<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

                  For the fiscal year ended DECEMBER 31, 1998

                                       OR

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

                          Commission File Number 0-2809

                      WESTERN INVESTMENT REAL ESTATE TRUST
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                CALIFORNIA                                94-6100058
-----------------------------------------             -------------------
     (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                  Identification No.)

2200 POWELL ST., STE. 600, EMERYVILLE, CA                   94608
-----------------------------------------             -------------------
 (Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:     (510) 597-0160
                                                      -------------------

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

                                                      Name of each exchange
      Title of each class                              on which registered
     --------------------                             ---------------------
             None                                             None

---------------------------------                  ----------------------------


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

                SHARES OF BENEFICIAL INTEREST, WITHOUT PAR VALUE
------------------------------------------------------------------------------
                                (Title of class)

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


                                       1

<PAGE>

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 this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting shares held by nonaffiliates of the
registrant on March 1, 1999, based on the reported closing sales price of the
Company's shares of beneficial interest on the American Stock Exchange on such
date, was $184,171,000. (The Company defines affiliates as those required to
report under Section 16 of the Securities Exchange Act of 1934).

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

             Shares of Beneficial Interest, No Par Value - 17,216,550 
                          shares as of March 1, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's proxy statement with respect to its 1999 Annual
Meeting of Shareholders which will be filed with the Commission regarding the
fiscal year covered by this Form 10-K are incorporated by reference in Part III,
Items 10, 11 and 12.


                                       2

<PAGE>


                      WESTERN INVESTMENT REAL ESTATE TRUST
                                  INDEX TO 10-K

<TABLE>

PART I                                                                                                                 PAGE
                                                                                                                       ----
<S>               <C>                                                                                                 <C>
Item 1            Business                                                                                             4-18
Item 2            Properties                                                                                          18-22
Item 3            Legal Proceedings                                                                                      23
Item 4            Submission of Matters to a Vote of Security Holders                                                    23

PART II

Item 5            Market for Registrant's Common Equity and Related Stockholder Matters                                  23
Item 6            Selected Financial Data                                                                                24
Item 7            Management's Discussion and Analysis of Financial Condition and Results of Operations               25-32
Item 7A           Quantitative and Qualitative Disclosures About Market Risk                                          32-33
Item 8            Consolidated Financial Statements                                                                   34-57
                  Consolidated Financial Statement Schedule                                                           58-59
                  Additional Information: 1998 Building Improvement and Leasing Related Cost Additions (unaudited)       60
Item 9            Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                  61

PART III

Item 10           Directors and Executive Officers of the Registrant                                                     61
Item 11           Executive Compensation                                                                                 61
Item 12           Security Ownership of Certain Beneficial Owners and Management                                         61
Item 13           Certain  Relationships and Related Transactions                                                        62

PART IV

Item 14           Exhibits, Financial Statement Schedules and Reports on Form 8-K                                     62-64
                  Consent of Independent Certified Public Accountants                                                    65
                  Signatures                                                                                             66

</TABLE>

                                            3

<PAGE>

                                     PART I

ITEM 1.  BUSINESS.

(a)      GENERAL DEVELOPMENT OF BUSINESS.

Western Investment Real Estate Trust ("Western") is a real estate investment
trust ("REIT") and qualifies as such under Sections 856 and 960 of the Internal
Revenue Code. Western was organized under the laws of the State of California in
1962 and commenced real estate operations in 1964.

In order that Western may continue to qualify as a REIT: (i) it must be taxable
as a domestic entity, (ii) the beneficial ownership must be held by 100 or more
persons, (iii) at least 95% of its gross income is derived from real estate
assets, dividends and interest, (iv) at least 75% of its gross income is derived
from real estate assets, (v) at the close of each quarter of the taxable year,
at least 75% of the value of its total assets is represented by real estate
assets, cash and government securities, and (vi) it must distribute annually to
its shareholders an amount equal to or exceeding 95% of its REIT taxable income.
Under the terms of its Declaration of Trust, Western is permitted to invest its
funds in the ownership of real estate, mortgages, deeds of trust and certain
financial instruments as permitted by law. Substantially all of Western's
funds have been invested in the ownership of real estate.

(b)      FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

Western evaluates performance and makes resource-allocation decisions on an
individual property basis. For financial reporting purposes, Western  has
grouped its properties into three segments: shopping centers, single-tenant
retail and other commercial properties. Investments principally consist of real
estate, but also include real estate secured loans (three) and a real estate
joint venture (one).

(c)      NARRATIVE DESCRIPTION OF BUSINESS.

Western; Western/Kienow's L.P., a Delaware limited partnership; a joint 
venture in which Western has a controlling financial interest as of December 
31, 1998; and Western's wholly owned subsidiary, WIRET Asset Management 
Services (a California corporation and a licensed real estate broker in the 
State of California) (collectively, "the Company"), is in the business of 
acquiring, managing, leasing and developing retail, commercial and industrial 
properties. Western is the sole general partner in Western/Kienow's L.P. and 
owned a 60% interest as of December 31, 1998. The Company employed 54 people 
at December 31, 1998.

Through an unconsolidated real estate subsidiary, Western owns and manages 10 
retail properties comprising 449,217 square feet of gross leasable area 
("GLA"). Throughout this 10-K document reference to the unconsolidated real 
estate subsidiary is with regard to this 10 property portfolio. The combined 
gross leasable area (GLA) at December 31, 1998 was 5.7 million square feet.

                                    4
<PAGE>


The Company's executive office is located in the San Francisco Bay Area at 2200
Powell Street, Suite 600, Emeryville California, 94608, and can be reached at
(510) 597-0160. Additionally, the Company maintains regional offices in Granite
Bay and Fresno, California and Portland, Oregon.

                                 THE PROPERTIES

As of December 31, 1998, the Company (and its unconsolidated real estate
subsidiary) had 66 real estate investments which were comprised of 52 properties
owned directly, 1 investment in a joint venture, 3 notes secured by real estate
and 10 properties owned by an unconsolidated real estate subsidiary of the
Company.

Effective October 30, 1998 the Company acquired control of Kienow's Food Stores,
Inc. ("Kienow's") whose principal assets are real estate properties (see Note
5 to consolidated financial statements). Ten of the seventeen properties
acquired will be converted to rental properties, the remaining seven will be
sold. The acquisition was accomplished using a newly formed DownREIT limited
partnership structure. The Company consolidates the DownREIT limited partnership
which accounts for its investment in Kienow's on the equity basis. The following
information, unless otherwise indicated, includes the ten Kienow's properties to
be retained. The portfolio at December 31, 1998 is as follows:


<TABLE>
<CAPTION>
                                                                Unconsolidated Real
                                 The Company                      Estate Subsidiary                      Combined
                          -------------------------           -------------------------         -------------------------
                                           Gross                                Gross                            Gross
                             No. of       Leasable               No of        Leasable              No. of      Leasable
                          Investments       Area              Investments       Area             Investments      Area
                          -----------------------------------------------------------------------------------------------
<S>                       <C>           <C>                   <C>             <C>                <C>           <C>
Shopping centers              40        4,713,673     (1)          6          376,063                46        5,089,736
Single-tenant retail           5          299,742                  4           73,154                 9          372,896
                              --        ---------                ---          -------                --        ---------
     Sub-total                45        5,013,415                 10          449,217                55        5,462,632
Commercial and other          11          234,985                ---              ---                11          234,985
                              --        ---------                ---          -------                --        ---------
     Total                    56        5,248,400                 10          449,217      (2)       66        5,697,617
                              ==        =========                ===          =======                ==        =========
</TABLE>

  (1) Included in Shopping Center Gross Leasable Area is 153,175 of square feet
      relating to a property under master lease. During 1998, the Company
      entered into a master leasehold interest in this property located in
      Dublin, California, that provides an option to purchase the property at a
      fixed price during the first quarter of 2001. Under the master lease,
      Western has full control of all leasing, management and capital
      expenditures decisions for the property. As part of the transaction,
      Western funded an $8.2 million, 8.5% fixed-rate first trust-deed loan
      secured by the property.

