<PAGE>   1

                                                                              1

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [FEE REQUIRED]
     For the fiscal year ended December 31, 1996

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from                 to
                                   -----------------  -----------------

                         Commission file number 1-13092

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

             Michigan                                     38-1841410
      (State or other jurisdiction                      (I.R.S. Employer
     of incorporation or organization)               Identification Number)

      30200 Telegraph Rd., Ste. 105                          48025
           Birmingham, Michigan                            (Zip Code)
  (Address of principal executive offices)


       Registrant's telephone number, including area code: (810) 644-7110

          Securities registered pursuant to Section 12(b) of the Act:


      Title of Each Class            Name of Each Exchange on Which Registered
      -------------------            -----------------------------------------
 Common Stock, Par Value $0.01                 New York Stock Exchange
 Per Share 

 9 1/2% Convertible Subordinated               New York Stock Exchange
 Debentures due 2004



<PAGE>   2


2

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for 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: [X]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $53,410,506 (computed on the basis of $16.625
per share), which was the last sale price on the New York Stock Exchange on
March 13, 1997. (For this computation, the Registrant has excluded the market
value of all shares of its Common Stock reported as beneficially owned by
executive officers and directors of the Registrant; such exclusion shall not be
deemed to constitute admission that any such person is an "affiliate" of the
Registrant.)

     As of March 13, 1997, 3,463,684 shares of Common Stock, Par Value $0.01
Per Share and $61,285,000 aggregate principal 9 1/2% Convertible Subordinated
Debentures due 2004, were outstanding.

LIST OF DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this Form 10-K incorporates by reference information from the
Registrant's definitive proxy statement for the annual shareholders' meeting to
be held in 1997, which is to be filed with the Securities and Exchange
Commission within 120 days of the close of Registrant's fiscal year.


<PAGE>   3


                                                                               3

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                   Page

                                     PART I

<S>        <C>                                                                                     <C>
Item 1.    Business                                                                                 4
Item 2.    Properties                                                                               5
Item 3.    Legal Proceedings                                                                        6
Item 4.    Submission of Matters to a Vote of Security Holders                                      6


                                    PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder Matters                     7
Item 6.    Selected Financial Data                                                                  7
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations    9
Item 8.    Consolidated Financial Statements and Supplementary Data                                18
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    35


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant                                       36
Item 11.  Executive Compensation                                                                   36
Item 12.  Security Ownership of Certain Beneficial Owners and Management                           36
Item 13.  Certain Relationships and Related Transactions                                           36


                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         36
Signatures                                                                                         37



</TABLE>



<PAGE>   4


4
                                     PART I

ITEM 1. BUSINESS

     Malan Realty Investors, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust. Prior to the completion of its
initial public offering ("IPO") on June 24, 1994, the Company was a privately
held developer and manager of retail shopping centers owned primarily by third
parties. With funds obtained from the IPO and a related debenture offering and
private placement of notes (collectively, the "Offerings"), the Company
acquired 45 properties it had previously managed and developed and is now a
fully integrated real estate company engaging in the ownership, management,
leasing, acquisition, development and redevelopment of commercial properties.
The Company continues on a limited basis to manage properties owned by
unrelated third parties.

     The Company is one of the original developers of properties for Kmart
Corporation ("Kmart") and ranks among the leading operators of shopping centers
in the United States. The initial 45 properties acquired consisted of 18
community shopping centers and 26 freestanding stores primarily anchored by
Kmart (the "Claridge Properties") acquired from 23 limited partnerships owned
by Claridge Properties, Ltd, a Canadian corporation, and one power shopping
center ("Bricktown Square"). In November 1994 the Company acquired five
community shopping centers (the "Wal-Mart Properties") anchored by Wal-Mart
Corporation ("Wal-Mart"). During 1995, the Company acquired two additional
shopping centers located in Michigan, increasing the gross leasable area (GLA)
of its portfolio to approximately 5.7 million square feet. On an annualized
basis Kmart accounts for approximately 38% of base minimum rents while Wal-Mart
accounts for approximately 6%.

     Objectives of the Company include maximizing growth and enhancing the
value of its portfolio through effective operating, acquisition, development
and financing strategies and management policies. The Company believes that
attractive opportunities exist to increase rental revenues through effective
leasing and management of the properties in its portfolio. The Company has
created and intends to continue to create additional value through the
acquisition and redevelopment of existing community shopping centers, as well
as the development of new retail properties in selected geographical markets
with an emphasis on small to medium-sized communities where such properties can
be positioned among the leading centers in their respective trade area. The
Company's primary target area has been and is intended to remain the Midwestern
United States. In addition, certain of the properties owned by the Company have
parcels of undeveloped land which are available for future development. The
Company will also pursue certain expansion opportunities available within the
current portfolio.

     The Company has elected to be taxed as a real estate investment trust
("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended (the "Code"), effective with the taxable year ending December 31,
1994. As a REIT, the Company generally is not subject to federal income taxes
to the extent it distributes at least 95% of its real estate investment trust
taxable income (as defined in the Code) to its shareholders.

     The Company presently has 21 full time employees and believes that its
relationship with its employees is good.


<PAGE>   5


                                                                               5
ITEM 2. PROPERTIES

<TABLE>
<CAPTION>

                           OWNERSHIP               YEAR                       GROSS
                           INTEREST/             DEVELOPED                  LEASABLE        PERCENT            ANCHOR TENANTS
                          (EXPIRATION               OR         LAND AREA    AREA (GLA)      LEASED           (LEASE EXPIRATION/
PROPERTY                 INCL. OPTIONS)         REDEVELOPED     (ACRES)     (SQ. FT.)       OF GLA           OPTION EXPIRATION)
----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                       <C>       <C>            <C>            <C>        <C>
CALIFORNIA
Kmart Colma, CA               Fee                   1980         8.29         94,282         100%         Kmart (2011/2061)
ILLINOIS
Bricktown Square              Fee                   1987        26.00        306,433          99%        Toys "R" Us (2013/2038)
Chicago, IL                                                                                               Kids "R" Us (2014/2039)
                                                                                                          Marshall's(2000/2015)
                                                                                                         Sportmart(1998/2018)
                                                                                                        Cineplex-Odeon(2008/2018)
                                                                                                        Frank's Nursery(2009/2029)
Kmart Chicago, IL            Fee                    1977         8.51         96,268         100%           Kmart (2011/2061)
Kmart Fairview Hgts, IL  Ground Lease (2051)        1976        12.65         96,268         100%           Kmart (2001/2051)
Kmart Franklin Park, IL      Fee                    1975         9.84         96,268         100%           Kmart (2011/2061)
Kmart Lansing, IL            Fee                    1976        10.48         96,268         100%           Kmart (2011/2061)
Lincoln, IL                  Fee                    1975         4.86         39,797                            (A)
Kmart Loves Park, IL     Ground Lease (2026)        1971        12.50        106,084         100%           Kmart (2011/2026)
Melrose Park, IL         Ground Lease (2048)        1973        10.90        122,450          23%           Cinemark USA (B)
Kmart New Lenox, IL          Fee                    1977         8.72         88,580         100%           Kmart (2011/2061)
Kmart North Aurora, IL       Fee                    1967        11.36        107,245         100%           Kmart (1997/2037)(C)
Kmart Rockford, IL           Fee                    1971        10.70        110,471         100%           Kmart (2011/2061)
Sherwood Plaza               Fee                    1975        13.85        125,101         100%           Kmart (2011/2061)
   Springfield, IL
Woodriver Plaza              Fee                    1987        19.40        111,899          93%          Wal-Mart (2007/2037)
   Woodriver, IL
INDIANA
Clifty Crossing              Fee                    1989        19.90        190,919          98%          Wal-Mart (2009/2039)
   Columbus, IN                                                                                          Jay C Foods (2009/2034)
Miller Mall, Gary, IN    Ground Lease (2048)        1973        17.95        129,914          86%           Kmart (1998/2048)
Broadway Center              Fee                    1974        19.89        177,692          92%           Kmart (2011/2061)
   Merrillville, IN
Flatrock Village             Fee                    1988        14.00         73,608          97%          Wal-Mart (2008/2038)
   Rushville, IN
Kmart Valparaiso, IN     Ground Lease (2050)        1974         9.61         93,592         100%           Kmart (2011/2050)
Cherry Tree Plaza            Fee                    1988        20.60        143,682          98%          Wal-Mart (2008/2038)
   Washington, IN                                                                                        Jay C Foods (2008/2033)
KANSAS
Arkansas City, KS            Fee                    1976         4.41         39,797                             (A)
Emporia, KS                  Fee                    1976         6.55         39,797         100%           Big Lots (2002/2007)
Food Bonanza                 Fee                    1977         5.60         39,797         100%         Food Bonanza (2002/2029)
   Garden City, KS
Great Bend, KS               Fee                    1977         5.41         55,552                             (A)
Orscheln Farm Supply         Fee                    1977         4.96         40,050         100%           Orscheln Farm Supply
   Hayes, KS                                                                                                   (2004/2014)
Food 4 Less                  Fee                    1976         4.12         39,797         100%          Food 4 Less (2001/2026)
   Independence, KS
Kmart Lawrence, KS           Fee                    1974         8.12         91,048         100%              Kmart (2011/2061)
Standard Supply              Fee                    1977         4.57         40,279         100%        Standard Supply (2003/2013)
   Liberal, KS
Kmart Salina, KS             Fee                    1978        16.00         87.406         100%              Kmart (2011/2061)
Kmart Topeka, KS         Ground Lease (2049)        1974        13.93        108,960         100%              Kmart (2011/2049)
South City Center            Fee                    1976        13.74        130,380         100%              Kmart (2011/2061)
   Wichita, KS
MARYLAND
Kmart Forestville, MD        Fee                    1979         8.00         84,180         100%              Kmart (2011/2061)
</TABLE>

