------      -------------   ------------    ------------
<S>                                  <C>            <C>           <C>             <C>             <C>
Net income under previous method
  of accounting for percentage
  rents..........................     $2,135(1)      $1,182(1)        $764(1)        $1,100          $5,181
Effect of change in accounting
  for percentage rents...........       (103)          (130)           (45)             261             (17)
Cumulative effect of change in
  accounting principle...........       (522)            --             --               --            (522)
                                      ------         ------           ----           ------          ------
Net income under current method
  of accounting for percentage
  rents..........................     $1,510         $1,052           $719           $1,361          $4,642
                                      ======         ======           ====           ======          ======
PER SHARE AMOUNTS:
Basic and diluted earnings per
  share under previous method of
  accounting for percentage
  rents..........................     $  .41(1)      $  .23(1)        $.15(1)        $  .21          $ 1.00
Effects of change in accounting
  for percentage rents...........       (.02)          (.03)          (.01)             .05              --
                                                                                                     ------
Cumulative effect of change in
  accounting principle...........       (.10)            --             --               --            (.10)
                                      ------         ------           ----           ------          ------
Basic and diluted earnings per
  share under current method of
  accounting for percentage
  rents..........................     $  .29         $  .20           $.14           $  .26          $  .90
                                      ======         ======           ====           ======          ======
</Table>

-------------------------
(1) Net income as previously reported in the Company's Form 10-Q as filed for
    the applicable quarter.

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

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

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

<Table>
<Caption>
                                                           FIRST       SECOND       THIRD       FOURTH
                                                          QUARTER    QUARTER(1)    QUARTER    QUARTER(2)
                                                          -------    ----------    -------    ----------
<S>                                                       <C>        <C>           <C>        <C>
2001
----
Revenues..............................................    $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>

<Table>
<Caption>
                                                            FIRST     SECOND      THIRD       FOURTH
                                                           QUARTER    QUARTER    QUARTER    QUARTER(3)
                                                           -------    -------    -------    ----------
<S>                                                        <C>        <C>        <C>        <C>
2000
----
Revenues...............................................    $11,029    $13,295    $10,304     $10,374
Income (loss) before extraordinary item................    $   948    $   (59)   $   621     $  (586)
Net income (loss)......................................    $   948    $  (152)   $   621     $  (586)
Basic and diluted earnings (loss) per share before
  extraordinary item...................................    $   .18    $  (.01)   $   .12     $  (.11)
Basic and diluted earnings (loss) per share............    $   .18    $  (.03)   $   .12     $  (.11)
</Table>

-------------------------
(1) 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.

(2) 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.

(3) Fourth quarter 2000 results are impacted by a $190,000 impairment of real
    estate due to the reduction of the carrying value of Great Bend, Kansas and
    by additional bad debt expense of $250,000 due to the potential
    uncollectibility of past due rents from a former tenant at the Bricktown
    Square.

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

13. EARNINGS PER SHARE

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

<Table>
<Caption>
                                                                  YEAR ENDED DECEMBER 31,
                                                                ----------------------------
                                                                  2001       2000      1999
                                                                  ----       ----      ----
<S>                                                             <C>         <C>       <C>
Net income (loss) before extraordinary item and cumulative
  effect of change in accounting principle..................    $(12,347)   $  924    $5,453
Extraordinary item: Loss on extinguishment of debt..........                   (93)     (289)
                                                                --------    ------    ------
Net income (loss) before cumulative effect of change in
  accounting principle......................................     (12,347)      831     5,164
Cumulative effect of change in accounting principle.........        (450)               (522)
                                                                --------    ------    ------
Net income (loss)...........................................    $(12,797)   $  831    $4,642
                                                                ========    ======    ======
Weighted Average Shares Outstanding
Basic.......................................................       5,138     5,173     5,170
Shares issuable under employment agreement..................                     7
                                                                --------    ------    ------
Shares applicable to diluted earnings.......................       5,138     5,180     5,170
                                                                ========    ======    ======
Basic and Diluted EPS:
Earnings (loss) per share before extraordinary item and
  cumulative effect of change in accounting principle.......    $  (2.40)   $  .18    $ 1.05
                                                                ========    ======    ======
Earnings (loss) per share before cumulative effect of change
  in accounting principle...................................    $  (2.40)   $  .16    $ 1.00
                                                                ========    ======    ======
Earnings (loss) per share...................................    $  (2.49)   $  .16    $ 0.90
                                                                ========    ======    ======
</Table>

     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.