  (2) This total does not include 7 properties held for sale, representing
      96,278 GLA, owned by an unconsolidated real estate subsidiary of the
      Company. Four of these properties were sold by March 1, 1999.

The average size of neighborhood and community shopping centers and other retail
properties owned by the Company and subsidiary at December 31, 1998 was
approximately 120,000 square feet of gross leasable area ("GLA").


                                          5

<PAGE>



The Company (and its unconsolidated real estate subsidiary) leases a substantial
portion of its total GLA on a long-term, triple net basis. As of December 31,
1998, approximately 58% of total retail GLA was leased to anchor tenants. Of
this space, 70% was leased to anchor tenant grocery or drug stores.
Additionally, as of that date, approximately 73% of the Company's (and its
unconsolidated real estate subsidiary's) Annualized Base Rent (as herein
defined) was derived from national or regional retail tenants. The following
tables set forth, as of December 31, 1998, certain information with respect to
the properties owned by the Company (and its unconsolidated real estate
subsidiary):



                                       6

<PAGE>


Shopping Centers & Retail-Anchor/Non-Anchor

<TABLE>
<CAPTION>

                                                           Unconsolidated                             Company
                                                             real estate                             portfolio
                                                 Company     subsidiary                  Percentage   monthly
                                                portfolio    portfolio        Combined       of        base
Type of Tenant Space (5)                           GLA         GLA (1)         GLA (1)      GLA       rent (2)
---------------------------------------------------------------------------------------------------------------
<S>                                             <C>        <C>                <C>        <C>         <C>
Anchor                                          3,137,379      49,323         3,186,702     58%      $1,810,086
Non-anchor                                      1,521,045     175,369         1,696,414     31%      $1,827,825
---------------------------------------------------------------------------------------------------------------
   Sub-total                                    4,658,424     224,692         4,883,116     89%      $3,637,911
---------------------------------------------------------------------------------------------------------------
Occupied & Operating as Kienow's Food Store           ---     205,276           205,276      4% 
Unleased                                          354,991      19,249           374,240      7% 
---------------------------------------------------------------------------------------------------------------
Total                                           5,013,415     449,217         5,462,632    100% 
===============================================================================================================

</TABLE>


<TABLE>
<CAPTION>

                                              Unconsolidated                                         Annualized
                                                real estate                                            base
                                                 subsidiary                             Percentage     rent
                                                  portfolio    Combined    Annualized       of         per
                                                   monthly      monthly     base rent   annualized    leased
                                                  base rent    base rent     leased        base       square
Type of Tenant Space (5)                          (1)(2)(3)    (1)(2)(3)     space (4)     rent        foot
--------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>          <C>          <C>          <C>
Anchor                                            $ 16,583    $1,826,669   $21,920,028     49%       $ 6.88
Non-anchor                                        $101,707    $1,929,532   $23,154,384     51%       $13.65
---------------------------------------------------------------------------------------------------------------
   Sub-total                                      $118,290    $3,756,201   $45,074,412    100%       $ 9.23
---------------------------------------------------------------------------------------------------------------
Occupied & Operating as Kienow's Food Store   
Unleased                                      
--------------------------------------------------------------------------------------------------------------
Total                                         
==============================================================================================================
</TABLE>

Shopping Centers and Retail-National/Regional/Local

<TABLE>
<CAPTION>


                                                          Unconsolidated                             Company 
                                                            real estate                             portfolio
                                                Company     subsidiary                 Percentage    monthly 
                                               portfolio    portfolio        Combined      of         base   
Type of Tenant Space (6)                          GLA         GLA (1)         GLA (1)     GLA        rent (2)
-------------------------------------------------------------------------------------------------------------
<S>                                           <C>         <C>               <C>        <C>         <C>
National                                      2,930,452      46,835         2,977,287      55%     $1,967,527
Regional                                        894,102      24,705           918,807      17%     $  745,638
Local                                           833,870     153,152           987,022      18%     $  924,746
---------------------------------------------------------------------------------------------------------------
   Sub-total                                  4,658,424     224,692         4,883,116      89%     $3,637,911
---------------------------------------------------------------------------------------------------------------
Occupied & Operating as Kienow's Food Store         ---     205,276           205,276       4%   
Unleased                                        354,991      19,249           374,240       7%   
-------------------------------------------------------------------------------------------------------------
Total                                          5,013,415    449,217         5,462,632     100%   
=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                 Unconsolidated                                         Annualized
                                                   real estate                                            base
                                                    subsidiary                             Percentage     rent
                                                     portfolio    Combined    Annualized       of         per
                                                      monthly      monthly     base rent   annualized    leased
                                                     base rent    base rent     leased        base       square
Type of Tenant Space (6)                             (1)(2)(3)    (1)(2)(3)     space (4)     rent        foot
-----------------------------------------------------------------------------------------------------------------
<S>                                              <C>             <C>          <C>          <C>          <C>
National                                            $ 16,927     $1,984,454   $23,813,448      53%       $ 8.00
Regional                                            $ 21,013     $  766,651   $ 9,199,812      20%       $10.01
Local                                               $ 80,350     $1,005,096   $12,061,152      27%       $12.22
---------------------------------------------------------------------------------------------------------------
   Sub-total                                        $118,290     $3,756,201   $45,074,412     100%       $ 9.23
---------------------------------------------------------------------------------------------------------------
Occupied & Operating as Kienow's Food Store   
Unleased                                      
-----------------------------------------------------------------------------------------------------------------
Total                                         
=================================================================================================================
</TABLE>

(1)  Excludes non-core portfolio and leaseholds held by unconsolidated real
     estate subsidiary.
(2)  "Monthly base rent" represents the minimum monthly rent in effect on
     December 31, 1998.
(3)  Excludes monthly base rent for GLA operating & occupied by Kienow's Food
     Stores.
(4)  "Annualized Base Rent" represents the annualized minimum monthly rent in
     effect on December 31, 1998.
(5)  Tenants leasing 10,000 square feet or more are defined as "Anchor" tenants.
(6)  "National" tenants are tenants with locations in multiple states.
     "Regional" tenants are tenants with three or more locations in one state,
     and "Local" tenants are tenants with fewer than three locations and operate
     exclusively within one state.


                                       7

<PAGE>

The combined portfolios of the Company (and its unconsolidated real estate
subsidiary) of 63 properties at December 31, 1998 is summarized as follows:

          Shopping Centers, Retail and Commercial

<TABLE>
<CAPTION>
                                                                                                                          Unconsol-
                                                                       Unconsolidated                        Company    idated real
                                                            Company        real                              portfolio     estate 
                                                            portfolio     estate       Combined  Percentage   monthly    subsidiary
                                                              GLA       Subsidiary      GLA(1)    of GLA(1)    base       portfolio
                                                                         portfolio                             rent(2)     monthly 
                                                                          GLA (1)                                           base 
                                                                                                                            rent
                                                                                                                         (1)(2)(3)
 Total Portfolio
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>            <C>       <C>        <C>          <C>
 Shopping Centers (exclusive of Kienow's occupied &
 operating stores)                                            4,713,673    243,941      4,957,614    87%    $3,769,174   $118,290 
 Shopping Center space occupied by operating Kienow's
 Grocery                                                            ---    132,122        132,122     2%          ---         --- 
----------------------------------------------------------------------------------------------------------------------------------
 Total Shopping Center                                        4,713,673    376,063      5,089,736    89%    $3,769,174   $118,290 
==================================================================================================================================
 Single Tenant Retail (exclusive of Kienow's occupied &                                                      
 operating stores)                                              299,742        ---        299,742     6%      151,491    $    --- 

 Single Tenant Retail space occupied by operating Kienow's                                                                        
 Grocery                                                            ---     73,154         73,154     1%          ---         --- 
----------------------------------------------------------------------------------------------------------------------------------

 Total Single Tenant Retail                                     299,742     73,154        372,896     7%    $ 151,491         --- 
==================================================================================================================================