<PAGE>   6

6
<TABLE>
<CAPTION>
                                  OWNERSHIP           YEAR                      GROSS
                                  INTEREST/         DEVELOPED                  LEASABLE    PERCENT        ANCHOR TENANTS
                                 (EXPIRATION           OR       LAND AREA     AREA (GLA)   LEASED       (LEASE EXPIRATION/
PROPERTY                        INCL. OPTIONS)     REDEVELOPED   (ACRES)      (SQ. FT.)    OF GLA       OPTION EXPIRATION)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                    <C>         <C>         <C>            <C>      <C>
MICHIGAN
Orchard-14                          Fee              1973         11.49      139,670        96%          Kmart (2011/2061)
   Farmington Hills, MI
Clinton Pointe Shopping Center      Fee              1992         11.72      135,330        98%         Office Max (2007/2017)
   Clinton Pointe, MI                                                                                Sports Authority (2017/2067)
                                                                                                          Target (D)
The Shops at Fairlane Meadows       Fee              1987         17.73      137,508        90%        Best Buy (2009/2024)
   Dearborn, MI                                                                                       Kids "R" Us (2003/2018)
                                                                                                          Target (D)
                                                                                                         Mervyn's (D)
MISSOURI
Kmart Cape Girardeau, MO            Fee              1974          5.68       79,856       100%          Kmart (2011/2061)
Kmart Jefferson City, MO            Fee              1973          9.76      118,798       100%          Kmart (2011/2061)
Prairie View Plaza            Ground Lease (2050)    1975          3.24      104,490        97%          Kmart (2011/2050)
   Kansas City, MO
Levitz Furniture                    Fee              1977         14.89      117,255        98%      Levitz Furniture (2004/2056)
   Manchester, MO
Kmart Plaza                         Fee              1978          7.41       98,878       100%          Kmart (2011/2061)
   Springfield, MO
OHIO
Shannon Station                     Fee              1989         20.20      145,607        97%          Wal-Mart (2009/2039)
   Van Wert, OH                                                                                           Roundy's (2010/2030)
WISCONSIN
Kmart Plaza                         Fee              1979          8.90       88,608       100%          Kmart (2004/2054)
   Ft. Atkinson, WI
Kmart Green Bay, WI                 Fee              1974         11.59      112,988       100%          Kmart (1999/2049)
Country Fair Shopping Ctr.          Fee              1974         10.50      152,165        90%          Kmart (2011/2061)
   Hales Corners, WI
Kmart Janesville, WI                Fee              1968         13.78      104,000       100%          Kmart (1998/2038)
Kmart Plaza                         Fee              1973          9.95      119,726       100%          Kmart (2011/2061)
   Kenosha, WI
Westland Plaza                      Fee              1978         12.40      122,534       100%          Kmart (2002/2053)
   Madison, WI
Kmart Madison, WI                   Fee              1968         12.53      106,058       100%          Kmart (2002/2022)
Northway Mall                 Ground Lease (2022)    1978         21.63      288,245        94%          Kmart (2011/2022)
   Marshfield, WI                                                                                     JC Penney (1999/2019)
                                                                                                       Younkers (2004/2019)
Kmart Milwaukee, WI                 Fee              1971         11.23      117,791       100%          Kmart (2011/2061)
Kmart Oshkosh, WI                   Fee              1968         10.00      104,000       100%          Kmart (1998/2038)
Kmart Stevens Point, WI             Fee              1972          8.00      109,197       100%          Kmart (2011/2061)
                                                                           ---------
      TOTAL                                                                5,706,568
                                                                           =========
</TABLE>



(A)--The leases on these stores were terminated effective November 1, 1995 as
     part of an agreement with Kmart and these properties are currently vacant.

(B)--This property is being redeveloped into a 10 plex theater complex. The
     lease with Cinemark USA, which was executed in January 1997, is for a 
     twenty year period commencing upon completion of the theater.

(C)--Kmart has given notice that it will not exercise its option, and
     accordingly, this lease will terminate on March 31, 1997.

(D)--These stores and the underlying pads are owned directly by the tenants.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, the Company is involved in routine
litigation. However, there are no material legal proceedings presently pending
against the Company.

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

None


<PAGE>   7


                                                                               7
                                    PART II

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

The Company's common stock is listed on the New York Stock Exchange under the
symbol "MAL". As of March 13, 1997 the Company had 162 stockholders 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
                                                           TAXABLE     OF
1995                          HIGH       LOW    DIVIDENDS  DIVIDEND  CAPITAL
----                          ----       ----   ---------  --------  -------
<S>                         <C>       <C>        <C>         <C>     <C>
First Quarter               $14.875   $13.00     $0.425      72.7%   27.3%
Second Quarter              $15.375   $13.375     0.425      72.7    27.3
Third Quarter               $16.250   $14.00      0.425      72.7    27.3
Fourth Quarter              $16.125   $12.00      0.425      72.7    27.3
                                                 ------  
                                                 $1.70       72.7%   27.3%
                                                 ======      ====    ====
1996
----
First Quarter               $14.50   $11.375     $0.425      20.6%   79.4%
Second Quarter              $15.50   $13.625      0.425      20.6    79.4
Third Quarter               $14.875  $13.875      0.425      20.6    79.4
Fourth Quarter              $16.375  $13.875      0.425      20.6    79.4
                                                 ------
                                                 $1.70       20.6%   79.4%
</TABLE>                                         ======      ====    ====


     The Company intends to pay regular quarterly dividends of $0.425 per
share, which is equivalent to an annual distribution of $1.70 per share. Such
distributions may also include a return of capital. The Company intends to
maintain such dividend unless actual results of operations, economic conditions
or other factors differ from the assumptions used in arriving at its dividend
rate. All distributions are made by the Company at the discretion of the Board
of Directors and depend on the earnings of the Company, its financial condition
and such other factors as the Board of Directors deems relevant.

ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth selected financial data for Malan
(Predecessor), as defined herein, on a historical basis and selected financial
data for the Company. Malan (Predecessor) is not a legal entity but rather a
combination of the principal real estate properties of a partnership, Bricktown
Square Associates ("BTS"), and the real estate management operations of an
affiliated S-Corporation, Malan Construction Company ("MCC"), which managed the
operations of BTS. Because of the commonality of ownership and management, the
financial results of operations of MCC and BTS are presented on a combined
basis. On June 24, 1994, MCC completed its IPO and began operating as a real
estate investment trust under the name of Malan Realty Investors, Inc. The
following data should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in the Form 10-K.

     The selected financial data of the Company for the year ended December 31,
1994 consists of the operations of Malan (Predecessor) for the period beginning
January 1 through June 23, 1994 combined with the operations of Malan Realty
Investors, Inc. from June 24 through December 31, 1994. The selected financial
data of Malan Realty Investors, Inc. includes the effects of the Offerings as
well as the management operations of the Company, the rental operations of
Bricktown Square and the results of operations of the Claridge Properties for
the 191-day period ending December 31, 1994 and the Wal-Mart Properties for the
month of December 1994. The selected financial data presented as of and for the
periods ended December 31, 1993 and 1992 are derived from the combined
financial statements of Malan (Predecessor).


<PAGE>   8


8
                            SELECTED FINANCIAL DATA

                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                        ---------------------------------------------------------
                                                                 The Company                Malan (Predecessor)
                                                        -----------------------------      ----------------------
                                                         1996        1995        1994         1993        1992
                                                         ----        ----        ----         ----        ----
<S>                                                    <C>       <C>           <C>       <C>         <C>
OPERATING DATA
Revenues
   Rental income                                        $23,836       $22,100   $11,029      $3,268      $3,211
   Percentage and overage rents                           1,164           963       573          21          30
   Recoveries from tenants                                9,340         8,662     4,577       1,698       1,624
                                                        -------       -------   -------      ------      ------    
   Total rental revenues                                 34,340        31,725    16,179       4,987       4,865
   Management and leasing fees                               48            50       899       1,705       1,509
   Interest and other income                                575           472       299          86         163
                                                        -------       -------   -------      ------      ------    
Total revenues                                           34,963        32,247    17,377       6,778       6,537
Operating expenses
   Property operating and maintenance--recoverable        2,769         1,961       823         285         321
   Other property expenses                                1,481         1,216       841         778         950
   Real estate taxes                                      7,715         7,511     4,251       1,447       1,381
   General and administrative                             1,664         1,463     1,488         818         940
   Depreciation and amortization                          4,920         4,597     2,125         682         651
                                                        -------       -------   -------      ------      ------    
Total operating expenses                                 18,549        16,748     9,528       4,010       4,243
                                                        -------       -------   -------      ------      ------    
Operating income                                         16,414        15,499     7,849       2,768       2,294
Interest expense                                         15,815        13,749     6,477       3,130       3,142
                                                        -------       -------   -------      ------      ------    
Income (loss) before minority interest in partnership       599         1,750     1,372        (362)       (848)
Minority interest in partnership                                                    151         274         302
                                                        -------       -------   -------      ------      ------    

Net income (loss)                                       $   599       $ 1,750   $ 1,523      $  (88)     $ (546)
                                                        =======       =======   =======      ======      ======
OTHER DATA
Funds From Operations(1)                                $ 7,100       $ 7,171   $ 3,757        $390      $ (127)
                                                        =======       =======   =======      ======      ======
Net income per common share(2)                          $  0.17       $  0.49   $  0.72
                                                        =======       =======   =======      
Weighted average shares outstanding                       3,471         3,547     2,114
                                                        =======       =======   =======      
Total gross leasable area at period end(3)                5,707         5,695     5,407         294         294
                                                        =======       =======   =======      ======      ======
<CAPTION>

                                                                 The Company             Malan (Predecessor)
                                                       ----------------------------     ----------------------
                                                                 December 31,                 December 31,
                                                       -----------------------------    -----------------------
                                                       1996         1995        1994        1993        1992
BALANCE SHEET DATA                                     ----         ----        ----        ----        ----
<S>                                                    <C>         <C>        <C>          <C>         <C>
Real estate, before accumulated depreciation           $207,590    $206,085   $174,173     $30,617     $30,617
Total assets                                            217,852     223,360    192,184      31,960      31,243
Mortgage indebtedness                                    83,643      83,734     43,123      35,843      35,562
Convertible Debentures                                   61,285      61,285     63,795
Convertible Notes                                        27,000      27,000     27,000
Minority interest in partnership                                                            (3,261)     (2,987)
Shareholders' equity (deficit)                           34,993      41,243     48,091      (5,162)     (5,005)
</TABLE>

----------------
(1) Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity Real Estate Investment
Trust. The Company calculates Funds From Operations utilizing net income
(loss), excluding gains (losses) from sales of property, adjusted for certain
non-cash items, primarily depreciation and amortization (primarily amortization
of deferred financing costs included in interest expense). Funds From
Operations 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 and
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.

(2) Based on weighted average shares of common stock outstanding of 3,471,
3,547, and 2,114 for 1996, 1995 and 1994, respectively. Conversion of all of
the debt securities would result in 8,668, 8,850, and 4,913 shares for 1996,
1995 and 1994, respectively, and would be antidilutive to net income per share
of common stock.

(3) Malan(Predecessor) gross leaseable area includes only Bricktown Square.


<PAGE>   9


                                                                               9

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. The Company's Consolidated
Financial Statements for the three years ended December 31, 1996 include the
results of Malan (Predecessor) for the period January 1 through June 23, 1994.
Malan (Predecessor) is not a legal entity but rather a combination of the
principal real estate properties of a partnership, Bricktown Square Associates
("BTS"), and the real estate management operations of an affiliated
S-Corporation, Malan Construction Company ("MCC"), which managed the operations
of BTS. Because of the commonality of ownership and management, the financial
results of operations of MCC and BTS are presented on a combined basis. On June
24, 1994, MCC completed its IPO and began operating as a real estate investment
trust under the name of Malan Realty Investors, Inc.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995

     Results of operations from rental properties increased from 1995 to 1996
primarily due to the Company's acquisitions of Clinton Pointe Shopping Center
("Clinton Pointe") purchased on June 5, 1995 and The Shops at Fairlane Meadows
("Fairlane Meadows") purchased on September 15, 1995. Accordingly, results of
operations for the year ended December 31, 1995 include the results of Clinton
Pointe and Fairlane Meadows since their respective acquisition dates only.