14. PROXY CONTEST AND RELATED COSTS

     At the Company's Annual Shareholder Meeting in May 2000, a slate of five
Directors was elected and replaced the Company's then existing Board of
Directors. The Company paid approximately $890,000 in costs relating to the
proxy contest including reimbursements to shareholders.

     In connection with the proxy contest, the Company made payments in May 2000
to the three then officers of the Company, totaling $1.75 million. Certain of
these payments are currently the subject of litigation. The Company also
recorded an accrued liability of $800,000 relating to its future obligation
(also the subject of litigation) to provide lifetime health insurance benefits
to the officers. The accrued liability was subsequently reduced when the Company
entered into an employment agreement with one of the officers. The agreement,
which was signed in August 2000, included the relinquishment of any right to
lifetime health insurance by that officer and a grant of 6,550 shares of the
Company's Common Stock. The accrued liability related to the health insurance
benefit was approximately $477,000 at December 31, 2001.

15. SUBSEQUENT EVENTS

     Kmart Bankruptcy -- In January 2002, the Company's major tenant, Kmart
Corporation, filed a voluntary petition for reorganization relief under Chapter
11 of the U.S. Bankruptcy Code. Approximately 25 percent of the Company's
annualized minimum rent is derived from, and 47 percent of its gross leasable
area is attributable to, leases with Kmart. As part of its plan of
reorganization, Kmart announced in March 2002 that it intended to close 284 of
its operating stores including four stores owned by the Company.

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

Revenues derived from the four stores, which are located in Topeka, Kansas,
Forestville, Maryland and Madison and Marshfield, Wisconsin, total approximately
$1.5 million annually. In addition, three of the properties have other in-line
tenants that may be adversely affected by the closures. The effect on future
cash flows resulting from these closures cannot be determined at this time;
however, in preparing these financial statements, management has made estimates
and assumptions that affect the reported amounts of assets and liabilities.
Nevertheless, actual results may differ from these estimates under different
assumptions or conditions. Kmart had previously affirmed one of its leases with
the Company in February 2002. Kmart has also announced that it may close
additional stores in the future.

     Proposed Plan of Liquidation -- As a result of several factors including
the Company's debt structure, including over-leverage of Bricktown Square,
impediments to the redevelopment of its property in Farmington Hills, Michigan,
and the bankruptcy filing of Kmart Corporation, the Company's Board of Directors
voted in March 2002 to recommend a plan of liquidation to its shareholders. The
proposed plan contemplates the sale of all the Company's properties and other
assets and will be subject to shareholder approval at the 2002 annual meeting of
shareholders, as well as to agreements from some of the Company's lenders. In
conjunction with the recommendation, the Board announced that it was
indefinitely suspending regular quarterly cash distributions.

                                        37
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

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 27, 2002 of Malan Realty Investors, Inc. and subsidiaries,
which report and consolidated financial statements are included in this Annual
Report on Form 10-K, also included an audit of the financial statement schedules
listed in the Index to Consolidated Financial Statements and Supplementary Data
on page 17 of this Form 10-K as of and for the year ended December 31, 2001. In
our opinion, these financial statement schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

PricewaterhouseCoopers LLP

Chicago, Illinois
March 27, 2002

                                        38
<PAGE>

                          MALAN REALTY INVESTORS, INC.
         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                        BALANCE AT                                 BALANCE AT
                                                       BEGINNING OF    CHARGED TO                    END OF
                                                           YEAR         EXPENSE      DEDUCTIONS       YEAR
                                                       ------------    ----------    ----------    ----------
<S>                                                    <C>             <C>           <C>           <C>
Year ended December 31, 1999
  Allowance of uncollectible accounts..............        $140           $175          $159          $156
                                                           ====           ====          ====          ====
Year ended December 31, 2000
  Allowance of uncollectible accounts..............        $156            525           176          $505
                                                           ====           ====          ====          ====
Year ended December 31, 2001
  Allowance of uncollectible accounts..............        $505            385           504          $386
                                                           ====           ====          ====          ====
</Table>

                                        39
<PAGE>

                          MALAN REALTY INVESTORS, INC.

            SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION

                               DECEMBER 31, 2001
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                             COST CAPITALIZED/
                                                                                                IMPAIRMENTS
                                                                                               SUBSEQUENT TO
                                                                INITIAL COST TO COMPANY         ACQUISITION
                                                                -----------------------    ----------------------
                                                                           BUILDINGS &               BUILDINGS &
        STATE/TYPE (# OF PROPERTIES)            ENCUMBRANCES     LAND      IMPROVEMENTS     LAND     IMPROVEMENTS
        ----------------------------            ------------     ----      ------------     ----     ------------
<S>                                             <C>             <C>        <C>             <C>       <C>
ILLINOIS:
  Community Shopping Centers(6).............      $34,827       $ 6,357      $ 45,070      $   28      $(3,024)
  Freestanding Retail Properties(7).........            *         1,290        15,855                    1,312
  Entertainment Facilities(2)...............        5,410           146         6,071                    6,982
INDIANA:
  Community Shopping Centers(7).............            *         3,405        24,501                    3,122
  Freestanding Retail Properties(1).........            *                       2,241                       56
KANSAS:
  Community Shopping Centers(5).............        7,618           942        11,135       3,446        7,534
  Freestanding Retail Properties(6).........            *           570         5,131                      245
  Entertainment Facility(1).................        3,512         1,118         3,090
MARYLAND:
  Freestanding Retail Properties(1).........            *           282         2,534                      177
MICHIGAN:
  Community Shopping Centers(7).............       17,945         6,144        44,619                   (1,206)
MINNESOTA:
  Community Shopping Centers(1).............            *           125           847                     (118)
MISSOURI:
  Community Shopping Centers(3).............            *           592         8,365         118          730
  Freestanding Retail Properties(1).........            *            85           768
OHIO:
  Community Shopping Centers(2).............            *         1,645        11,118                      (87)
WISCONSIN
  Community Shopping Centers(5).............            *         1,592        17,450                      812
  Freestanding Retail Properties(3).........            *           392         3,820                      626
                                                  -------       -------      --------      ------      -------
                                                  $69,312       $24,685      $202,615      $3,592      $17,161
                                                  =======       =======      ========      ======      =======
</Table>

-------------------------
* Certain properties are included as collateral for securitized mortgages

     The changes in total real estate for the three years ended December 31,
2001 are as follows:

<Table>
<Caption>
                                                                  2001        2000        1999
                                                                  ----        ----        ----
<S>                                                             <C>         <C>         <C>
Balance at Beginning of Year................................    $265,566    $267,117    $261,783
  Acquisitions..............................................                     544       9,476
  Improvements..............................................       7,711       2,479       3,062
  Dispositions..............................................      (9,958)     (4,384)     (7,204)
  Impairment of real estate.................................     (15,266)       (190)
                                                                --------    --------    --------
Balance at end of year......................................    $248,053    $265,566    $267,117
                                                                ========    ========    ========
</Table>

     The changes in accumulated depreciation for the three years ended December
31, 2001 are as follows:

<Table>
<Caption>
                                                                 2001       2000       1999
                                                                 ----       ----       ----
<S>                                                             <C>        <C>        <C>
Balance at Beginning of Year................................    $32,020    $26,584    $21,286
  Depreciation for year.....................................      6,321      6,268      6,130
  Dispositions..............................................     (1,771)      (832)      (832)
                                                                -------    -------    -------
Balance at end of year......................................    $36,570    $32,020    $26,584
                                                                =======    =======    =======
</Table>