 Commercial                                                     234,985        ---        234,985     4%    $ 291,671    $    --- 
----------------------------------------------------------------------------------------------------------------------------------
 Total                                                        5,248,400    449,217      5,697,617   100%    $4,212,336   $118,290 
==================================================================================================================================
<CAPTION>
                                                             Combined     Annualized                Annualized
                                                              monthly     base rent     Percent of   base rent
                                                             base rent     leased       Annualized  per leased
 Total Portfolio                                             (1)(2)(3)    space (4)     base rent   square foot
--------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>           <C>         <C>
 Shopping Centers (exclusive of Kienow's occupied &
 operating stores)                                            $3,887,464   $46,649,568       90%      $9.41
 Shopping Center space occupied by operating Kienow's
 Grocery                                                            ---            ---       ---        ---
--------------------------------------------------------------------------------------------------------------------

 Total Shopping Center                                       $3,887,464    $46,649,568       90%      $9.41
====================================================================================================================
 Single Tenant Retail (exclusive of Kienow's occupied &      
 operating stores)                                            $ 151,491     $1,817,892        3%      $6.06

 Single Tenant Retail space occupied by operating Kienow's                                
 Grocery                                                            ---            ---       ---        ---
--------------------------------------------------------------------------------------------------------------------

 Total Single Tenant Retail                                     151,491     $1,817,892        3%      $6.06
====================================================================================================================
 Commercial                                                     291,671     $3,500,050        7%     $14.89
--------------------------------------------------------------------------------------------------------------------
 Total                                                       $4,330,626    $51,967,510      100%      $9.24
====================================================================================================================
</TABLE>
(1) Excludes non-core portfolio and leaseholds held by unconsolidated real
    estate subsidiary. 

(2) "Monthly base rent" represents the minimum monthly rent in effect on 
    December 31, 1998. 

(3) Excludes monthly base rent for GLA operating & occupied by Kienow's Food 
    Stores. 

(4) "Annualized Base Rent" represents the annualized minimum monthly rent in 
    effect on December 31, 1998.


                                       8



<PAGE>

The following table summarizes the composition of the real estate investments
owned by the Company and its unconsolidated real estate subsidiary as of
December 31, 1998 by type based on amounts invested:

<TABLE>
<CAPTION>
                                                              Company Portfolio             
                                                                                Percentage  
                                                  Number of       Amount of         of      
                                                 Investments   Investments(1)   Investment  
----------------------------------------------- -------------- ---------------- ------------
<S>                                             <C>            <C>              <C>         
Property Types
     Real Estate Investments
          Shopping Centers                                 37         $395,387          93% 
          Single Tenant Retail                              2            3,649           1% 
          Commercial                                        5           11,147           3% 
          Mortgage Notes                                    3           16,160           4% 
----------------------------------------------- -------------- ---------------- ------------
                                                           47         $426,343          96% 
=============================================== ============== ================ ============
     Real Estate Properties Held for Sale
          Shopping Centers                                  1          $ 2,032           7% 
          Single Tenant Retail                              3           10,549          35% 
          Commercial                                        5           17,707          58% 
----------------------------------------------- -------------- ---------------- ------------
                                                            9          $30,288         100% 
=============================================== ============== ================ ============
     Total Portfolios
          Shopping Centers                                 38         $397,419          84% 
          Single Tenant Retail                              5           14,198           3% 
          Commercial                                       10           28,854           6% 
          Mortgage Notes                                    3           30,288           6% 
----------------------------------------------- -------------- ---------------- ------------
                                                           56         $470,759         100% 
=============================================== ============== ================ ============

                                                  Unconsolidated Real Estate Subsidiary Portfolio

                                                                                     Percentage
                                                    Number of         Amount of          of
                                                   Investments     Investments(1)    Investment
----------------------------------------------- ------------------ ----------------  -------------
<S>                                             <C>                <C>              <C>
Property Types
     Real Estate Investments
          Shopping Centers                                      8         $ 27,287(2)         69%
          Single Tenant Retail                                  4           12,439            31%
          Commercial                                          ---              ---             0%
          Mortgage Notes                                      ---              ---             0%
----------------------------------------------- ------------------ ----------------  -------------
                                                               12         $ 39,726           100%
=============================================== ================== ================  =============
     Real Estate Properties Held for Sale
          Shopping Centers                                    ---              ---
          Single Tenant Retail                                ---              ---
          Commercial                                            7            4,613           100%
----------------------------------------------- ------------------ ----------------  -------------
                                                                7          $ 4,613           100%
=============================================== ================== ================  =============
     Total Portfolios
          Shopping Centers                                      8          $27,287(2)         62%
          Single Tenant Retail                                  4           12,439            28%
          Commercial                                            7            4,613            10%
          Mortgage Notes                                      ---              ---             0%
----------------------------------------------- ------------------ ----------------  -------------
                                                               19(3)       $44,339           100%
=============================================== ================== ================  =============
</TABLE>

(1)  Reflects the original cost plus capital improvements, before depreciation
     and amortization.

(2)  Includes Subsidiary investment in 2 leasehold properties.

(3)  These 19 properties are comprised of 10 core retail properties, 
     7 available for sale commercial properties and 2 retail property 
     leasehold interests

                                       9

<PAGE>

     The following table summarizes the composition of Leasable Square Feet 
and Occupancy Percentage as of December 31, 1998, by "Same Store" properties 
versus real estate acquired during 1998.


<TABLE>
<CAPTION>
                                                                                       Unconsolidated Real Estate
                                              Company Portfolio                           Subsidiary Portfolio
                                           Number of   Leasable Square   Occupancy      Number of   Leasable Square   Occupancy
Property Types                            Investments       Feet        Percentage(1)  Investments        Feet       Percentage(1)
----------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>              <C>            <C>          <C>              <C>          
  "Same Store"  Real Estate 
     Investments (2)
       Shopping centers                         35       4,091,654         93.2%              ---             ---           ---
       Single-tenant retail                      5         299,742        100.0%              ---             ---           ---
       Commercial & other                       11         234,985         96.1%              ---             ---           ---
----------------------------------------------------------------------------------------------------------------------------------
                                                51       4,626,381         93.8%              ---             ---           ---
==================================================================================================================================
  Real Estate Investments Acquired 
    During 1998
      Shopping centers                           5         622,019         87.7%                6         376,063          59.7%
      Single-tenant retail                     ---             ---          ---                 4          73,154           0.0%
----------------------------------------------------------------------------------------------------------------------------------
                                                 5         622,019         87.7%               10         449,217          49.9%
==================================================================================================================================
    Combined                                    56       5,248,400         93.1%               10         449,217          49.9%
==================================================================================================================================
</TABLE>

(1)  Once a space is subject to an executed lease, the space is then included in
     occupied space. A space continues to be incorporated in our occupied space
     until: (1) the related lease expires and the tenant is no longer in legal
     possession or (2) the related lease is formally terminated and the tenant
     is no longer in legal possession.
(2)  "Same Store" real estate investments include those investments owned for
     the entire two-year period ended December 31, 1998.


                                      10

<PAGE>

<TABLE>
<CAPTION>

       Weighted Average Age of the Company's Real Estate Properties
       ---------------------------------- ----------------- -----------------
                                                                Weighted
                    Property                 Number of        Average Age
                      Type                Investments (1)    (in years) (2)
       ---------------------------------- ----------------- -----------------
         <S>                              <C>               <C>
Shopping centers                              38                14.3
Single-tenant retail                           5                19.5
Commercial                                    10                15.9
------------------------------------------ ------ -------------------
   Total/Weighted Average                     53                15.0
========================================== ====== ===================
</TABLE>
     (1)  This table does not include the Company's 3 investments in mortgages.
     (2)  This calculation is weighted by Gross Leasable Area and is based on
          the original construction date of the property. As such, any expansion
          or renovation occurring subsequent to the original construction date
          is not reflected in this calculation.


COMPETITION

There is considerable competition for the consumer dollar in most of the areas
where the Company's community shopping center properties are located. The
Company believes that its major anchor tenants are strong competitors and will
continue to draw consumers to its shopping centers.

The Company competes for quality properties with other investors and engages in
a continuing effort to identify desirable properties for acquisition. If the
number of prospective buyers for the types of properties the Company considers
acquiring increases, the prices of such properties may increase and the
yields may decrease. The Company believes it can continue to compete effectively
in the current real estate environment because of its experienced staff and
management team.