     Total revenue increased approximately $2.716 million, which is
attributable to increases in minimum and percentage rents and recoveries from
tenants of approximately $2.615 million and interest and other income of
$103,000. The increases in rents and recoveries from tenants are primarily
attributable to additional revenues from Clinton Pointe and Fairlane Meadows of
approximately $2.722 million, increases in percentage rents of approximately
$201,000 and increased recoveries from tenants due to additional recoverable
property operating expenses discussed below, offset by revenues lost of
approximately $718,000 due to lease terminations by Kmart and Builders Square
which took effect in the latter part of 1995. Percentage rents increased
primarily due to increased sales at the Company's largest tenants, Kmart and
Wal-Mart, and a nonrecurring percentage rent payment of approximately $80,000
received from a tenant at Bricktown Square, partially offset by percentage
rents lost from tenants, such as Dillons in Wichita, KS, who are no longer
operating in their spaces. The increase in interest and other income resulted
primarily from brokerage commissions and lease termination income earned in
1996 as well as investment earnings due to increased levels of investable cash
resulting from the buildup of cash reserves that are required under the
Company's REMIC financing.

     Total operating expenses increased approximately $1.801 million. Increases
in property operating and maintenance-recoverable, other property expenses,
real estate taxes and depreciation and amortization were approximately
$808,000, $265,000 and $204,000 and $323,000, respectively. Increases resulting
from the acquisitions of Clinton Pointe and Fairlane Meadows accounted for
approximately $527,000, $12,000, $382,000 and $367,000, respectively, which
were partially offset due to lower tax assessments on some properties as a
result of appeals and lower amortization of leasing costs in 1996. Additional
repairs and maintenance performed at some of the properties also contributed to
the increase in property operating and maintenance-recoverable. General and
administrative expenses increased approximately $201,000, primarily due to
increases in payroll and professional and other fees related to the
administration of the Company's REMIC financing.


<PAGE>   10


10

     Interest expense, including related amortization of deferred financing
costs, increased approximately $2.066 million. The increase is due primarily to
increased debt levels from 1995 offset by interest rate reductions and
decreases attributable to conversions of $2.510 million aggregate principal
amount of the Company's 9.5% subordinated convertible debentures into shares of
common stock, which occurred during 1995. The debenture conversions accounted
for a net decrease in interest expense of approximately $112,000. The
conversion of the Company's acquisition line of credit to the Securitized
Mortgage Loan at more favorable rates, coupled with additional borrowings
thereunder accounted for an increase of approximately $705,000, while interest
on a $12.45 million mortgage utilized for the acquisition of Fairlane Meadows
increased approximately $717,000. Increase in amortization of deferred
financing costs of approximately $756,000, related primarily to the Securitized
Mortgage Loan and the Fairlane Meadows mortgage, comprised the balance of the
increase from 1995.

     Overall, net income decreased $1.151 million primarily as a result of
increases in non-cash expenses such as depreciation and amortization of
approximately $323,000 and amortization of deferred financing costs of
$756,000.

Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994

     Results of operations from rental properties increased from 1994 to 1995
due to the Company's acquisitions of properties subsequent to its initial
public offering in June 1994. The 1994 results of operations include only the
rental operations of Bricktown Square for the entire year and the results of
operations of the Claridge Properties (collectively, the "Core Portfolio") from
and after June 24, 1994 and the Wal-Mart Properties since their acquisition on
November 30, 1994. The 1995 results include the activity of the Core Portfolio
and the Wal-Mart Properties for the entire year as well as the Company's
subsequent acquisitions since their respective acquisition dates.

     Total revenue increased approximately $14.870 million. This is primarily
attributable to increases in minimum and percentage rents and recoveries from
tenants of approximately $15.546 million and interest and other income of
$173,000 offset by decreases in management fees and leasing fees of
approximately $849,000.

     The increases in rents and recoveries from tenants are attributable to the
acquisitions discussed above. The decrease in management fees and leasing fees
is a result of the termination of the Company's previous management agreement
with Claridge Properties, Ltd. when the Company purchased the Claridge
Properties and the termination of the Company's contract to manage The
Brickyard Mall on November 21, 1994. The increase in interest and other income
resulted primarily from investment earnings on additional working capital
available as a result of the Company's public offerings and debt transactions.

     Total operating expenses increased approximately $7.220 million from 1994
to 1995. Increases in property operating and maintenance-recoverable, real
estate taxes and depreciation and amortization of approximately $1.138 million,
$375,000, $3.260 million and $2.472 million, respectively, primarily due to the
acquisitions of properties discussed above, accounted for the majority of this
increase. General and administrative expenses decreased approximately $25,000
from 1994 to 1995 primarily due to cutbacks in corporate personnel and overhead
offset by an increase in amortization of deferred incentive compensation
expense and additional expenses of becoming a public entity.


<PAGE>   11


                                                                              11

     Interest expense (including related amortization of deferred financing
costs) increased approximately $7.272 million as a result of the issuance of
$64 million of Convertible Debentures and $27 million of Convertible Notes on
June 24, 1994 in connection with the Company's IPO. In addition, the Company
had outstanding draws on an acquisition line of credit ranging from $34.75
million to $50.25 million from November 30, 1994 through August 15, 1995,
completed a $63 million mortgage loan utilizing a real estate mortgage
investment conduit (REMIC) on August 16, 1995 and incurred a $12.45 million
mortgage on September 15, 1995 in connection with the acquisition of Fairlane
Meadows. The increased interest expense resulting from these increased debt
levels are offset by decreases resulting from the payoff of a first mortgage on
Bricktown Square in June 1994.

     Overall, net income increased approximately $227,000 as a result of the
items discussed above and the acquisition of the minority interest in BTS as of
June 24, 1994.

Impact of Recently Adopted Accounting Standards

     In March 1995, Statement of Financial Accounting Standards ("SFAS") No.
121 was issued which establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The statement is effective for financial statements for fiscal
years beginning after December 15, 1995. This statement has no impact on the
Company's 1996 consolidated financial statements.

     Also in 1995, SFAS No. 123 was issued which introduced a fair-value based
method of accounting for stock based compensation. The statement requires
recognition of compensation expense for grants of stock, stock options and
other equity instruments to employees based on new fair value accounting rules
or disclosure of pro forma net income and earnings per share under the new
method. The statement is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company has elected to continue its
method of accounting for stock based compensation under the rules of APB No. 25
and to provide the required disclosures under SFAS No. 123. Had the Company
adopted the fair value accounting method prescribed under SFAS No. 123, its pro
forma net income and earnings per share for 1996 would not have been materially
different.


<PAGE>   12

12


OTHER FINANCIAL INFORMATION

Direct Operating Results

     The following table summarizes the contributions to income of the
Company's portfolio acquisitions for 1996, 1995 and 1994 (in thousands):



<TABLE>
<CAPTION>
                             CORE PORTFOLIO
                  ---------------------------------
                  BRICKTOWN     CLARIDGE                WAL-MART    CLINTON   FAIRLANE
PROPERTIES:        SQUARE      PROPERTIES     TOTAL    PROPERTIES    POINTE   MEADOWS    TOTAL
                  ---------    ----------     -----    ----------   -------   -------    -----
<S>               <C>        <C>             <C>      <C>         <C>       <C>        <C>
Date Acquired
(or Developed)    1987-1989     06/24/94               11/30/94   06/05/95  09/15/95

  1996
Revenues             $5,249      $20,420     $25,669     $4,102     $2,040    $2,529    $34,340
Direct Operating                                                
  Expenses(1)         1,726        6,823       8,549        875        691       784     10,899
                  ---------      -------     --------    ------     ------    ------    -------
Direct Operating                                                
  Income             $3,523      $13,597     $17,120     $3,227     $1,349    $1,745    $23,441
                  =========      =======     ========    ======     ======    ======    =======

  1995                                                          
Revenues             $5,168      $20,691     $25,859     $4,019     $1,116    $  731    $31,725
Direct Operating                                                
  Expenses(1)         1,759        6,813       8,572        781        364       191      9,908
                  ---------      -------     --------    ------     ------    ------    -------
Direct Operating                                                
  Income             $3,409      $13,878     $17,287     $3,238     $  752      $540    $21,817
                  =========      =======     ========    ======     ======    ======    =======

  1994                                                          
Revenues             $4,968      $10,858     $15,826     $  310                         $16,136
Direct Operating                                                
  Expenses(1)         1,763        3,496       5,259         51                           5,310
                  ---------      -------     --------    ------     ------    ------    -------

Direct Operating                                                
  Income             $3,205      $ 7,362     $10,567     $  259         --        --    $10,826
                  =========      =======     ========    ======     ======    ======    =======

</TABLE>                                                        


(1) Direct operating expenses include property operating and
maintenance-recoverable, real estate taxes, and ground rent expense but do not
include general and administrative, depreciation and amortization or interest
expenses.

Funds From Operations

     Industry analysts generally consider Fund From Operations ("FFO") to be an
appropriate measure of performance of an equity real estate investment trust.
The Company calculates FFO as net income or (loss) excluding minority interest
and gains and losses from sales of property, further adjusted for certain
non-cash items including depreciation and amortization and amortization of
deferred financing costs included in interest expense. 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.


<PAGE>   13


                                                                              13


     The following table shows the components that comprise the Company's FFO
for each of the three years in the period ended December 31, 1996 (in
thousands):

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                            1996      1995      1994
                                                                           -----     -----     ------
<S>                                                                       <C>       <C>       <C>
Net income                                                                $  599    $1,750    $1,523
Minority interest in partnership                                                                (151)
Depreciation & Amortization:
  Depreciation of buildings & improvements                                 4,766     4,333     2,027
  Depreciation of furniture, equipment & leasehold improvements               52        36        87
  Amortization of tenant allowances and improvements                          46        65
  Amortization of leasing costs                                               56       163        11
Amortization of deferred financing costs included in interest expense:
  Mortgages                                                                1,228(1)    461(1)     70
  Convertible debt                                                           353       363       190
                                                                          ------    ------    ------
Funds From Operations                                                     $7,100    $7,171    $3,757
                                                                          ======    ======    ======
ADDITIONAL INFORMATION:                                                   
Weighted average shares outstanding:
  Primary                                                                  3,471     3,547     2,114
                                                                          ======    ======    ======
  Fully diluted                                                            8,667     8,850     4,913
                                                                          ======    ======    ======

Convertible debt interest, excluding
  amortization of deferred financing costs                                $8,117    $8,223    $4,340
                                                                          ======    ======    ======

</TABLE>


(1) Includes amortization of approximately $437,000 and $164,000 for the years
ended December 31, 1996 and 1995, respectively, related to approximately $3.1
million settlement cost on hedging contract in connection with the Securitized
Mortgage Loan, assumed to be nonrecurring.


LIQUIDITY AND CAPITAL RESOURCES

     The Company is authorized to repurchase up to 755,000 shares of its Common
Stock under a plan approved by its Board of Directors on January 19, 1995. For
the years ended December 31, 1996 and 1995, the Company repurchased 91,500 and
376,500 shares, respectively, at a total cost of approximately $1.097 million
and $5.072 million, respectively, or an average cost of $11.98 and $13.47 per
share, respectively. Since inception of the plan, the Company has repurchased
468,000 shares at a cost of approximately $6.169 million or an average cost of
$13.18 per share. It is unlikely that management will repurchase additional
shares at its current market level.