                                        40
<PAGE>

<Table>
<Caption>
           GROSS AMOUNT AT WHICH
        CARRIED AT CLOSE OF PERIOD                                                             LIFE ON WHICH
    -----------------------------------                                                    DEPRECIATION IN LATEST
               BUILDINGS &                 ACCUMULATED       DATE OF           DATE           INCOME STATEMENT
     LAND      IMPROVEMENTS     TOTAL      DEPRECIATION    CONSTRUCTION      ACQUIRED           IS COMPUTED
     ----      ------------     -----      ------------    ------------      --------           -----------
    <S>        <C>             <C>         <C>             <C>             <C>             <C>
      6,385        42,046        48,431      $ 7,818       1975 - 1995     6/94 - 1/99            40 Years
      1,290        17,167        18,457        3,271       1967 - 1977         6/94               40 Years
        146        13,053        13,199        1,098       1998 - 1999         6/94



      3,405        27,623        31,028        4,575       1973 - 1997     6/94 - 5/98            40 Years
                    2,297         2,297          437          1974             6/94               40 Years



      4,388        18,669        23,057        2,531       1974 - 1996     6/94 - 5/98            40 Years
        570         5,376         5,946        1,218       1976 - 1978         6/94               40 Years
      1,118         3,090         4,208          317          1997            11/97               40 Years



        282         2,711         2,993          536          1979             6/94               40 Years



      6,144        43,413        49,557        6,592       1970 - 1996     6/94 - 5/98            40 Years



        125           729           854           76          1996             5/98               40 Years



        710         9,095         9,805        1,833       1973 - 1978         6/94               40 Years
         85           768           853          144          1974             6/94               40 Years



      1,645        11,031        12,676        1,591       1989 - 1998     11/94 - 5/98           40 Years



      1,592        18,262        19,854        3,607       1960 - 1979         6/94               40 Years
        392         4,446         4,838          926       1968 - 1976         6/94               40 Years
    -------      --------      --------      -------
    $28,277      $219,776      $248,053      $36,570
    =======      ========      ========      =======
</Table>

                                        41
<PAGE>

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

     The firm of Deloitte & Touche, LLP was previously the principal accountants
for the Registrant. On April 27, 2001, that firm's appointment as principal
accountants was terminated and PricewaterhouseCoopers LLP was engaged as
principal accountants for the fiscal year ending December 31, 2001. The decision
to change accountants was recommended by the Registrant's Audit Committee and
approved by the board of directors. The reports of Deloitte & Touche, LLP on the
Registrant's financial statements for the two fiscal years ended December 31,
2000 did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the two fiscal years ended December 31, 2000,
and the subsequent interim period through April 27, 2001, there were no
disagreements with Deloitte & Touche, LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference to the subject matter of the disagreement in connection with
their reports.

     During its two fiscal years ended December 31, 2000, and the subsequent
interim period through April 27, 2001, the Registrant did not consult with
PricewaterhouseCoopers regarding (i) the application of accounting principles to
a specified transaction or the type of audit opinion that might be rendered on
the Registrant's financial statements or (ii) any matter that was either the
subject of a disagreement or a reportable event.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The board of directors currently consists of seven 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
Edward T. Boutrous..........................................            2000
Paul Gray...................................................            2000
Jill Holup..................................................            2000
John P. Kramer..............................................            2000
Andrew Miller...............................................            2000
Edward Russell..............................................            2000
</Table>

     Edward T. Boutrous, a director since 2000, has advised the board of
directors that he will not stand for re-election at the Company's 2002 annual
meeting. The board of directors has voted to reduce the size of the board from
seven to five, effective with the 2002 annual meeting.

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

     Jeffrey D. Lewis, age 57, 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 was employed by the California Public Employees'
Retirement System (CaIPERS) for ten years. When he left he was a Principal
Investment Officer and had

                                        42
<PAGE>

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.

     Elliott J. Broderick, age 44, has been the Chief Financial Officer of the
Company since January 2001 and also serves as the Secretary and Treasurer of the
Company. Prior to that he was the Chief Accounting Officer. Mr. Broderick
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 Controller in 1991,
Mr. Broderick was employed for seven years by Plante & Moran, Michigan's largest
regional CPA firm. Mr. Broderick is a certified public accountant, a licensed
real estate sales person and a member of the American Institute of Certified
Public Accountants and the Michigan Association of Certified Public Accountants.