The Company competes for tenants primarily on the basis of location, rental
rates, services provided and the design and condition of the properties. In some
of the geographic areas in which the Company owns properties, the available
supply of space for lease exceeds the demand by prospective tenants. In order to
compete effectively, the Company employs experienced property and marketing
managers and leasing agents.

MAJOR TENANTS

The Company's principal tenants include substantial, well-recognized retailers
such as Food-4-Less, Nob Hill Foods, Pak 'N Save, Raley's, Rite Aid
(Thrifty-Payless), Safeway and Save Mart Supermarkets.

                                       11
<PAGE>

At December 31, 1998, Raley's (including its subsidiary, Nob Hill Foods) was 
the Company's most significant tenant. A grocery and drug retailer, it was a 
lessee in 22 of the Company's properties and accounted for 20% of the 
Company's 1998 total revenues. Raley's, a privately owned company, currently 
operates 116 stores in Northern California and Nevada. The Raley's 
organization has provided audited financial statements to the Company 
indicating that its sales exceeded $2.2 billion in its fiscal year ending 
June 27, 1998. In addition to the audited financial statements, which the 
Company uses to monitor Raley's financial position and results of operations, 
the Company receives monthly sales reports for properties leased to Raley's 
and uses this information to monitor store performance. Additionally, the 
Company is authorized to provide Raley's audited financial statements to 
Moody's Investors Service and Standard & Poor's, the Company's rating 
agencies. As of December 31, 1998, the Company's Senior Notes carry 
"investment grade" ratings from Moody's Investors Service (Baa3) and Standard 
& Poor's (BBB-).

The following table provides the location, size and expiration of the Raley's
and Nob Hill leases:

<TABLE>
<CAPTION>
                                                                                             Lease
                     Location                       Gross Leasable Area                 Expiration Date
                  -------------                     -------------------                 ---------------
         <S>      <C>                               <C>                                 <C>
         1.       Watsonville, CA                         26,500                            8/12/02
         2.       Fallon, NV                                   0 (1)                        6/30/03
         3.       Modesto, CA                             49,800                            5/31/04
         4.       Fair Oaks, CA                           59,231                            3/31/06
         5.       Yuba City, CA                           61,842                            9/01/08
         6.       Carson City, NV                         59,018                            8/31/12
         7.       Redding, CA                             60,000                            5/31/14
         8.       Yreka, CA                               60,000                           11/30/14
         9.       Chico, CA                               61,046                            4/30/15
         10.      Winnemucca, NV                          63,024                           12/31/15
         11.      Fallon, NV                              60,114                            2/28/16
         12.      Reno, NV                                61,046                            3/31/16
         13.      Ukiah, CA                               61,046                            6/30/16
         14.      Elko, NV                                61,000                            1/31/17
         15.      Vallejo, CA                             60,114                            9/30/17
         16.      Folsom, CA                              60,114                           12/31/17
         17.      Turlock, CA                             60,114                            2/28/18
         18.      Grass Valley, CA                        60,114                            4/30/18
         19.      Granite Bay, CA                         60,114                            6/30/18
         20.      Suisun City, CA                         60,114                            5/31/19
         21.      Oroville, CA                            59,885                            6/01/19
         22.      Hollister, CA                           47,915                           11/21/19
</TABLE>

         (1)   Although Raley's no longer occupies this Fallon, Nevada,
               property, it guarantees the J.C. Penney and Hub leases and makes
               supplemental lease payments to the Company.



                                       12

<PAGE>

The following table summarizes information on the Company's ten most significant
tenants as of December 31, 1998:

<TABLE>
<CAPTION>
                                                                        Company                            Percentage
                                                  Number                  GLA            Percentage of      of  Total
             Tenant                              of Stores           (Square Feet)        Company GlA        Revenue
             ------                              ---------           -------------       -------------     ----------
<S>                                              <C>                 <C>                 <C>               <C>
Raley's.................................                23  (1)        1,253,164                   25%           20%
Safeway/Pak `N Save.....................                 4               193,403                    4%            4%
Home Savings of America.................                 6                76,193                    2%            4%
Save Mart...............................                 7               228,678                    4%            3%
Rite Aid(Thrifty-PayLess )..............                12               304,984                    6%            3%
Food-4-Less (Fleming Foods).............                 3               142,625                    3%            2%
Blockbuster Video.......................                 7                42,228                    1%            1%
Scolari's Supermarkets..................                 1                50,451                    1%            1%
Hollywood Video.........................                 5                32,394                    1%            1%
Heald College...........................                 1                47,150                    1%            1%
                                                                       ---------                   ---           ---
     Total..............................                               2,371,270                   48%           40%
                                                                       =========                   ===           ===
</TABLE>

(1)      As of December 31, 1998, 22 of the Company's properties were subject to
         lease agreements with Raley's (and it's subsidiary Nob Hill Foods).
         During the 12 months ended December 31, 1998, the Company received
         rental income from this tenant in connection with lease agreements
         covering 23 of the Company's properties. During 1998, the Company
         disposed of one of the properties (Nob Hill Foods located in 
         Newman, California.

No single property investment accounted for more than 4.3% of the Company's 
total revenues in 1998.

The Company receives sales and other information on a monthly, quarterly or
annual basis from its retail tenants, including Raley's, under leases which
provide for such reports. The Company uses this information to monitor the
payment of percentage rents where leases so provide. Virtually all of the
Company's existing leases include at least one of the following provisions for
payment of additional rent: (1) scheduled fixed increases, (2) percentage rent
based on tenants' gross sales, or (3) CPI-based escalation clauses. The Company
endeavors to structure leases on a triple-net basis with the lessees being
responsible for most operating expenses, such as real estate taxes, certain
types of insurance, utilities, normal repairs and maintenance. To the extent
such provisions cannot be negotiated and incorporated into a lease and in regard
to vacant space, the Company pays such expenses from current operating income.

                                      13

<PAGE>

INSURANCE COVERAGE

Most of the Company's leases require the tenant to be responsible for, or
reimburse the Company for, liability insurance coverage on the properties. The
Company maintains umbrella liability insurance on all of its properties and
monitors tenant compliance with liability insurance coverage requirements.

 While the Company believes its properties are adequately insured, the Company
does not carry earthquake, (except for the Windsor, California, property where
the secured lender requires earthquake insurance) flood or pollution coverage.
However, most major anchor tenants are required to rebuild or repair their
leased premises if damaged or destroyed, regardless of the cause. Most of the
Company's properties are located in areas of California and Nevada where
earthquakes have been known to occur. In the event of a major earthquake,
Company properties in the area of the earthquake could suffer substantial damage
or destruction. Since it commenced real estate operations in 1964, the Company
has not incurred any material expense nor, to its knowledge, have any of its
properties incurred any material damage from earthquakes or floods.

 The Company periodically considers the merits of purchasing earthquake
insurance for its properties. To date, the Company has not purchased earthquake
insurance because of: (i) the high premiums and deductibles (ii) the Company's
geographically diversified portfolio that reduces the likelihood of material
loss as a consequence of earthquakes. Furthermore, the majority of properties in
the portfolio principally consist of relatively new, single-story buildings.