     The Company has a $63 million loan (the "Securitized Mortgage Loan")
outstanding which is administered under a real estate mortgage investment
conduit (REMIC). Certificates issued by the REMIC trust carry ratings from
"AAA" to "A" by both Fitch Investors Services, Inc. and Duff & Phelps Credit
Rating Co. Under the loan agreement, the Company is required to fund certain
reserves on a monthly basis and request disbursement of funds as certain
requirements are met. The Capital Improvements/Replacement Reserve requires an
annual deposit (funded monthly) equal to $0.20 per qualifying square foot as
defined in the loan agreement or approximately $575,000 per year. The Basic
Carrying Cost Reserve which is utilized to pay real estate taxes, ground lease
payments and insurance payments related to the properties which collateralize
the loan requires a monthly deposit equal to one-twelfth of the estimated
annual cost of these expenses which is estimated to be approximately $1.3
million in 1997.

     An additional provision in the agreement provides that in the event that
the long-term debt rating of either of the two major tenants of the properties,
Kmart or Wal-Mart, is downgraded to "BB+" or lower, the Company will be
required to maintain an additional amount in the Basic Carrying Cost

<PAGE>   14
14

Reserve equal to 1/4 of the applicable real estate tax obligation borne by
those tenants. In January 1996, the long-term debt rating of Kmart was lowered
to "BB" and, accordingly, the Company was required to make an additional
deposit to the Basic Carrying Cost account of $561,000, representing 1/4 of the
Kmart properties' estimated real estate taxes for 1996.

     In connection with the Securitized Mortgage Loan, the Company incurred a
$3.1 million settlement cost in 1995 on a Treasury Lock Agreement which was
utilized to hedge the interest rate on certain borrowings used for acquisitions
of shopping centers. Through the use of an interest rate cap and floor
agreement, the effective rate of interest is fixed at 7.57% through February
10, 2002; thereafter, the interest rate on $42 million of the mortgage loans
convert to a variable rate based on certain requirements. While the Company has
not yet decided how it will fund the repayment of the Securitized Mortgage Loan
upon maturity, possible sources include additional public offerings of equity
and/or debt, refinancing with conventional fixed rate debt instruments or the
issuance of additional secured or unsecured debt obligations.

     In September 1995, the Company reached an agreement with its largest
tenant, Kmart, regarding several stores within its portfolio. Under the
agreement, the Company received a cash payment on October 31, 1995 totaling
approximately $2.56 million as consideration for the termination of leases on
five stores previously closed by Kmart. In addition, the agreement i.) provides
that the Company assume leases at three locations that were subleased by Kmart;
ii.) amends certain lease provisions on four other properties leased by Kmart;
and iii.) allows the Company to develop outlots at seven Kmart properties and
receive all revenue generated from these outlots. The cash payment has been
recorded as deferred income and is being amortized as income on a straight-line
basis over a six-year period which represents the weighted average remaining
base term of the leases involved. Revenue recognized under the agreement during
1996 and 1995 was $427,500 and $71,250, respectively.

     The Company has re-leased two of the five closed stores at terms which
approximate the annual revenue received under the previous leases with Kmart,
and intends to re-lease the remaining three. The Company has also leased two of
the outlots and intends to develop and lease the remaining outlots. It is
possible that the Company may be unable to re-lease the remaining stores or
develop and lease the outlots within the next several years. Such loss of
revenue may have a material affect on the Company's future cash flows and
results of operations.

     In January 1996, the Company completed an agreement with Builders Square
("Builders"), a subsidiary of Kmart, for its property located in Manchester,
Missouri whereby the Company assumed a sublease agreement between Builders and
Levitz Furniture for a portion of the building. Builders received a net cash
payment of approximately $319,000 and was released from further obligation
under its lease. Under the terms of the sublease, which runs through May 2002,
the Company receives an increase in the annual base rental amount of $75,000
over what was previously being paid by Builders.

     On December 1, 1995, the Company's lease with Builder's Square at its
Melrose Park, Illinois property was terminated. On an annual basis, revenues
from this lease were approximately $650,000. In 1996, the net decrease in
revenues from 1995 resulting from the termination were approximately $347,000.
The Company has an agreement with Cinemark USA to construct a 58,000
square-foot, 10-plex theater complex on this site. Construction is expected to
begin in the second quarter 1997 after the existing structure is demolished,
and the theater complex is expected to open in the first quarter 1998. Once
completed, the Company will provide a construction allowance of $65 per square
foot to Cinemark who will then ground lease the property for a term of twenty
years with annual rent of approximately $950,000, plus reimbursement of real
estate taxes and operating costs. Total costs of the development are estimated
to be approximately $4 million and are anticipated to be funded through project
specific financing upon completion.


<PAGE>   15
                                                                              15

     Dillons, a tenant at the Company's Wichita, Kansas property, vacated its
space in November 1995. Dillons' lease remains in effect through November 30,
2001; however, as a result of the closure, the Company no longer receives
percentage rent from this tenant, which totaled approximately $132,000 in 1995.
To help defray the loss in total revenue generated from the property, the
Company is attempting to enter into a lease termination agreement with Dillons
and plans to redevelop and re-tenant the property at a higher base rent. While
the Company anticipates this loss of revenue to be short-term, it cannot
predict at this time when such re-tenanting will occur.

     The Company was informed in March 1996 that Kmart would not be exercising
its option to extend its lease on its freestanding store in North Aurora,
Illinois. Accordingly, this lease will expire on March 31, 1997. Cash flows
generated from the property during 1996 were approximately $126,000. The
Company is currently negotiating a lease that will involve the redevelopment of
the property and anticipates that the lease will be finalized in the second
quarter of 1997. Cash flows from the property will be diminished temporarily
between the termination date of the Kmart lease and the effective date of any
new lease agreement.

     In March 1996, the Company entered into a sale and leaseback agreement
with an existing tenant at its Lawrence, Kansas shopping center. Under the
agreement, the tenant will construct a new theater on property located near the
shopping center. Upon completion, the theater will be purchased by the Company
for approximately $4.2 million, and the Company will lease the theater back to
the tenant for a term of twenty years at a base rent of approximately $550,000
per year. The Company anticipates the project to be completed in the second
quarter of 1997 and to be funded out of long-term financing collateralized by
the acquired property.

     The Company's 9.5% Convertible Subordinated Debentures, due August 2004,
carry a rating of B3 by Moody's Investors Services, Inc.

     In September 1996, the Company extended its $12.45 million mortgage loan
with NBD collateralized by Fairlane Meadows, until September 15, 1997.
Subsequent to year end, the Company satisfied the loan using proceeds received
from a $11.2 million loan with Daiwa Finance Corporation ("Daiwa") and
available cash reserves for the balance. The loan with Daiwa is collateralized
by a mortgage on Fairlane Meadows and calls for monthly payments totaling
$83,827, consisting of interest and principal at the rate of 8.21% per annum
amortized over a 30-year life. Real estate tax payments and an annual
replacement reserve of $17,157 are required to be escrowed monthly. The loan is
due in full on February 1, 2007, at which time a balloon payment of
approximately $9.9 million will be due. The loan also contains an earn-out
provision whereby the Company can request at any time prior to January 1, 1998,
that the property be reappraised and that the loan be increased if the revised
valuation supports such an increase. The Company is attempting to lease a large
vacant space within Fairlane Meadows to a high quality retailer and believes
that the value added to the shopping center by such tenant will be sufficient
to provide enough earn-out proceeds to replenish the cash reserves utilized to
extinguish the NBD mortgage.

     The Company established a line of credit ( the "Line") in January 1997
with First Chicago NBD totaling $2.5 million. The line is collateralized by the
Company's interest in Orchard 14 Shopping Center in Farmington Hills, Michigan
and any proceeds received as a result of the earn-out provision contained in
the Daiwa loan and is subject to certain other restrictions as to its use. The
line is for a one-year period and decreases to $1 million on the earlier of
September 30, 1997, or upon the receipt of any funds from the Daiwa earn-out
provision and is extendable for a one-year period for a fee. Payments of
interest only at either the bank's prime rate, or the London Interbank Offering
Rate (LIBOR) plus 200 basis points under certain conditions, are due monthly
until maturity.


<PAGE>   16
16

     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. The Company spent approximately $1.261 million on such
expenditures in 1996, which included approximately $1.105 million for major
roof repairs and replacements on six properties. These expenditures were funded
primarily out of the Capital Improvement/Replacement Reserve required for the
Company's Securitized Mortgage Loan financing and partially from operating cash
flows. In 1997, the Company anticipates spending approximately $1.3 million for
capital expenditures, also to be funded from similar sources.

     Occasionally it is necessary for the Company to provide inducements such
as building allowances or space improvements and/or to pay leasing commissions
to outside brokers in order to procure new tenants or renegotiate expiring
leases with current tenants. The total cost of these expenditures in 1996 was
approximately $479,000. These expenditures are generally funded by operating
cash flows and increased revenues resulting from such expenditures. Such
expenditures could total in excess of $300,000 for the year ending December 31,
1997.

The Company has entered into the following commitments:

<TABLE>
<CAPTION>
                                                                                     ANTICIPATED
                                                                  APPROXIMATE          FUNDING
                                                                     AMOUNT             DATE
                                                                  ----------         -----------
                                                                 (in thousands)
<S>                                                                <C>                <C>
Purchase and leaseback of 12-plex theater complex--Lawrence, KS      $4,200             6/97

Replacement of roofs on five retail buildings                         1,100           4/97-9/97
Payment of tenant construction allowance
  on 10-plex theater complex--Melrose Park, IL(1)                     3,640             3/98
                                                                     ------
Total                                                                $8,940           4/97-3/98
                                                                     ======

</TABLE>                                                                


(1) Commitment entered into subsequent to December 31, 1996.

In addition to these commitments and other potential uses of cash discussed
above, several other new developments and redevelopments are being contemplated
by the Company and may be completed within the next year. It is anticipated
that the additional revenue generated by these projects, as well as the
Company's existing equity in each, will create sufficient value so that each
project will fully fund itself using property specific financing and long-term
loans.

     The Company's major tenant, Kmart accounted for approximately 38.2% of its
gross revenue and 36.7% of its base minimum rent in 1996. Since its IPO, the
Company has substantially reduced its exposure to Kmart through acquisitions
and redevelopments of properties, lease termination agreements with Kmart and
the assumption of certain Kmart sublease agreements. At the IPO, Kmart
accounted for approximately 60% of the Company's annualized base minimum rents.

     The Company anticipates that its cash flow from operations will generally
be sufficient to fund its cash needs for payment of expenses, capital
expenditures (other than acquisitions) and distributions necessary to maintain
its status as a REIT for federal income tax purposes. The Company currently has
available borrowing of up to $1 million on the NBD line of credit for temporary
working capital needs and intends to enter into other secured and unsecured
financing arrangements in the future as the need arises.


<PAGE>   17


                                                                         17

     Each of the above statements regarding future revenues or expenses may be
a "forward looking statement" within the meaning of the Securities Exchange Act
of 1934. Such statements are subject to important factors that could cause
actual results to differ materially from those in the forward looking
statement, including the factors set forth 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.