     Alan K. Warnke, 47, is a 25-year veteran of the real estate industry. He
joined Malan in 1997 as director of property management and is currently Vice
President, Leasing, Property Management and Construction. Prior to joining the
Company he served in management positions at Urban Retail Properties Company,
the Equity Group and Landau & Heyman. His experience includes managing several
enclosed shopping malls and strip centers across the Midwest. Mr. Warnke earned
a Bachelor of Science from Ball State University in Muncie, Indiana.

     Edward T. Boutrous, age 56, is the founder and managing member of The
Boutrous Companies, LLC, a developer and manager of neighborhood shopping
centers and single-tenant commercial buildings in southeastern Michigan since
1981. Mr. Boutrous received a Bachelor of Science in Finance from the University
of Detroit and a Masters Degree in Business Administration from the Harvard
Business School.

     Paul Gray, age 36, 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 39, has been in the real estate investment business since
1985. She is a Partner at John McStay Investment Counsel, an investment
management firm, which she joined in 1997. Her responsibilities include
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 44, 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.

                                        43
<PAGE>

     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.

     Andrew Miller, age 47, has been in the real estate business since 1981. He
is currently the President of Miller Capital Advisory, Inc. ("MCA"), an advisory
business focused on real estate capital markets and asset management. Mr. Miller
is responsible for the firm's strategic and marketing initiatives as well as
delivery of services. Mr. Miller founded MCA in 1996.

     Prior to forming MCA, Mr. Miller was employed by Homart Development Co. for
15 years, where he was responsible for asset disposition, acquisition, financing
and joint venture structuring activities, among others.

     Mr. Miller received his Masters Degree from the University of Chicago and
holds a Bachelor of Science degree from the University of Illinois, Urbana.

     Edward J. Russell, III, age 42, 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.

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, except that Alan K. Warnke filed a late Form 3
after becoming an executive officer.

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.

                                        44
<PAGE>

     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") during the last fiscal year.

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                                                LONG-TERM
                                        ANNUAL COMPENSATION                    COMPENSATION
                                        -------------------                    ------------
                                                                                  NUMBER
                                                                  OTHER         OF SHARES
                                                                  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............    2001    $238,000    $70,000        $--           106,000          $  6,800
  Chief Executive Officer...    2000    $ 57,500         --                                             --
  (since September 2000)
Michael K. Kaline...........    2001    $180,000    $    --        $--                --          $ 76,400
  President.................    2000    $163,700         --         --             5,000          $509,969
  (until January 2002)......    1999    $154,000    $31,000         --                --          $ 10,162
Elliott J. Broderick........    2001    $121,500    $36,000         --                --          $  6,300
  Chief Financial Officer...    2000    $107,000         --         --             5,000          $261,814
                                1999    $100,000    $31,000         --                --          $ 11,945
Alan K. Warnke..............    2001    $ 95,900    $23,000         --                --          $  3,800
  Vice President, Leasing,
  Property Management
  and Construction
  (since January 2001)
</Table>

-------------------------
(1) See "Stock Option Plan" and "Compensation of Directors."

                                        45
<PAGE>

(2) Includes (A) loan forgiveness by the Company; (B) employer's contribution to
    the Malan Realty Investors, Inc. 401(k) Profit Sharing Plan; (C) payment
    received in connection with the change in the Company's board of directors
    in 2000 and (D) Stock grant in the following amounts:

<Table>
<Caption>
                                               A           B            C             D
                                               -           -            -             -
<S>                                <C>       <C>         <C>         <C>           <C>
Jeffery D. Lewis...............    2001          --      $6,800            --           --
                                   2000          --          --            --           --
Michael K. Kaline..............    2001          --      $6,800            --      $69,600
                                   2000      $6,564      $3,405      $500,000           --
                                   1999      $6,945      $3,217            --           --
Elliott J. Broderick...........    2001          --      $6,300            --           --
                                   2000      $6,564      $5,250      $250,000           --
                                   1999      $6,945      $5,000            --           --
Alan K. Warnke.................    2001          --      $3,800            --           --
</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.