TENANT LEASE EXPIRATIONS FOR ALL PROPERTIES

The tables on the following pages set forth information with respect to anchor
and non-anchor tenant lease expirations as of December 31, 1998:


                                      14

<PAGE>


                                 ANCHOR TENANTS (1) OF THE COMPANY
<TABLE>
<CAPTION>
                                                                                               Annualized     Average Base
                                                                 Gross       Percentage of      Base Rent       Rent Per
                                                Number of      Leasable      Total Leased         Under        Square Foot
                   Lease Year                    Leases          Area       Gross Leasable       Expiring       of Leases
                   Expiration                  Expiring (2)    Expiring      Area Expiring      Leases (3)       Expiring
                   ----------                  ------------    --------     --------------     -----------    ------------
  <S>                                          <C>             <C>          <C>                <C>            <C>
  1999....................................           1          103,284            3.1%        $   280,500        $ 2.72 
  2000....................................           7          117,912            3.5%          1,482,252         12.57 
  2001....................................           6          191,231            5.7%            951,708          4.98 
  2002....................................           5           93,110            2.8%            381,324          4.10 
  2003....................................          10          242,728            7.3%          1,660,368          6.84 
  2004....................................           6          139,607            4.2%            978,276          7.01 
  2005....................................           2           73,518            2.2%            713,568          9.71 
  2006....................................           5          220,186            6.6%          1,645,128          7.47 
  2007....................................           2           43,904            1.3%            479,016         10.91 
  2008....................................           5          154,687            4.6%          1,505,964          9.74 
  Thereafter..............................          45        1,948,267           58.5%         15,791,137          8.11 
                                                    --        ---------          ------        -----------         ----- 
  Total/Weighted Average.................           94        3,328,434          100.0%        $25,869,241        $ 7.77
                                                    ==        =========          ======        ===========         ===== 
</TABLE>

                                NON-ANCHOR TENANTS OF THE COMPANY

<TABLE>
<CAPTION>
                                                                                                                Average Base
                                                                Gross      Percentage of    Annualized Base       Rent Per
                                              Number of       Leasable     Total Leased       Rent Under       Square Foot of
                 Lease Year                    Leases           Area      Gross Leasable       Expiring            Leases
                 Expiration                  Expiring (2)     Expiring    Area Expiring       Leases (3)          Expiring
                 ----------                  ------------    ---------    --------------    ---------------    --------------
   <S>                                       <C>             <C>          <C>               <C>                <C>
   Month-to-month.........................       36             52,454         3.4%           $  780,192           $14.87
   1999...................................      110            221,840        14.3%            2,975,681            13.41
   2000...................................      123            231,852        14.9%            3,421,874            14.76
   2001...................................      123            226,813        14.6%            3,243,420            14.30
   2002...................................       83            201,379        12.9%            3,085,705            15.32
   2003...................................      110            257,171        16.5%            4,265,952            16.59
   2004...................................       27             76,149         4.9%            1,178,796            15.48
   2005...................................       16             64,774         4.2%              925,236            14.28
   2006...................................        6             18,874         1.2%              432,132            22.90
   2007...................................       13             42,720         2.7%              937,296            21.94
   2008...................................       13             54,593         3.5%              905,292            16.58
   Thereafter.............................       35            107,134         6.9%            2,329,980            21.75
                                                ---          ---------       ------          -----------           ------
   Total/Weighted Average.................      695          1,555,753       100.0%          $24,481,556           $15.74
                                                ===          =========       ======          ===========           ======
</TABLE>

(1)  Anchor tenants are defined as tenants leasing 10,000 square feet or more of
     leasable area.
(2)  Does not reflect extension options granted to certain tenants.
(3)  Annualized Base Rent at lease expiration.



                                      15
<PAGE>



<TABLE>
<CAPTION>
                          LEASE EXPIRATION DATA FOR ANCHOR (1) AND NON-ANCHOR
                                        TENANTS OF THE COMPANY
   -------------------------------------------------------------------------------------------------
                                                Percentage of
                                                   Total
                                                   Leased       Annualized
                                     Gross          Gross       Base Rent
                     Number of      Leasable      Leasable        Under        Average Base Rent Per
   Lease Year         Leases          Area          Area         Expiring     Square Foot of Expiring
   Expiration       Expiring (2)    Expiring       Expiring     Leases (3)           Leases
   ----------       -----------    ------------    --------    ------------   -----------------------
   <S>              <C>            <C>             <C>         <C>            <C>
   month-to-month       36            52,454         1.07%      $  780,192           $14.87
      1999             111           325,124         6.66%       3,256,181            10.02
      2000             130           349,764         7.16%       4,904,126            14.02
      2001             129           418,044         8.56%       4,195,128            10.04
      2002              88           294,489         6.03%       3,467,029            11.77
      2003             120           499,899        10.24%       5,926,320            11.86
      2004              33           215,756         4.42%       2,157,072            10.00
      2005              18           138,292         2.83%       1,638,804            11.85
      2006              11           239,060         4.89%       2,077,260             8.69
      2007              15            86,624         1.77%       1,416,312            16.35
      2008              18           209,280         4.28%       2,411,256            11.52
   Thereafter           80         2,055,401        42.08%      18,121,117             8.82
                     ------        ---------       -------     -----------           ------
Total/Weighted
    Average            790         4,884,187(4)    100.00%     $50,350,798           $10.31
                     ======        =========       =======     ===========           ======
</TABLE>

<TABLE>
<CAPTION>
                         LEASE EXPIRATION DATA FOR ANCHOR (1) AND NON-ANCHOR
                  TENANTS OF THE UNCONSOLIDATED REAL ESTATE SUBSIDIARY
   ------------------------------------------------------------------------------------------------
                                                Percentage of
                                                   Total
                                                   Leased       Annualized
                                     Gross          Gross       Base Rent
                     Number of      Leasable      Leasable        Under        Average Base Rent Per
   Lease Year         Leases          Area          Area         Expiring     Square Foot of Expiring
   Expiration       Expiring (2)    Expiring       Expiring     Leases (3)           Leases
   ----------       -----------    ------------    --------    ------------   ---------------------
   <S>              <C>            <C>             <C>         <C>            <C>
   month-to-month       19            47,466        21.15%        $290,190            $6.11
      1999              12            18,480         8.23%         147,415             7.98
      2000              17            38,757        17.27%         270,878             6.99
      2001               5            23,263        10.37%         145,512             6.26
      2002               7            47,600        21.21%         251,616             5.29
      2003               1             6,385         2.85%          20,400             3.19
      2004               3             9,687         4.32%         112,920            11.66
      2005               2             8,015         3.57%         104,400            13.03
      2006              --                            --              --               0.00
      2007               1             8,967         4.00%          39,600             4.42
      2008              --                --          --              --               0.00
   Thereafter            1            15,796         7.04%          84,095             5.32
                     ------        ---------       -------     -----------           ------
 Total/Weighted
   Average              68           224,416(5)    100.00%      $1,467,026            $6.54
                     ======        =========       =======     ===========           ======
</TABLE>

(1)  Anchor tenants are defined as tenants leasing 10,000 square feet or more of
     leasable area.
(2)  Does not reflect extension options granted to certain tenants.
(3)  Annualized Base Rent at lease expiration.
(4)  Total does not include 364,213 square feet GLA of unleased space (354,991
     square feet GLA of shopping center and 9,222 square feet GLA of 
     commercial).
(5)  Total does not include 132,122 square feet GLA of space occupied and
     operating as Kienow's, neither does it include 19,249 square feet of GLA of
     unleased space.

                                      16
<PAGE>

PROPERTY OPERATIONS

The Company is a fully integrated REIT that provides full property operation 
services to all but two of its properties. Property services includes 
property management, marketing and leasing services. Direct property 
management provides for regular interaction between the Company and its 
tenants and close supervision of its properties.

In order to facilitate its present and future property operating activities, 
the Company maintains three branch offices which are centrally located to the 
properties. The offices are located in Granite Bay, and Fresno, California; 
and Portland, Oregon.

Direct management permits the Company to provide value added services to 
its tenants. For example, the Company's marketing staff works with the 
Company's tenants on promotional and advertising activities to draw consumers 
to the shopping centers. These activities help the Company attract and retain 
the national, regional and local retail tenants which serve the Company's 
markets. The Company believes the cost of direct property management and 
leasing is generally less expensive than employing independent property 
management, marketing and leasing firms due to lower commissions and fees and 
certain economies of scale.

One of the Company's properties is managed by an independent property manager 
and one property is managed by the Company's joint venture partner. 
Commercial Real Estate Service (CRES) provides management services with 
respect to Serra Center, located in Colma, California, for fees equal to 3.5% 
of gross rents. CRES is an affiliate of the co-owner of Serra Center and has 
been managing the property for approximately 20 years. Gramor Development 
Washington, LLC, provides management services for the partnership's shopping 
center, located in Blaine, Washington, for fees equal to 4% of gross rents. 
In the event the operating return of the property is not adequate to provide 
the Company its preferential return, management fees are limited to $2,000 
per month for such period. With the exception of Gramor Development, none of 
the above-named property managers are affiliated with the Company, its 
trustees, officers or any shareholder owning 5% or more of the Company's 
shares.