<PAGE>   18


18

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                         INDEX

<TABLE>                    
<CAPTION>                  
                                                                                                Page
                                                                                              Number
<S>                                                                                              <C>
Independent Auditors' Report                                                                     19

Consolidated Balance Sheets as of December 31, 1996 and 1995                                     20

Consolidated Statements of Operations for Each of the                                   
  Three Years in the Period Ended December 31, 1996                                              21

Consolidated Statements of Shareholders' Equity (Deficit) for
  Each of the Three Years in the Period Ended December 31, 1996                                  22

Consolidated Statements of Cash Flows for Each of the Three
  Years in the Period Ended December 31, 1996                                                    23

Notes to Consolidated Financial Statements                                                       24

Consolidated Financial Statement Schedule--XI Real Estate and Accumulated Depreciation           34
</TABLE>


     Schedules other than those listed 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.



<PAGE>   19


                                                                              19

                          INDEPENDENT AUDITORS' REPORT

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

     We have audited the consolidated financial statements and the consolidated
financial statement schedule listed at Item 8 of Malan Realty Investors, Inc.
and Subsidiary (the "Company"). These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.

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

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.




DELOITTE & TOUCHE LLP
Detroit, Michigan
January 29, 1997




<PAGE>   20


20

                  MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                  1996      1995
                                                                  ----      ----
<S>                                                             <C>       <C>
ASSETS:
   Real Estate (Note 2):
      Land                                                      $ 18,296  $ 18,296
      Buildings and improvements                                 189,294   187,789
                                                                --------  --------
         Total                                                   207,590   206,085
         Less: accumulated depreciation                          (10,907)   (6,114)
                                                                --------  --------

         Total                                                   196,683   199,971
   Other Assets:
   Leasehold improvements and equipment, net                          47        99
   Accounts receivable (net of allowance of $96 and $23
      at December 31, 1996 and 1995, respectively)                 1,332     1,439
   Deferred financing and other                                   10,705    11,294
   Cash and cash equivalents                                       6,966     9,095
   Escrow deposits (Note 2)                                        2,119     1,462
                                                                --------  --------

         Total Assets                                           $217,852  $223,360
                                                                ========  ========

LIABILITIES:
   Mortgages (Note 2)                                            $83,643   $83,734
   Convertible debentures (Note 2)                                61,285    61,285
   Convertible notes (Note 2)                                     27,000    27,000
   Deferred income (Note 9)                                        2,493     2,679
   Accrued distributions payable                                   1,472     1,509
   Accounts payable and other                                      1,535       647
   Accrued property taxes                                          1,157     1,085
   Accrued interest payable                                        4,274     4,178
                                                                 -------   -------

         Total liabilities                                       182,859   182,117
                                                                --------  --------

COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY (NOTES 3, 4 AND 8)
   Common stock ($.01 par value, 30 million shares authorized,
      3,463,684 and 3,550,204 shares issued and outstanding as
      of December 31, 1996 and 1995, respectively)                    35        36
   Additional paid in capital                                     45,960    46,984
   Accumulated distributions in excess of net income             (11,002)   (5,717)
   Deferred compensation--incentive shares                                     (60)
                                                                --------  --------
         Total shareholders' equity                               34,993    41,243
                                                                --------  --------
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                   $217,852  $223,360
                                                                ========  ========



</TABLE>



                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<PAGE>   21



                                                                              21
                  MALAN REALTY INVESTORS, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

               (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                      1996       1995      1994(*)
                                                      ----       ----      -------
<S>                                                 <C>        <C>        <C>

REVENUES
   Minimum rent (Note 5)                            $  23,836  $  22,100  $  11,029
   Percentage and overage rents                         1,164        963        573
   Recoveries from tenants                              9,340      8,662      4,577
   Management and leasing fees                             48         50        899
   Interest and other income                              575        472        299
                                                    ---------  ---------  ---------
      TOTAL REVENUES                                   34,963     32,247     17,377
                                                    ---------  ---------  ---------

EXPENSES
   Property operating and maintenance--recoverable      2,769      1,961        823
   Other operating expenses                             1,481      1,216        841
   Real estate taxes                                    7,715      7,511      4,251
   General and administrative                           1,664      1,463      1,488
   Depreciation and amortization                        4,920      4,597      2,125
                                                    ---------  ---------  ---------
      TOTAL OPERATING EXPENSES                         18,549     16,748      9,528
                                                    ---------  ---------  ---------
OPERATING INCOME                                       16,414     15,499      7,849
INTEREST EXPENSE                                       15,815     13,749      6,477
                                                    ---------  ---------  ---------

INCOME BEFORE MINORITY INTEREST IN PARTNERSHIP            599      1,750      1,372
MINORITY INTEREST IN PARTNERSHIP                                                151
                                                    ---------  ---------  ---------

NET INCOME                                          $     599  $   1,750  $   1,523
                                                    =========  =========  =========
Net income per share                                $    0.17  $    0.49  $    0.72
                                                    =========  =========  =========
Weighted average shares outstanding                 3,470,650  3,546,883  2,114,251
                                                    =========  =========  =========

</TABLE>



(*) The statements of operations include the activity of Malan (Predecessor)
for January 1, 1994 through June 23, 1994.



                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<PAGE>   22


22

                  MALAN REALTY INVESTORS, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

                (in thousands, except share and per share data)



<TABLE>
<CAPTION>
                                                                 ADDITIONAL      ACCUMULATED     DEFERRED        TOTAL
                                                               PAID-IN CAPITAL  DISTRIBUTIONS  COMPENSATION  SHAREHOLDERS'
                                                        PAR     (ACCUMULATED    IN EXCESS OF   --INCENTIVE      EQUITY
                                                       VALUE      DEFICIT)       NET INCOME       SHARES       (DEFICIT)
                                                       -----   ---------------  -------------  ------------  ------------
<S>                                                    <C>     <C>              <C>            <C>           <C>
BALANCE, JANUARY 1, 1994 (*)                            $  1        $  (5,163)                                    $(5,162)
   Distributions and net loss
      prior to initial public offering                                   (480)                                       (480)
   Stock split 2,958 to 1                                  2               (2)
   Redemption of 58,800 shares                            (1)            (999)                                     (1,000)
   Initial sale of 3,530,000 common shares of
      Malan Realty Investors, Inc., net of costs          35           55,872                                      55,907
   Donation of incentive shares--
      net of forfeitures                                                  250                       $  (250)
   Amortization of deferred compensation--
      incentive shares (Note 3)                                                                          65            65
   Conversion of debt securities                           1              204                                         205
   Distributions--$.85 per share                                                     $ (3,207)                     (3,207)
   Net income, subsequent to
      Initial Public Offering                                                           1,763                       1,763
                                                         ---        ---------        --------       -------       -------
BALANCE, DECEMBER 31, 1994(*)                             38           49,682          (1,444)         (185)       48,091
   Amortization of deferred compensation--
      incentive shares (Note 3)                                                                         125           125
   Conversion of debt securities--
      net of unamortized costs                             2            2,398                                       2,400
   Common shares repurchased                              (4)          (5,096)                                     (5,100)
   Distributions--$1.70 per share                                                      (6,023)                     (6,023)
   Net income                                                                           1,750                       1,750
                                                         ---        ---------        --------       -------       -------
BALANCE, DECEMBER 31, 1995                                36           46,984          (5,717)          (60)       41,243
   Amortization of deferred compensation--
      incentive shares (Note 3)                                                                          60            60
   Common shares repurchased                              (1)          (1,096)                                     (1,097)
   Directors compensation paid in stock                                    48                                          48
   Stock options exercised                                                 24                                          24
   Distributions--$1.70 per share                                                      (5,884)                     (5,884)
   Net income                                                                             599                         599
                                                        ----        ---------        --------       -------       -------
BALANCE, DECEMBER 31, 1996                              $ 35        $  45,960        $(11,002)                    $34,993
                                                        ====        =========        ========       =======       =======
</TABLE>                                                


(*) The statements of stockholders' equity include the activity of Malan
(Predecessor) for the periods prior to June 24, 1994.



                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<PAGE>   23

                                                                              23

                  MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                                 1996       1995      1994(*)
                                                                               --------   --------    --------
<S>                                                                            <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                                                  $    599   $  1,750    $  1,523
                                                                               --------   --------    --------
   Adjustments to reconcile net income to net cash
      flows provided by operating activities:
      Depreciation and amortization                                               4,920      4,597       2,125
      Amortization of deferred financing costs                                    1,581        824         260
      Minority interest in partnership                                                                    (151)
      Amortization of deferred compensation expense                                  60        125          65
      Directors compensation issued in stock                                         48
      Change in operating assets and liabilities that provided (used) cash:
          Accounts receivable and other                                            (961)     1,225      (2,714)
          Accounts payable, deferred income and other accrued liabilities           870         20       8,261
                                                                               --------   --------    --------
      Total adjustments                                                           6,518      6,791       7,846
                                                                               --------   --------    --------
          NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES                         7,117      8,541       9,369
                                                                               --------   --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Real estate developed, acquired or improved                                   (1,505)   (31,868)   (144,307)
   Additions to leasehold improvements and equipment                                            (8)
   Deposits to escrow                                                           (17,642)    (5,876)
   Disbursements from escrow                                                     16,985      4,415
                                                                               --------   --------    --------
          NET CASH FLOWS USED FOR INVESTING ACTIVITIES                           (2,162)   (33,337)   (144,307)
                                                                               --------   --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from initial public offering                                                            55,907
   Proceeds from public offering of debentures and private placement of notes                           86,359
   Draws on acquisition line                                                                15,500      34,750
   Net proceeds from REMIC offering                                                         55,751
   Repayment of acquisition line                                                           (50,250)
   Principal repayments on mortgages                                                (91)       (88)    (27,668)
   Net proceeds from mortgage                                                               12,450
   Distributions to majority owner                                                                      (2,158)
   Distributions to shareholders                                                 (5,921)    (6,121)     (1,601)
   Proceeds from stock options exercised                                             24
   Repurchases of common stock                                                   (1,096)    (5,100)
                                                                               --------   --------    --------
          NET CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES             (7,084)    22,142     145,589
                                                                               --------   --------    --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             (2,129)    (2,654)     10,651
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    9,095     11,749       1,098
                                                                               --------   --------    --------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                       $  6,966   $  9,095    $ 11,749
                                                                               ========   ========    ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--
CASH PAID FOR INTEREST DURING THE YEAR                                         $ 14,139   $ 13,104    $  2,062
                                                                               ========   ========    ========


</TABLE>


(*) The statements of cash flows include the activity of Malan (Predecessor)
for January 1, 1994 through June 23, 1994.


                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<PAGE>   24


24

                  MALAN REALTY INVESTORS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     General--In June 1994 Malan Realty Investors, Inc. (the "Company") became
a publicly held real estate investment trust through an initial public offering
of common stock and subordinated convertible debentures. The proceeds of the
offerings along with those obtained from a private placement of secured
convertible notes, were used to acquire retail shopping facilities that had
been developed and managed by the Company's predecessor ("Malan
(Predecessor)"). The Company is currently engaged in the ownership, management,
leasing, acquisition, development and redevelopment of shopping centers 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.