     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.

                                        46
<PAGE>

OPTION GRANTS

     The following table sets forth information on stock options granted to the
named executive officers during 2001.

<Table>
<Caption>
                                                                                                POTENTIAL REALIZABLE
                                                  PERCENT                                         VALUE AT ASSUMED
                                                  OF TOTAL      EXERCISE      EXPIRATION      RATES OF APPRECIATION(2)
                                    NUMBER        OPTIONS       PRICE OF       DATE OF        ------------------------
            NAME                  OF OPTIONS      GRANTED       OPTIONS        OPTIONS           5%            10%
            ----                  ----------      --------      --------      ----------         --            ---
<S>                               <C>             <C>           <C>           <C>             <C>           <C>
Jeffery D. Lewis............       100,000(1)       100%         $7.04         11/2/11        $442,742      $1,121,995
Michael K. Kaline...........             0           N/A           N/A             N/A             N/A             N/A
Elliott J. Broderick........             0           N/A           N/A             N/A             N/A             N/A
Alan K. Warnke..............             0           N/A           N/A             N/A             N/A             N/A
</Table>

-------------------------
(1) The option term for this option grant is ten years. The option vests and
    becomes exercisable over a five-year period at the rate of 20% per year.

(2) The actual value, if any, that may be realized by each individual will
    depend on the fair market value of the common stock on the date on which the
    options are exercised. The appreciation rates used in the table are provided
    to comply with rules and regulations under the Securities Exchange Act of
    1934 and do not necessarily reflect the views of management as to the
    potential realizable value of the options.

TOTAL OPTION EXERCISES IN 2001 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, 2001. 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 $ 6.70 per share (the closing
market price of the Company's common stock on December 31, 2001.

<Table>
<Caption>
                                                                    NUMBER OF SHARES              VALUE OF UNEXERCISED
                                                                 UNDERLYING UNEXERCISED               IN-THE-MONEY
                                   SHARES                        OPTIONS AT YEAR-END($)           OPTIONS AT YEAR END
                                  ACQUIRED        VALUE       ----------------------------    ----------------------------
            NAME                 ON EXERCISE    REALIZED $    EXERCISABLE    UNEXERCISABLE    UNEXERCISABLE    EXERCISABLE
            ----                 -----------    ----------    -----------    -------------    -------------    -----------
<S>                              <C>            <C>           <C>            <C>              <C>              <C>
Jeffrey D. Lewis.............         0             $0            2,000         104,000            $0              $0
Michael K. Kaline............         0             $0          100,150           4,000            $0              $0
Elliott J. Broderick.........         0             $0           63,600           4,000            $0              $0
Alan K. Warnke...............         0             $0           11,000           4,000            $0              $0
</Table>

OTHER COMPENSATION AND BENEFITS

     Messrs. Lewis, Kaline, Broderick and Warnke 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.

EMPLOYMENT AGREEMENTS

     In September, 2000, the Company entered into a three-year employment
agreement with Jeffrey D. Lewis, whereby Mr. Lewis became the Company's Chief
Executive Officer. At the end of the three-year term, the employment agreement
will automatically renew itself for one-year terms unless either party gives the
other 90 days' notice terminating the employment agreement. Mr. Lewis'
employment agreement provides for an annual salary of $230,000, which may be
increased by the board of directors. In addition to his base salary, Mr. Lewis
will be eligible to receive an annual bonus with a target amount equal to 30% of
his base salary, and a maximum amount equal to 50% of his base salary. The
employment agreement also includes provisions restricting Mr. Lewis from
competing directly or indirectly with the Company during the term of his
employment with the Company and for one year following termination of the
agreement.