Repairs and maintenance of the Company's properties not undertaken by tenants 
under the terms of the Company's triple-net leases are performed by 
independent contractors not affiliated with the Company, its trustees or 
officers, or any shareholder owning 5% or more of the Company's shares.

POTENTIAL ENVIRONMENTAL RISKS

Investments in real property create a potential for environmental liability 
on the part of the current owner and potentially on the part of the prior 
owner of such real property. If hazardous substances are discovered on or 
emanating from any of the Company's properties, the Company and/or others may 
be held strictly liable for all costs and liabilities relating to the 
clean-up of such hazardous substances.

In order to mitigate environmental risks, in 1989 the Company adopted a 
policy of obtaining at least a Phase I environmental study (a preliminary 
site assessment which does not include environmental sampling, monitoring or 
laboratory analysis) on each property it seeks to acquire. From time to time, 
when the Company deems it appropriate, it has obtained independent 
environmental analyses on properties acquired prior to 1989. Although the 
Company has no knowledge that any material environmental contamination has 
occurred, no assurance can be given that hazardous substances are


                                      17
<PAGE>

not located under any of its current properties or any of the former 
properties. The Company carries no insurance coverage expressly for the type 
of environmental risk described above.

ITEM 2.   PROPERTIES.

Property information is presented on the following pages.


                                      18
<PAGE>

Item 2:   Properties

<TABLE>
<CAPTION>
                                                                    Minimum Rent                            
                                                                 ------------------     12/31/98           Year        Year Last
      Name                                      Location           1998       1997    Occupancy (1)     Completed      Renovated
      -----------------------------------   -----------------    -------    -------   -------------   --------------   ---------
                                                                  (in thousands)
      <S>                                  <C>                  <C>        <C>       <C>             <C>              <C>
I.    Minimum Rents

      Shopping Center
      ---------------
      Anderson Square                       Anderson, CA         $   371    $   350       95.33%           1979
      Angel's Camp Town Center              Angel's Camp, CA         598        595       98.51%           1986
      Skypark Plaza Shopping Center         Chico, CA              1,372      1,371       93.30%           1985           1991
      Coalinga Shopping Center              Coalinga, CA             298        293       74.95%           1977
      Serra Center (30% interest)           Colma, CA                531        467      100.00%           1972
      Mercantile Row Shopping Center        Dinuba, CA               745        770       98.93%           1990
      Dublin Shopping Center                Dublin, CA               288          -       69.14%           1970
      Laguna 99 Shopping Center             Elk Grove, CA          1,424      1,426       98.12%           1993
      Northridge Shopping Center            Fair Oaks, CA            714        763       92.60%           1958           1986
      Commonwealth Square Shopping Center   Folsom, CA             1,822      1,561       98.08%           1988
      Victorian Walk Shopping Center        Fresno, CA               775        804       91.41%           1982           1994
      Country Gables Shopping Center        Granite Bay, CA        1,413      1,245       99.14%           1988
      Pinecreek Shopping Center             Grass Valley, CA       1,000        952       96.09%           1988
      Heritage Oak Shopping Center          Gridley, CA              374        436       64.09%           1981
      Centennial Plaza Shopping Center      Hanford, CA            1,211      1,210      100.00%           1991
      Plaza 580 Shopping Center             Livermore, CA          1,492      1,444       98.52%        1993/1996
      Canal Farms Shopping Center           Los Banos, CA            869        849       94.12%           1988
      Mission Ridge Shopping Center         Manteca, CA            1,149      1,141       94.19%           1993
      Century Center                        Modesto, CA            1,544          -       96.76%           1979
      San Antonio Center (3)                Mountain View, CA          -        396         SOLD           1959           1990
      Currier Square Shopping Center        Oroville, CA             773        979       83.24%           1969           1989
      Eastridge Plaza Shopping Center       Porterville, CA          458        466       80.88%           1985
      Belle Mill Landing                    Red Bluff, CA            690        699       88.24%           1982           1995
      Cobblestone Shopping Center           Redding, CA              901        919       85.53%           1981
      Kmart Center                          Sacramento, CA           403        362       91.40%           1964           1986
      Elverta Crossing Shopping Center      Sacramento, CA         1,282      1,172       99.00%           1991           1993
      Heritage Park Shopping Center         Suisun, CA             1,517      1,400       90.02%           1989
      Heritage Place Shopping Center        Tulare, CA               968        888       97.20%           1986
      Blossom Valley Plaza                  Turlock, CA            1,086      1,107       93.93%           1988           1991
      Ukiah Crossroads Shopping Center      Ukiah, CA                911        876       95.83%           1986
      Park Place Shopping Center            Vallejo, CA            1,546      1,577       87.48%           1987
      Lakewood Village                      Windsor, CA            1,675          -       95.33%           1995
      Yreka Junction                        Yreka, CA                851        708       98.37%           1984
      Raley's Shopping Center               Yuba City, CA            922        914      100.00%           1963           1995
      Eagle Station Shopping Center         Carson City, NV          907        857       93.54%           1982
</TABLE>

                                      19
<PAGE>
              Item 2:   Properties (continued)

<TABLE>
<CAPTION>
                                                                   Minimum Rent
                                                                 ----------------       12/31/98          Year         Year Last
      Name                                      Location           1998       1997    Occupancy (1)     Completed      Renovated
      -----------------------------------   -----------------    -------    -------   -------------   --------------   ---------
                                                                  (in thousands)
      <S>                                   <C>                  <C>        <C>       <C>             <C>              <C>
      Elko Junction Shopping Center         Elko, NV               1,515      1,285       93.32%      1979/1994/1996
      Dodge Center (4)                      Fallon, NV               270        224      100.00%           1976           1995
      Caughlin Ranch Shopping Center        Reno, NV               1,132      1,102       97.03%           1990           1991
      North Hills Shopping Center           Reno, NV                 899        843       97.31%           1986
      West Town                             Winnemuca, NV            462        461      100.00%           1978           1991
      Blaine International Center           Blaine, WA               243          -       86.78%           1991
                                                                 -------    -------

                Sub-total - Shopping Center                      $37,398    $32,911
                                                                 -------    -------

      Single Tenant
      -------------
      Carpeteria (3)                        Concord, CA          $     0    $   133        SOLD            1963
      Luckys (2)                            El Cerrito, CA           241        241        SOLD            1964           1983
      Acapulco Y Los Arcos (3)              Fresno, CA                 -         93        SOLD            1972
      Nob Hill General Store (4)            Hollister, CA            480        480      100.00%           1994
      Nob Hill General Store (2)            Newman, CA               305        313        SOLD            1995
      Luckys (3)                            Santa Maria, CA            -         15        SOLD            1962           1995
      Nob Hill General Store (4)            Watsonville, CA          195        195      100.00%           1982
      Raley's Supermarket (4)               Fallon, NV               401        401      100.00%           1991
                                                                 -------    -------
                Sub-total - Single Tenant                        $ 1,622    $ 1,871
                                                                 -------    -------

      Commercial
      ----------
      Old Dominion (2)                      Commerce City, CO       $102        $62        SOLD            1984           1995
      Coast Savings & Loan (4)              Cupertino, CA            216        216      100.00%           1980
      Heald Business College (4)            Milpitas, CA             513        513      100.00%           1987           1995
      Coast Savings & Loan                  Monterey,CA              490        450      100.00%           1963
      Redwood II (4)                        Petaluma, CA              99         25       77.90%           1985
      Coast Savings & Loan (4)              Salinas, CA              336        321      100.00%           1937
      Coast Savings & Loan (Market St)      San Francisco, CA        317        291      100.00%           1964
      Coast Savings & Loan (Taraval St)     San Francisco, CA        357        328      100.00%           1975
      3450 California St                    San Francisco, CA        253        230      100.00%           1957           1987
      Viking Freight Systems (4)            Santa Clara, CA          454        443      100.00%           1978
      Coast Savings & Loan                  Santa Cruz, CA           194        184      100.00%           1980
                                                                 -------    -------
                Sub-total - Commercial                           $ 3,330    $ 3,063
                                                                 -------    -------
                     Total Minimum Rent                          $42,350    $37,845
                                                                 =======    =======
</TABLE>