     In connection with its initial public offering, the Company issued
warrants to National Westminster Bank PLC, New York branch, an affiliate of one
of the underwriters, for the purchase of 353,000 shares of common stock. The
warrants are exercisable for a period of four years commencing June 17, 1995 at
a price of $20.40 per share. No warrants were exercised in 1996 or 1995.

     Basis of Combination and Principles of Consolidation--The accompanying
consolidated financial statements include the activity of the Company and its
wholly owned subsidiary, Malan Mortgagor, Inc. All significant inter-company
balances and transactions have been eliminated.

     The financial statements of the Company for the year ended December 31,
1994 consist of the combined statements of operations of Malan (Predecessor)
for the period beginning January 1 through June 23, 1994 combined with the
operations of the Company from June 24, 1994 through December 31, 1994. Malan
(Predecessor) is not a legal entity but rather a combination of the principal
real estate properties of a partnership, Bricktown Square Associates ("BTS"),
and the real estate management operations of an affiliated S-Corporation, Malan
Construction Company ("MCC"), which managed the operations of BTS. Because of
the commonality of ownership and management, the financial results of
operations of MCC and BTS are presented on a combined basis. All significant
interentity balances and transactions have been eliminated in combination.

     Reclassifications--Certain reclassifications have been made to the 1995
and 1994 financial statements in order to conform with the 1996 financial
statements.

     Real Estate, Leasehold Improvements and Equipment are 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:

                  Building                                     40 Years
                  Land and Building Improvements            10-40 Years
                  Leasehold Improvements                     5-10 Years
                  Equipment                                  5-10 Years


     Maintenance and repairs are charged to expense as incurred. Renovations
which improve or extend the life of the asset are capitalized.

     Accumulated depreciation on leasehold improvements and equipment at
December 31, 1996 and 1995 was $343,260 and $355,338, respectively.


<PAGE>   25


                                                                              25


     Deferred Financing and Other consists primarily of deferred financing
costs and lease procurement costs. Deferred financing costs of $11,737,971 at
December 31, 1996 and 1995 are amortized on a straight line basis over the
terms of the applicable debt agreements. Accumulated amortization of deferred
financing costs at December 31, 1996 and 1995 was $2,526,606 and $1,043,734,
respectively, and amortization expense for 1996, 1995 and 1994 was $1,580,512,
$824,304 and $288,808, respectively, and are included in interest expense in
the Consolidated Statement of Operations. Included in deferred financing costs
is a $3.1 million settlement cost incurred in 1995 on a Treasury Lock Agreement
used to hedge the interest rate on certain of the Company's borrowings.

     Lease procurement costs of $1,176,097 and $372,056 at December 31, 1996
and 1995, respectively, consist of 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, 1996 and 1995 was $150,205 and $48,031, respectively, and
amortization expense for 1996 and 1995 was $102,174 and $199,170, respectively.

     Revenue Recognition--Minimum rents are recognized on the straight line
method over the terms of the leases. Percentage rents are recognized as earned
on an accrual basis over the terms of the leases. The leases also typically
provide for tenant reimbursement of common area maintenance and other operating
expenses which are included in the accompanying Consolidated Statements of
Operations as recoveries from tenants.

     Income received on lease terminations is deferred and recognized on a
straight line basis over the remaining term of the leases involved. Deferred
income related to such terminations was approximately $2,187,000 and $2,494,000
at December 31, 1996 and 1995, respectively, and approximately $427,500 and
$71,000 was recognized as rental income for the years ended December 31, 1996
and 1995, respectively. Payments received under normal lease clauses which
provide for the acceleration of the lease expiration date upon receipt of such
payment are recognized as income when received.

     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 95% of its real estate investment trust taxable income, as defined in the
Code, to its stockholders and satisfies certain other requirements.
Accordingly, no provision has been made for federal income taxes in the
accompanying financial statements.

     Prior to its initial public offering, income taxes were the responsibility
of the partners and shareholders of Malan (Predecessor). Accordingly, no
provision has been made through June 23, 1994.

     Net income per share is computed by dividing net income by the weighted
average number of common shares outstanding after giving effect to stock
options considered to be dilutive common stock equivalents. Common shares
issuable under stock warrants and upon conversion of convertible debentures and
notes have not been considered in the computation of net income per share
because such inclusion would be anti-dilutive.

     Distributions per common share declared for the years ended December 31,
1996, 1995 and 1994 were $1.70, $1.70 and $.85, respectively, of which $1.35,
$.46 and $.35, 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.


<PAGE>   26


26

     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.

     Impact of recently adopted accounting standards--In March 1995, Statement
of Financial Accounting Standards ("SFAS") No. 121 was issued which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The statement is effective
for financial statements for fiscal years beginning after December 15, 1995.
There is no impact on the Company's 1996 consolidated financial statements
resulting from the implementation of the statement.

2. MORTGAGES, DEBENTURES AND NOTES

     The Company has a $63 million term mortgage loan (the "Securitized
Mortgage Loan") utilizing a real estate mortgage investment conduit (REMIC).
The loan is secured by separate cross-collateralized and cross-defaulted
mortgages or deeds of trust on 25 properties owned by a wholly-owned subsidiary
Malan Mortgagor, Inc. and matures on August 10, 2002. Payments of interest only
are due monthly. Through the use of an interest rate cap and floor agreement,
the effective interest rate is fixed at 7.57% through February 10, 2002;
thereafter, the interest rate on $42 million of the mortgage loans convert to a
variable rate based on certain requirements.

     As part of the Securitized Mortgage Loan, the Company must continue to
fund certain up-front reserves on an ongoing basis and request disbursement of
funds as certain requirements are met. The Capital Improvements/Replacement
Reserve requires an annual deposit (funded monthly) equal to $0.20 per
qualifying square foot as defined in the agreement or approximately $575,000
per year. The Basic Carrying Cost Reserve which is utilized to pay certain real
estate taxes, ground lease payments and insurance payments related to the
properties of Malan Mortgagor, Inc. requires a monthly deposit equal to
one-twelfth of the estimated annual cost of these expenses or approximately
$1.3 million per annum.

     An additional provision in the agreement provides that in the event that
the long-term debt rating of either of the two major tenants of the
collateralized properties, Kmart or Wal-Mart, is downgraded to 'BB+' or lower,
the Company is required to maintain an additional amount in the Basic Carrying
Cost Reserve equal to 1/4 of the applicable real estate tax obligation borne by
those tenants. In January 1996, the long-term debt rating of Kmart was lowered
to 'BB' and accordingly, the Company was required to make an additional deposit
to the Basic Carrying Cost account of $561,000 representing 1/4 of the Kmart
properties estimated real estate taxes for 1996.

     In September 1996, the Company extended its $12.45 million mortgage loan
with NBD, collateralized by The Shops at Fairlane Meadows, until September 15,
1997. Subsequent to year end the Company satisfied the loan out of proceeds
received from an $11.2 million loan with Daiwa Finance Corporation ("Daiwa")
and the balance from available cash reserves. The loan with Daiwa is
collateralized by a mortgage on The Shops at Fairlane Meadows and calls for
monthly payments totaling $83,827 consisting of interest and principal at the
rate of 8.21% per annum amortized over a 30 year life. Real estate tax payments
and an annual replacement reserve of $17,157 are required to be escrowed
monthly. The loan matures on February 1, 2007, at which time a balloon payment
of approximately $9.9 million will be due. The loan also contains an earn-out
provision whereby the Company can request at any time prior to January 1, 1998
that the property be revalued and that the loan be increased if the revised
valuation supports such an increase.


<PAGE>   27


                                                                              27

     Subsequent to year end, the Company established a line of credit (the
"Line") with First Chicago NBD totaling $2.5 million. The line is
collateralized by the Company's interest in Orchard-14 Shopping Center in
Farmington Hills, Michigan and any proceeds received as a result of the
earn-out provision contained in the Daiwa loan and is subject to certain other
restrictions as to its use. The line is for a one-year period and decreases to
$1 million the earlier of September 30, 1997, or upon the receipt of any funds
from the earn-out provision and is extendable for a one year period for a fee.
Payments of interest only at either the bank's prime rate, or the London
Interbank Offering Rate (LIBOR) plus 200 basis points under certain conditions,
are due monthly until maturity.

     The Company has outstanding $61.285 million in Convertible Debentures (the
"Debentures") and $27 million in Convertible Notes (the "Notes") at December
31, 1996 and 1995. The Debentures are 10 year unsecured general obligations of
the Company due July 15, 2004 and have a coupon rate of interest of 9.5% per
annum, payable semiannually. The Debentures are convertible, unless previously
redeemed, at anytime after issuance and prior to maturity into shares of Common
Stock at the conversion price of $17 per share subject to adjustment under
certain conditions. The Debentures are not redeemable by the Company prior to
July 15, 2001, except for certain reasons intended to protect the Company's
status as a REIT. During 1995, $2.51 million aggregate principal of Debentures
were converted into 147,646 shares of Common Stock.

     The Notes are nine year general obligations due July 15, 2003 secured by a
first mortgage on Bricktown Square and bear interest at the rate of 8.5% per
annum, payable semiannually and are convertible into shares of Common Stock,
unless previously redeemed, at any time after June 24, 2002 at a conversion
price of $17 per share. Prior to this date, the holder may also demand
conversion of limited quantities of the Notes subject to certain timing
restrictions.

The following table sets forth certain information regarding the company's debt:

<TABLE>
<CAPTION>
                                                                                                       BALANCE
                                                           INTEREST            MATURITY              DECEMBER 31,     
                                COLLATERAL                   RATE               DATE           1996              1995 
                            -----------------          --------------       ------------     -------           -------
                                                                                                   (in thousands)      
Mortgages
<S>                        <C>                          <C>                    <C>           <C>              <C>      
UDAG Loan                  Bricktown Square              3% to 9%               3/23          $ 8,193         $   8,284

Securitized Mortgage Loan  25 Retail Properties             7.57%(1)            8/02           63,000            63,000

Fairlane Mortgage(2)       The Shops at
                           Fairlane Meadows                   (2)                 (2)          12,450            12,450
                                                                                              -------         ---------
  Total Mortgages                                                                             $83,643         $  83,734
                                                                                              =======         =========
Convertible Debentures     --                                9.5%               7/04          $61,285         $  61,285
                                                                                              =======         =========
Convertible Notes          Bricktown Square                  8.5%               7/03          $27,000         $  27,000
                                                                                              =======         =========
</TABLE>

(1) Overall blended rate. The interest rate on four different tranches are
either fixed or capped through the use of an interest rate cap and floor.
(2) Loan refinanced January 1997. See discussion above.


<PAGE>   28


28


      Approximate scheduled principal payments for the years subsequent to
December 31, 1996 and the refinancing of mortgage loan with NBD are as follows
(in thousands):

                          1997                             $  1,420
                          1998                                  187
                          1999                                  191
                          2000                                  205
                          2001                                  219
                          2002 and thereafter               169,706
                                                           --------
                          Total                            $171,928
                                                           ========

3. INCENTIVE SHARES

     Upon completion of its initial public offering, the Company's president
and chief executive officer donated 23,700 shares of Common Stock to be
distributed in varying amounts to substantially all of the Company's employees,
subject to certain forfeiture restrictions. The donation was recorded at its
fair market value as additional paid in capital and deferred compensation
expense. Compensation expense recognized during 1996, 1995 and 1994 was
$60,199, $125,184 and $64,993, respectively. On June 18, 1996 all forfeiture
restrictions lapsed and the unforfeited shares became the unrestricted property
of each recipient.