                                        47
<PAGE>

     In January 2002, the Company entered into a separation agreement with its
president, Michael Kaline which supercedes its previous employment agreement
with Mr. Kaline. As part of the agreement Mr. Kaline resigned as an employee of
the Company and was placed on leave of absence until August 9, 2002. In
addition, he received a lump sum payment of $54,000 in February 2002, will
continue to draw his salary of $15,000 per month until August 9, 2002 and will
receive an additional lump sum payment of $15,000 immediately following August
10, 2002. He will also be entitled to certain other benefits during this period.

ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT

     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 15, 2002. 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.

<Table>
<Caption>
                                                                NUMBER OF        RIGHT TO     PERCENT OF
                            NAME                                 SHARES         ACQUIRE(1)      SHARES
                            ----                                ---------       ----------    ----------
<S>                                                             <C>             <C>           <C>
Jeffrey D. Lewis............................................        5,500          2,000            *
Michael K. Kaline(2)........................................       13,016        100,150         2.17%
Elliott J. Broderick........................................        8,324(3)      63,600         1.39%
Edward T. Boutrous..........................................           --          1,500            *
Paul Gray...................................................           --             --            *
Jill Holup..................................................        5,000          2,000            *
John Kramer.................................................      449,050(4)          --         8.77%
Andrew Miller...............................................        1,000          2,000            *
Edward J. Russell III.......................................       41,000(5)       1,500            *
Alan K. Warnke..............................................           --         11,000            *
Directors and executive officers as a group.................      522,890(6)     183,750        13.32%
Merrill Lynch & Co., Inc....................................    1,588,609(7)          --        31.02%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10381
Peter T. Kross..............................................      499,460             --         9.75%
248 Grosse Pointe Blvd
Grosse Pointe Farms, Michigan 48236
Kensington Investment Group, Inc............................      449,050             --         8.77%
4 Orinda Way
Orinda, California 94563
Putnam Investments, Inc.....................................      273,513             --         5.34%
One Post Office Square
Boston, Massachusetts 02109
</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) Mr. Kaline resigned as President and has been on a leave of absence since
    January 31, 2002.

(3) Also includes 2,058 shares issuable upon conversion of debentures owned by
    Mr. Broderick's wife.

                                        48
<PAGE>

(4) 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.

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

(6) See Notes 1 through 5 above.

(7) Includes 1,588,235 shares issuable upon conversion of notes that are
    convertible into common stock at a price of $17 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

                                    PART IV

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, 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 17 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 17 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:

                 No reports on Form 8-K were filed during the quarter ended
                 December 31, 2001.

                                        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 27, 2002

     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 27, 2002
---------------------------------------------
              Jeffrey D. Lewis

          /s/ ELLIOTT J. BRODERICK               Chief Financial Officer                  March 27, 2002
---------------------------------------------    (principle accounting officer)
            Elliott J. Broderick

                      *                          Director                                 March 27, 2002
---------------------------------------------
               Edward Boutrous

                      *                          Director                                 March 27, 2002
---------------------------------------------
                  Paul Gray

                      *                          Director                                 March 27, 2002
---------------------------------------------
                 Jill Holup

                      *                          Director                                 March 27, 2002
---------------------------------------------
                 John Kramer

                      *                          Director                                 March 27, 2002
---------------------------------------------
                Andrew Miller

                      *                          Director                                 March 27, 2002
---------------------------------------------
            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>
   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)  --   Note Purchase Agreement, dated as of June 24, 1994, between
              Malan Realty Investors, Inc. and Merrill Lynch Global
              Allocation Fund, Inc. (incorporated herein by reference to
              Exhibit 10(e) filed with the 1994 Second Quarter Form 10-Q).
  10(d)  --   Mortgage, Security Agreement, Assignment of Rents and
              Financing Statement, dated as of June 24, 1994, made by
              Malan Realty Investors, Inc. to IBJ Schroeder Bank & Trust
              Company, as modified by First Modification of Mortgage,
              Security Agreement, Assignment of Rents and Financing
              Statement, dated as of August 1, 1994 (incorporated herein
              by reference to Exhibit 10(g) filed with the 1994 Second
              Quarter Form 10-Q).
  10(e)  --   Registration Rights Agreement, dated as of June 24, 1994,
              between the Company and Merrill Lynch Global Allocation
              Fund, Inc. (incorporated herein by reference to Exhibit
              10(h) filed with the 1994 Second Quarter Form 10-Q).
 *10(f)  --   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(g)  --   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(h)  --   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(i)  --   Agreement of Sale and Purchase, dated as of July 18, 1995,
              among TG-Ford Associates and Ford Motor Land Development
              Corporation, collectively, and Malan Realty Investors, Inc.
              (incorporated herein by reference to Exhibit 10(x) filed
              with the 1995 Second Quarter Form 10-Q).
</Table>