                                      20
<PAGE>
              Item 2:   Properties (continued)
<TABLE>
<CAPTION>
                                                                  Percentage Rents  
                                                                 ------------------     12/31/98           Year        Year Last
                                                                  1998       1997    Occupancy (1)     Completed      Renovated
                                                                 -------    -------   -------------   --------------   ---------
                                                                  (in thousands)
      <S>                                  <C>                  <C>        <C>       <C>             <C>              <C>
II.   Percentage Rent

      SHOPPING CENTER/RETAIL
      Anderson Square                      Anderson, CA          $    47    $    45       95.33%           1979
      Skypark Plaza Shopping Center        Chico, CA                   1          -       93.30%           1985
      Coalinga Shopping Center             Coalinga, CA               37         67       74.95%           1977
      Northridge Shopping Center           Fair Oaks, CA              25         48       92.60%           1958           1986
      Commonwealth Square Shopping Center  Folsom, CA                  1          7       98.08%           1988
      Victorian Walk Shopping Center       Fresno, CA                  -          4       91.41%           1982           1994
      Country Gables Shopping Center       Granite Bay, CA            38          1       99.14%           1988
      Pinecreek Shopping Center            Grass Valley, CA            3          -       96.09%           1988
      Heritage Oak Shopping Center         Gridley, CA                31         39       64.09%           1981
      Century Center                       Modesto, CA               144          -       96.76%           1979
      Cobblestone Shopping Center          Redding, CA                 5         14       85.53%           1981
      Kmart Center                         Sacramento, CA             41         62       91.40%           1964           1986

      Heritage Park Shopping Center        Suisun, CA                  1          1       90.02%           1989
      Blossom Valley Plaza                 Turlock, CA                11          -       93.93%           1988
      Ukiah Crossroads Shopping Center     Ukiah, CA                   5          -       95.83%           1986
      Park Place Shopping Center           Vallejo, CA                 6          9       87.48%           1987
      Eagle Station Shopping Center        Carson City, NV            13         21       93.54%           1982
      Dodge Center (4)                     Fallon, NV                  5         14      100.00%           1976           1995
      Caughlin Ranch Shopping Center       Reno, NV                    -          6       97.03%           1990           1991
      Blaine International Center          Blaine, WA                 13          -       86.78%           1991
                                                                 -------    -------
                Sub-total - Shopping Center                      $   427    $   338
                                                                 -------    -------

      SINGLE TENANT
      Kmart Center                         Napa, CA                  $57        $88      100.00%           1964
      Luckys (3)                           Santa Maria, CA             -         43        SOLD            1962           1995
      Nob Hill General Stores (4)          Watsonville, CA            55         83      100.00%           1982
                                                                 -------    -------
                Sub-total - Single Tenant                        $   112    $   214
                                                                 -------    -------
      Total Percentage Rent                                      $   539    $   552
                                                                 =======    =======
</TABLE>


                                                21
<PAGE>
      Item 2:   Properties (continued)

<TABLE>
<CAPTION>
                                                                      Direct
                                                                    Financing 
                                                                     Leases(5)
                                                                 ----------------       12/31/98          Year         Year Last
                                                                  1998       1997    Occupancy (1)     Completed      Renovated
                                                                 -------    -------   -------------   --------------   ---------
                                                                  (in thousands)
      <S>                                  <C>                   <C>        <C>       <C>             <C>              <C>
III.  Direct Financing Leases

      Kmart Center (6)                     Napa, CA                  $27        $66      100.00%           1964
      Viking Freight Systems (7)           Santa Clara, CA            78         89      100.00%           1978
                                                                 -------    -------
         Total Direct Financing Lease Income                     $   105    $   155
                                                                 =======    =======
</TABLE>

(1)  Once a space is subject to an executed lease, the space is then included 
     in occupied space.  A space continues to be included in our occupied 
     space until:  1) the related lease expires and the tenant is no longer in 
     legal possession, or 2) the related lease is formally terminated and the 
     tenant is no longer in legal possession.
(2)  Sold in 1998.
(3)  Sold in 1997.
(4)  Property is being held for sale
(5)  Included in Other Income.
(6)  Kmart Center, Napa, California, is accounted for as a direct financing 
     lease.  During 1998, the Company received $281,000 in minimum lease 
     payments, of which $27,000 comprised direct financing income and $254,000 
     is a non-revenue receipt accounted as principal reduction.  During 1997, 
     the Company received $281,000 in minimum lease payments, of which $66,000 
     comprised direct financing income and $215,000 is a non-revenue receipt 
     accounted as principal reduction.  This lease expires January 1999.
(7)  Viking Freight Systems, Santa Clara, California, is accounted for as a 
     direct financing lease.  During 1998., the Company received $189,000 in 
     minimum lease payments, of which $78,000 comprised direct financing 
     income and $111,000 is a non-revenue receipt accounted as principal 
     reduction. During 1997, the Company received $189,000 in minimum lease 
     payments, of which $89,000 comprised direct financing income and $100,000 
     is a non-revenue receipt accounted as principal reduction.  This lease 
     expires September 2003.


                                      22
<PAGE>

ITEM 3.           LEGAL PROCEEDINGS.

The Company is involved in various legal actions arising in the normal course of
business. After evaluation of these matters, including consideration of legal
counsel's evaluation, management is of the opinion that their outcome will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity.

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

There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.

                                    PART II

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

Principal Market:

The shares of beneficial interest of the Company, without par value, are listed
on the American Stock Exchange under the symbol "WIR". The following table sets
forth the high and low closing prices of the shares as reported by the American
Stock Exchange:

<TABLE>
<CAPTION>
Quarter Ended                              High                   Low             Dividends
-------------                              ----                   ---             ---------
<S>                                      <C>                    <C>               <C>
March 31, 1997                           $13 1/2                $12 1/2             $0.28
June 30, 1997                             14                     12 3/8              0.28
September 30, 1997                        13 7/8                 12 13/16            0.28
December 31, 1997                         14 3/4                 12 11/16            0.28

March 31, 1998                           $15 5/16               $13 1/2             $0.28
June 30, 1998                             15 1/16                12 5/8              0.28
September 30, 1998                        14                     10 7/8              0.28
December 31, 1998                         13                     11 1/16             0.28

Through
  February 28, 1999                      $12 7/16               $10 13/16           $0.28(1)
</TABLE>
                       (1)  Paid March 15, 1999

Approximate number of equity security holders:

<TABLE>
<CAPTION>
                  Title of Class                                                     Number of Record Holders  
                  --------------                                                     -------------------------
                                                                                     (as of December 31, 1998)
<S>                                                                                  <C>

                  Shares of Beneficial Interest, without par value                             1,974
</TABLE>

The Company estimates that there were over 18,000 beneficial owners of shares,
including owners whose shares were held in brokerage and trust accounts.


                                      23

<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                           1998         1997          1996           1995         1994
   --------------------------------------------------------------------------------------------------------------------------
   <S>                                                <C>           <C>            <C>           <C>          <C>      
   (In thousands, except  per share and share data)

   OPERATING DATA:

   Revenues (1).....................................  $    53,354   $    47,551    $    47,789   $    46,290  $    43,308
   Income before gains on sales of real                                                                                
      estate investments and extraordinary item.....       11,141         9,602         11,116        10,257        9,911
   Net income ......................................       13,616        12,880         12,231        10,304       15,266
   Funds from operations (2)........................       23,435        22,392         22,274        21,017       20,084
   Cash flows from operating activities.............       23,266        23,145         21,956        20,203       20,212
   Cash dividends paid .............................       19,300        19,207         19,102        18,882       18,683

   BASIC AND DILUTED EARNINGS PER SHARE DATA:

   Income before gains on sales of real estate                                                                    
      investments and extraordinary item - Basic....  $      0.65   $      0.56    $      0.65   $      0.61  $      0.59
   Net income - Basic...............................         0.79          0.75           0.72          0.61         0.92

   Income before gains on sales of real estate                                                                           
      investments and extraordinary item - Diluted..         0.64          0.56           0.65          0.61         0.59
   Net income - Diluted.............................         0.78          0.75           0.72          0.61         0.92

   Cash dividends paid..............................         1.12          1.12           1.12          1.12         1.12

   Weighted average number
      of shares outstanding -Basic...................  17,206,868    17,144,674     17,055,496    16,861,324   16,682,675
   Weighted average number                                                                                         
      of shares outstanding -Diluted.................  17,487,443    17,158,292     17,068,701    16,861,324   16,690,498

   BALANCE SHEET DATA:

   Real estate investments (3).......................     500,485   $   399,144    $   400,711   $   395,800  $   389,094
   Total assets......................................     426,891       337,521        339,629       344,571      347,172
   Fixed-rate debt...................................     134,803       124,766        111,207       114,609      116,961
   Bank line.........................................      85,700        19,100         32,250        29,250       23,645
   Shareholders' equity..............................     179,624       186,249        191,948       196,799      202,684
</TABLE>
     (1) Revenues comprise minimum rents, percentage rents, recoveries from
         tenants, interest income and other income.