4. 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 stock options is
400,000 shares.

     The exercise price of each Option granted is equal to the aggregate 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
vest 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.

     Directors Option Plan--In 1995, the Company adopted the 1995 Stock Option
Plan for non-employee Directors of the Company (the "Directors Option Plan").
Under the Directors Option Plan, each non-employee Director of the Company
received an option to purchase 1,500 shares of Common Stock of the Company
following the 1995 Annual Meeting of the Board. Following each Annual Meeting
of the Board thereafter, each non-employee Director will automatically be
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.


<PAGE>   29


                                                                              29


     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>
Options Granted 1994..........       250,000        $17.00            $ 17.00
Options Forfeited 1994........      (101,500)       $17.00            $ 17.00
                                   ---------
Balance, December 31, 1994....       148,500        $17.00            $ 17.00

Options Granted 1995..........       101,500       $13.375            $13.375          6,000            $14.50            $ 14.50
                                   ---------                                         -------
Balance, December 31, 1995....       250,000                          $15.528          6,000                              $ 14.50

Options Granted 1996..........        54,000   $14.375-$15.375        $14.449          4,000            $14.375           $14.375
Options Exercised 1996........                                                        (1,708)           $14.375           $14.375
                                   ---------                                         -------
Balance, December 31, 1996....       304,000    $13.75-$17.00         $15.383          8,292        $14.375-$14.50        $14.465
                                   =========                                         =======
Options Excercisable at
  December 31, 1996...........       119,297                          $13.375          8,292                              $14.465
                                   =========                          =======        =======                              =======
</TABLE>


     The fair value of each stock option granted in 1996 is estimated to be
negligible on the date of the grant using the Black-Sholes option pricing model
with the following weighted average assumptions: risk free interest rate of 6%;
expected dividend yield of 11.8%; expected life of ten years; and expected
volatility of 10%. The outstanding stock options at December 31, 1996 have a
weighted average contractual life of 8.69 years.

     The Company accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25, under which no compensation cost
has been recognized for stock option awards. Had compensation cost for the
plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's proforma net income and earnings per share for
1996 would not have been materially different. Because the SFAS No. 123 method
of accounting has not been applied to options granted prior to January 1, 1996,
the resulting pro forma compensation cost may not be representative of that to
be expected in future years.

     Stock Compensation Plan--In order to provide an opportunity for
non-employee Directors to increase their ownership, the Company adopted in May
1995, the 1995 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 30th of each year to receive all or a
portion of the Director's compensation for the following calendar year in the
form of Common Stock of the Company in lieu of cash. Once made, the election is
irrevocable for the following year's compensation. The number of shares of
Common Stock to be paid to a Director instead of cash compensation will be
determined based on the closing price of the Common Stock on the New York Stock
Exchange on the day before the compensation is earned by the Director (i.e.,
the day before a Board or committee meeting, as applicable). The plan became
effective January 1, 1996. A maximum of 100,000 shares may be issued under the
Stock Compensation Plan. During 1996, a total of 3,272 shares were issued under
the plan reflecting compensation of $47,918.

5. COMMITMENTS AND CONTINGENCIES

     Revenues derived from the Company's major tenant, Kmart, amounted to
38.2%, 46.4% and 65.8% of combined revenues arising from lease agreements for
the years ended December 31, 1996, 1995 and 1994, respectively. Amounts
receivable from the major tenant were $47,044 and $14,982 at December 31, 1996
and 1995, respectively.


<PAGE>   30
30


   Approximate future minimum rent under operating leases for the years
subsequent to December 31, 1996, assuming no new or renegotiated leases or
option extensions, are as follows (in thousands):


<TABLE>
             <S>                                          <C>
             1997                                         $ 22,364
             1998                                           20,951
             1999                                           19,233
             2000                                           17,294
             2001                                           16,415
             2002 and thereafter                           116,421
                                                          --------
             Total                                        $212,678
                                                          ========
</TABLE>

   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, 1996, are as
follows (in thousands):


<TABLE>
             <S>                                          <C>
             1997                                          $   496
             1998                                              498
             1999                                              468
             2000                                              451
             2001                                              387
             2002 and thereafter                             8,404
                                                           -------      
             Total                                         $10,704
                                                           =======
</TABLE>

   Rent expense for operating leases for the years ended December 31, 1996, 1995
and 1994 was $456,838, $480,979 and $282,867, respectively.

<TABLE>
<CAPTION>
The Company has entered into the following commitments:
                                                                                 ANTICIPATED
                                                                  APPROXIMATE      FUNDING
                                                                     AMOUNT         DATE
                                                                  -----------    ----------
                                                                 (in thousands)
<S>                                                              <C>              <C>
Purchase and leaseback of 12-plex theater complex--Lawrence, KS      $4,200         6/97
Replacement of roofs on five retail buildings                         1,100       4/97-9/97
Payment of tenant construction allowance                                       
  on 10-plex theater complex--Melrose Park, IL(1)                     3,640         3/98
                                                                     ------    
Total                                                                $8,940       4/97-3/98
                                                                     ======    
</TABLE>


(1) Commitment entered into subsequent to December 31, 1996.

   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, 1996,
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 acquire.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

   The following disclosure of estimated fair value was determined using
available market information and appropriate valuation methodologies. This
disclosure is made as required by SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments".

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


<PAGE>   31


                                                                              31


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


<TABLE>
<CAPTION> 
                                          1996                        1995
                               --------------------------    -------------------------             
                               CARRYING        ESTIMATED     CARRYING       ESTIMATED
                                AMOUNT         FAIR VALUE     AMOUNT        FAIR VALUE
                               ---------       ----------    --------       ----------      
<S>                             <C>             <C>          <C>             <C>
UDAG Loan                       $ 8,193         $ 4,455      $ 8,284         $ 4,388
Fairlane Mortgage                12,450          12,450       12,450          12,450
Securitized Mortgage Loan        63,000          63,000       63,000          63,000
                                -------         -------      -------         -------
TOTAL                           $83,643         $79,905      $83,734         $79,838
                                =======         =======      =======         =======
</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,
1996 and 1995 is $61.285 million. The estimated fair value based upon the traded
value at the close of business on December 31, 1996 and 1995 was $60.672 million
and $50.867 million, respectively. Management believes that the carrying value
of the Convertible Notes as of December 31, 1996 and 1995 approximates the fair
value.

     The fair value estimates presented herein are based on information
available to management as of December 31, 1996 and 1995. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such financial instruments have not been comprehensively revalued
for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.

7. SIGNIFICANT NONCASH TRANSACTIONS

   Significant noncash transactions for the years ended December 31, 
1996, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
                                                                                        YEARS ENDED DECEMBER 31,              
                                                                           1996                  1995                 1994
                                                                           ----                  ----                 ----
                                                                                             (in thousands)
<S>                                                                        <C>                   <C>                   <C>
Conversion of Debentures into 147,646 shares
   of common stock, net of unamortized costs                                                     $2,400
Distributions declared not yet paid                                        $1,472                $1,509                $1,606
Acquisition of minority partner's interest in BTS                                                                      $3,015
Distribution of net liabilities to the sole shareholder of MCC                                                         $1,919
Donation of incentive stock shares, net of forfeitures                                                                 $  251
</TABLE>


8. STOCK REPURCHASE PLAN

     On January 19, 1995, the Company's Board of Directors approved a plan to
repurchase up to 755,000 shares of the Company's Common Stock. Under the plan,
any purchases of Common Stock are to be made in the open market or in privately
negotiated transactions subject to SEC rules and regulations regarding such
transactions. For the years ended December 31, 1996 and 1995, the Company
repurchased 91,500 and 376,500 shares, respectively, at an average cost of
$11.98 and $13.47 per share, respectively.

<PAGE>   32


32


9. DEFERRED INCOME

     In September 1995, the Company reached an agreement with its largest
tenant, Kmart, regarding several stores within its portfolio. Under the
agreement, the Company received a cash payment on October 31, 1995 totaling
approximately $2.56 million as consideration for the termination of leases on
five stores previously closed by Kmart. In addition, the agreement i.) provides
that the Company assume leases at three locations that were subleased by Kmart;
ii.)amends certain lease provisions on four other properties leased by Kmart;
and iii.) allows the Company to develop outlots at seven Kmart properties and
receive all revenue generated from these outlots. The cash payment has been
recorded as deferred income and is being amortized as income on a straight-line
basis over a six-year period which represents the weighted average remaining
base term of the leases involved.

     The Company has re-leased two of the closed stores at terms which
approximate the annual revenue received under the previous leases with Kmart and
intends to re-lease the remaining three. The Company has also leased two of the
outlots. Management intends to develop and lease the remaining outlots discussed
above. It is possible that the Company may be unable to re-lease the remaining
stores or develop and lease the outlots within the next several years. Such loss
of revenue may have a material effect on the Company's future cash flows and
results of operations.

10. PROPERTY ACQUISITIONS AND PRO FORMA INFORMATION

    During the three years ended December 31, 1996, the Company acquired 
the following shopping center properties:
<TABLE>
<CAPTION>

                                                                             GROSS
ACQUISITION                                                                LEASABLE
  DATE                  PROPERTY                LOCATIONS                    AREA                   COST
----------              --------                ---------                 ----------                ----  
                                                                                   (in thousands)
<S>                     <C>                     <C>                     <C>                     <C>
6/24/94                 Claridge Properties     Various                      4,446                $112,804
11/1/94                 Woodriver Plaza         Woodriver, IL                  112                   6,024
11/1/94                 Clifty Crossing         Columbus, IN                   191                   9,149
11/1/94                 Flatrock Village        Rushville, IN                   74                   2,418
11/1/94                 Cherry Tree Plaza       Washington, IN                 122                   5,293
11/1/94                 Shannon Station         Van Wert, OH                   146                   6,933
3/1/95                  Wal-Mart Expansion      Washington, IN                  21                   1,625
6/4/95                  Clinton Pointe SC       Clinton Twp., MI               135                  12,262
9/16/95                 The Shops at
                          Fairlane Meadows       Dearborn, MI                  138                  16,617
                                                                           -------                --------     
                                                                             5,385                $173,125
                                                                           =======                ========
</TABLE>


<PAGE>   33


                                                                              33


     The following unaudited table of pro forma information has been presented
as if (i) the Company's initial public offerings of stock and convertible
debentures, private placement of convertible notes and acquisitions of the
income-producing retail properties had occurred on January 1, 1994, and (ii) the
Company had qualified as a REIT, distributed all of its taxable income and,
therefore, had incurred no tax expense during the periods. In management's
opinion, all adjustments necessary to reflect the offering and related
transactions and subsequent acquisitions of property have been made. The pro
forma information is not necessarily indicative of what the actual results of
operations of the Company would have been had such transactions actually
occurred as of January 1, 1994, nor do they purport to represent the results of
the operations of the Company for future periods (in thousands except per share
data).