                                        51
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER
-------
<C>      <S>  <C>
  10(j)  --   $63,000,000 Amended and Restated Credit Agreement, dated as
              of August 16, 1995, between Malan Realty Investors, Inc. and
              National Westminster Bank Plc, New York Branch (incorporated
              herein by reference to Exhibit 10(y) filed with the
              Company's Amended Quarterly Report on Form 10-Q/A for the
              quarter ended September 30, 1995 (the "1995 Third Quarter
              Form 10-Q/A").
  10(k)  --   $63,000,000 Malan Mortgage Securities Trust 1995-A, Trust
              and Servicing Agreement, dated as of August 16, 1995, by and
              among Malan Depositor, Inc., as Depositor, Banker's Trust
              Company, as Servicer, and Marine Midland Bank, as Trustee
              (incorporated herein by reference to Exhibit 10(z) filed
              with the 1995 Third Quarter Form 10-Q/A).
 *10(l)  --   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(m)  --   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(n)  --   Change in Control Agreement, dated as of August 15, 1997
              between the Company and Elliott J. Broderick (incorporated
              herein by reference to Exhibit 10(o) filed with the 1997
              Form 10-K).
  10(o)  --   Revolving Loan Agreement among Malan Revolver, Inc., as
              Company, Malan Realty Investors, Inc. as Parent and
              Greenwich Capital Markets, Inc. as Lender dated as of
              November 24, 1997 (incorporated herein by reference to
              Exhibit 10(p) filed with the 1999 Form 10-K.
  10(p)  --   Agreement For Purchase of Real Estate between Brandon
              Associates Westland, L.L.C., "Seller" and Malan Realty
              Investors, Inc., "Buyer" dated as of January 29, 1998
              (incorporated herein by reference to Exhibit 10(q) filed
              with the 1997 Form 10-K).
  10(q)  --   Agreement of Sale and Purchase between Sandor Development
              Company, as agent for sellers, and Malan Realty Investors,
              Inc., as buyer dated as of May 6, 1998 (incorporated herein
              by reference to exhibit 10(r) filed with the June 1, 1998
              Amendment No. 1 to Form S-2).
  10(r)  --   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(s)  --   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(t)  --   First Modification of Revolving Loan Agreement, Note,
              Indenture of Mortgage, Deed of Trust, Deed to Secure Debt,
              Security Agreement, Financing Statement, Fixture Filing and
              Assignment of Rents and Leases, and other Loan Documents,
              Partial Release and Spreader Agreement among Malan Revolver,
              Inc., as Company, Malan Realty Investors, Inc., as Parent
              and Greenwich Capital Markets, Inc., as Lender dated as of
              December 21, 1999. (incorporated herein by reference to
              Exhibit 10(t) filed with the 1999 Form 10-K).
 *10(u)  --   Employment Agreement dated August 10, 2000 by and between
              the Company and Michael Kaline (incorporated herein by
              reference to Exhibit 10(u) filed with the 2000 Third Quarter
              Form 10-Q).
 *10(v)  --   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).
</Table>

                                        52
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER
-------
<C>      <S>  <C>
 *10(w)  --   Separation Agreement and Release dated January 31, 2002 by
              and between the Company and Michael Kaline (incorporated
              herein by reference to Exhibit 10(w) filed with the 2001
              Form 10-K).
  21     --   Subsidiaries
  23(A)  --   Consent of Deloitte and Touche LLP
  23(B)  --   Consent of PricewaterhouseCoopers LLP
  24     --   Powers of Attorney
</Table>

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

                                        53