<TABLE>
<CAPTION>
                                           1995     1994
                                           ----     ----
 <S>                                     <C>      <C>
 Total revenues                          $35,118  $34,855
 Net income                              $ 1,270  $ 1,426
 Net income per share                    $  0.36  $  0.38
</TABLE>


11. QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data for the periods indicated are as
follows (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                               NET INCOME
                         REVENUES  NET INCOME  PER SHARE
                         --------  ----------  ----------     
 <S>                     <C>       <C>         <C>
 1995
 March 31                $ 7,648      $  641       $0.17
 June 30                   7,524         556        0.16
 September 30              8,178         437        0.13
 December 31               8,897         116        0.03
                         -------      ------       -----
 Total                   $32,247      $1,750       $0.49
                         =======      ======       =====
 1996
 March 31                $ 8,919      $   87       $0.03
 June 30                   8,702         120        0.03
 September 30              8,868         220        0.06
 December 31               8,474         172        0.05
                         -------      ------       -----
 Total                   $34,963      $  599       $0.17
                         =======      ======       =====
</TABLE>



<PAGE>   34


34



                                       
                  MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
      SCHEDULE XI--CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1996
                                (in thousands)
                                       

<TABLE>
<CAPTION>
                                                                                              
                                                                                               COST CAPITALIZED
                                                                   INITIAL COST TO COMPANY       SUBSEQUENT TO
                                                                   -----------------------        ACQUISITION
                                                                                 BUILDINGS &    --------------
STATE/TYPE (# OF PROPERTIES)                       ENCUMBRANCES       LAND       IMPROVEMENTS   IMPROVEMENTS
---------------------------                        ------------       ----       ------------   -------------
<S>                                                <C>               <C>          <C>            <C>
CALIFORNIA:
   Free Standing Retail Properties(1)                  *             $  634        $  5,704           
ILLINOIS:
   Community Shopping Centers(3)                    $35,193           4,073          36,653        $1,156
   Free Standing Retail Properties(10)                 *              1,772          24,694           270
INDIANA:
   Community Shopping Centers(5)                       *              2,210          20,795         1,735
   Free Standing Retail Properties(1)                                                 2,241            19
KANSAS:
   Community Shopping Centers(3)                       *                757           8,877            42
   Free Standing Retail Properties(8)                                   731           6,177            95
MARYLAND:
   Free Standing Retail Properties(1)                  *                282           2,534           177
MICHIGAN:
   Community Shopping Centers(3)                     12,450           3,501          31,503           235
MISSOURI:
   Community Shopping Centers(4)                       *                969          11,764           494
   Free Standing Retail Properties(1)                                    85             768           
OHIO:
   Community Shopping Centers(1)                       *                694           6,240            25
WISCONSIN
   Community Shopping Centers(7)                       *              2,045          21,535           376
   Free Standing Retail Properties(4)                                   543           4,886           299
                                                    -------         -------        --------        ------
                                                    $47,643         $18,296        $184,371        $4,923    
                                                    =======         =======        ========        ======
</TABLE>   


* Certain properties are included as collateral for $63 Million REMIC



     The changes in total real estate for the three years ended December 31,
1996 are as follows:


<TABLE>
<CAPTION>
                                                      1996               1995           1994    
                                                    -------             -------       --------
<S>                                                 <C>                 <C>           <C>
Balance at Beginning of Year                        $206,085            $174,173      $ 30,617
  Acquisitions                                                            30,504       143,168
  Improvements                                         1,505               1,408           388
                                                    --------            --------      --------
Balance at end of year                              $207,590            $206,085      $174,173
                                                    ========            ========      ========
</TABLE>

     The changes in accumulated depreciation for the three years ended 
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                                                      1996               1995           1994
                                                    --------             ------        --------   
<S>                                                 <C>                 <C>           <C>
Balance at Beginning of Year                        $  6,114            $  1,762      $  2,728

  Depreciation for year                                4,793               4,352         2,125
  Reclassification of predecessor balance                                               (3,091)
                                                    --------            --------      --------
Balance at end of year                              $ 10,907            $  6,114      $  1,762
                                                    ========            ========      ========
</TABLE>


<PAGE>   35
                                                                              35




<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>
   $   634      $  5,704   $  6,338    $   358         1980          6/94       40 YEARS

     4,073        37,809     41,882      2,296       1975-1989     6/94-11/9    40 YEARS
     1,772        24,964     26,736      1,581       1967-1977       6/94       40 YEARS

     2,210        22,530     24,740      1,243       1973-1989     6/94-11/9    40 YEARS
                   2,260      2,260        145         1974          6/94       40 YEARS

       757         8,919      9,676        540       1974-1976       6/94       40 YEARS
       731         6,272      7,003        414       1976-1978       6/94       40 YEARS

       282         2,711      2,993        160         1979          6/94       40 YEARS

     3,501        31,738     35,239      1,298       1970-1987     6/94-9/95    40 YEARS

       969        12,258     13,227        755       1973-1978       6/94       40 YEARS
        85           768        853         48         1974          6/94       40 YEARS

       694         6,265      6,959        324         1989         11/94       40 YEARS

     2,045        21,911     23,956      1,407       1960-1979       6/94       40 YEARS
       543         5,185      5,728        338       1968-1976       6/94       40 YEARS
   -------      --------   --------    -------
   $18,296      $189,294   $207,590    $10,907
   =======      ========   ========    =======

</TABLE>


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

None.


<PAGE>   36





36

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information called for by this Item 10 is incorporated herein by
reference to the information included under the captions "Election of Directors"
and "Management--Directors and Executive Officers" in the Company's definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders (the "Proxy
Statement").

ITEM 11. EXECUTIVE COMPENSATION

     The information called for by this Item 11 is incorporated herein by
reference to the information included in the Proxy Statement under the caption
"Management--Compensation of Executive Officers" and "--Compensation of
Directors".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information called for by this Item 12 is incorporated herein by
reference to the information included under the caption "Security Ownership of
Certain Beneficial Owners and Management Owners and Management" in the Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information called for by this Item 13 is incorporated herein by
reference to the information included under the caption "Certain Relationships
and Related Transactions" in the Proxy Statement.

                                    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 Consolidated 
               Financial Statement Schedule on page 18 of this Annual Report 
               on Form 10-K.

        (a)(2) Consolidated Financial Statement Schedule:
               See Index to Consolidated Financial Statements and 
               Supplementary Data on page 18 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:
               During the three-month period ending December 31, 1996, there 
               were no reports on Form 8-K filed.



<PAGE>   37


                                                                              37

                                   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/ ANTHONY S. GRAMER
Anthony S. Gramer                                          Date: March 17, 1997
Chief Executive Officer and President
-------------------------------------

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 
    ---------                                   -----                             ----
    <S>                                         <C>                             <C>
    /s/ ANTHONY S. GRAMER                       Chief Executive Officer,        March 17, 1997
    ---------------------------                 President and Director
    Anthony S. Gramer                           

    /s/ ELLIOTT J. BRODERICK                    Chief Accounting Officer        March 17, 1997
    ---------------------------
    Elliott J. Broderick

    /s/                  *                      Director                        March 17, 1997
    ---------------------------
    Robert D. Kemp, Jr.
 
    /s/                  *                      Director                        March 17, 1997
    ---------------------------
    William McBride III
 
    /s/                  *                      Director                        March 17, 1997
    ---------------------------
    William F. Pickard

    /s/                  *                      Director                        March 17, 1997
    --------------------------------------
    Richard T. Walsh

    * by: /s/ ANTHONY S. GRAMER
    --------------------------------------
    Anthony S. Gramer as attorney-in-fact
</TABLE>


<PAGE>   38


38
                          MALAN REALTY INVESTORS, INC.
                                   FORM 10-K
                                 EXHIBIT INDEX

  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)-- By-Laws of Malan Realty Investors, Inc. (incorporated herein by
         reference to Exhibit 3(b) filed with the 1994 Second Quarter 
         Form 10-Q).

  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)-- Employment 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)-- Warrant Agreement, dated as of June 17, 1994, between Malan Realty
         Investors, Inc. and National Westminster Bank Plc, New York Branch
         (incorporated herein by reference to Exhibit 10(f) filed with the 1994
         Second Quarter Form 10-Q).

 10(e)-- 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(f)-- 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(g)-- Treasury Lock Agreement between the Company and National Westminster
         Bank Plc, dated November 11, 1994, as amended on January 31, 1995
         (incorporated herein by reference to Exhibit 10(o) filed with the
         Company's Annual Report on Form 10-K for the year ended 
         December 31, 1994 (the "1994 Form 10-K")).

*10(h)-- Malan Realty Investors, Inc. 1995 Stock Option Plan for Non-Employee
         Directors (incorporated herein by reference to Exhibit 10(p) filed with
         the 1994 Form 10-K).


<PAGE>   39


                                                                              39
*10(i)--  Malan Realty Investors, Inc. 1995 Stock Compensation Plan for
          Non-Employee Directors (incorporated herein by reference to 
          Exhibit 10(q) filed with the 1994 Form 10-K).

 10(j)--  Treasury Lock Agreement between the Company and National Westminster
          Bank Plc, dated November 11, 1994, as amended on April 21, 1995
          (incorporated herein by reference to Exhibit 10(r) filed with the
          Company's Quarterly Report on Form 10-Q for the quarter ended 
          March 31, 1995 (the "1995 First Quarter Form 10-Q")).

 10(k)--  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(l)--  Credit Authorization Agreement and Demand Business Loan Note between
          the Company and National Bank of Detroit, dated as of April 24, 1995
          (incorporated herein by reference to Exhibit 10(t) filed with the 1995
          First Quarter Form 10-Q).

 10(m)--  Treasury Lock Agreement between the Company and National Westminster
          Bank Plc, dated November 11, 1994, as amended on May 16, 1995
          (incorporated herein by reference to Exhibit 10(u) filed with the
          Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
          1995 (the "1995 Second Quarter Form 10-Q").

 10(n)--  Treasury Lock Agreement between the Company and National Westminster
          Bank Plc, dated November 11, 1994, as amended on May 24, 1995
          (incorporated herein by reference to Exhibit 10(v) filed with the 1995
          Second Quarter Form 10-Q).

 10(o)--  Treasury Lock Agreement between the Company and National Westminster
          Bank Plc, dated November 11, 1994, as amended on May 31, 1995
          (incorporated herein by reference to Exhibit 10(w) filed with the 1995
          Second Quarter Form 10-Q).

 10(p)--  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).

 10(q)--  $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(r)--  $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(s)--  Mortgage Note, dated September 15, 1995, between NBD Bank, Payee, and
          Malan Realty Investors, Inc., Maker, for the purchase of The Shops at
          Fairlane Meadows (incorporated herein by reference to  
          Exhibit 10(aa) filed with the 1995 Third Quarter Form 10-Q/A).



<PAGE>   40
40

            11--   Statement re: Computation of Per Share Earnings
            21--   Subsidiaries
         23(A)--   Consent of Deloitte & Touche LLP
            24--   Powers of Attorney
            27--   Financial Data Schedule


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