     (2) The Company considers Funds From Operations (FFO) to be an alternate
         measure of an equity REIT's performance since FFO does not recognize
         depreciation and amortization of real estate assets as reductions of
         income from operations. For a further discussion of FFO, please refer
         to Management's Discussion and Analysis on page 25.

     (3) Real estate investments reflect acquisition costs and capitalized costs
         of improvements before deduction of depreciation and amortization,
         investment in unconsolidated real estate subsidiary and mortgage notes
         receivable.


                                      24

<PAGE>

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

INTRODUCTION

The following discussion and analysis of the consolidated financial condition
and results of operations of Western Investment Real Estate Trust and its
affiliates (the Company) should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report on
Form 10-K. Historical results and percentage relationships set forth herein are
not necessarily indicative of future operations.

CAUTIONARY STATEMENTS

The discussions in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contain certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 which reflect
management's current views with respect to future events and financial
performance. Such forward-looking statements are subject to certain risks and
uncertainties including, but not limited to, the effects of future events on the
Company's financial performance; the risk that the Company may be unable to
finance its planned acquisition and development activities; risks related to the
retail or commercial businesses in which the Company's properties compete,
including the potential adverse impact of external factors such as inflation,
consumer confidence, unemployment rates and consumer tastes and preferences;
risks associated with the Company's development activities, such as the
potential for cost overruns, delays and lack of predictability with respect to
the financial returns associated with these development activities; the risk of
potential increase in market interest rates from current rates; and risk
associated with real estate ownership, such as the potential adverse impact of
environmental contamination or changes in the local economic climate on the
revenues and the value of the Company's properties.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $23,268,000, $23,277,000, and
$21,956,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Operating cash flows exceeded dividends paid of $19,300,000, $19,207,000 and
$19,102,000, for 1998, 1997 and 1996, respectively.

Net cash used in investing activities was $68,737,000 for the year ended 
December 31, 1998. Included in this net amount are funds invested in (i) the 
acquisition of three shopping centers ($35,843,000), (ii) Kienow's Food 
Stores, Inc., a Portland-based grocery store operator that owns a portfolio 
of real estate ($26,438,000), (iii) two mortgage notes ($14,869,000), and 
(iv) improvements to real estate ($3,728,000). These investments were funded 
substantially from net draws on the Company's unsecured bank line of credit 
(the Bank Line) and $11,729,000 in proceeds from the 1997 and 1998 sales of 
properties.

Net cash provided by financing activities was $45,518,000 for the year ended
December 31, 1998. The principal source of financing came from advances on the
Company's Bank Line.


                                      25

<PAGE>

On April 28, 1998, the Company increased its unsecured Bank Line from $55
million to $75 million. On October 19, 1998, the Company increased its Bank Line
to $100 million and negotiated a reduction in the interest rate from the London
Interbank Offered Rate (LIBOR) plus 1.22% to an initial rate of LIBOR plus
1.15%. This commitment extends to September 30, 2001. The purpose of the Bank
Line is to provide working capital to facilitate the funding of operating cash
needs of the Company, including property acquisitions and development. At
December 31, 1998, the balance outstanding on the Bank Line was $85,700,000. The
Company intends to renew or replace this facility when it expires.

As of December 31, 1998, the Company's aggregate outstanding indebtedness of
$220,503,000 consisted of $124,794,000 in fixed-rate, long-term unsecured Senior
Notes, $85,700,000 of borrowings under the Company's variable-rate Bank Line and
$10,009,000 under a mortgage note assumed in the acquisition of the Windsor
property. Incurrence of debt by the Company, in excess of the Bank Line of
$100,000,000 and the above-mentioned Senior Notes, would be subject to
limitations imposed under the Company's Senior Notes and Bank Line.

The Company's ratio of debt to undepreciated cost of real estate on December 31,
1998 was 44%. The Company's interest coverage ratio for the year ended December
31, 1998 was 2.8 times.

As of December 31, 1998, only one of the Company's properties was security for a
mortgage. However, if amounts due under the Bank Line are not paid at maturity,
the lender, at its option, can require the Company to provide security interests
in Company properties. The Company has an ownership interest in two properties
where the co-owner is obligated under a note that is secured by the property.

The Company anticipates that cash flows provided by operations will continue to
provide adequate funds for all current principal and interest payments as well
as dividend payments required to maintain its status as a real estate investment
trust under the Internal Revenue Code. Cash on hand, proceeds from the sale of
properties held for sale and borrowings under the Bank Line, as well as other
debt and equity alternatives, are expected to provide the necessary funds to
achieve future growth.

At December 31, 1998, the Company owned nine properties that were held for sale.
These properties total 355,000 leasable square feet and have a net aggregate
carrying value of $22,836,000.

FUNDS FROM OPERATIONS

Industry analysts and the Company consider Funds From Operations (FFO) to be an
alternate measure of an equity REIT's performance since such measure does not
recognize depreciation and amortization of real estate assets as reductions of
income from operations. Historical cost accounting for real estate assets
implicitly assumes that the value of real estate assets diminishes predictably
over time. Yet, since real estate values have historically risen or fallen with
market conditions, the Company, along with most industry investors, has
considered presentation of operating results for real estate companies that use
historical cost accounting to be less than fully informative.

The National Association of Real Estate Investment Trusts (NAREIT) defines FFO
as net income 


                                      26

<PAGE>

calculated in accordance with generally accepted accounting principles (GAAP) 
plus depreciation and amortization of assets uniquely significant to the real 
estate industry, reduced by gains and increased by losses on (i) sales of 
property and (ii) extraordinary and unusual items. FFO does not represent 
cash flows from operations as defined by GAAP and should not be considered a 
substitute for net income as an indicator of the Company's operating 
performance, or for cash flows as a measure of liquidity. Furthermore, FFO as 
disclosed by other REITs may not be comparable to the Company's calculation 
of FFO.

The table below provides a reconciliation of net income in accordance with GAAP
to FFO as calculated under NAREIT guidelines for the years ended December 31,
1998, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                        ----------------------------------------------------
                                                                              1998             1997              1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                    <C>               <C>
Net Income.........................................................           $13,616          $12,880           $12,231
Less:    Gains on sales of real estate investments.................            (2,475)          (4,898)           (1,115)
Plus:    Real property depreciation................................            10,763            9,799             9,886
         Amortization of tenant improvement costs..................             1,152              826               836
         Amortization of leasing commission costs..................               379              323               436
         Loss on early extinguishment of debt......................               ---            1,620               ---
         Management restructuring charge ..........................               ---            1,842               ---
                                                                        ----------------------------------------------------

Funds From Operations..............................................           $23,435          $22,392           $22,274
                                                                        ====================================================

</TABLE>

The dividend payout ratio for the years ended December 31, 1998, 1997 and 1996
(calculated as dividend distributions made by the Company for the applicable
period divided by FFO), was 82%, 86% and 86%, respectively.

FFO increased $1,043,000 to $23,435,000 in 1998 from $22,392,000 in 1997. The
1998 increase of 5% is primarily the result of increased revenues partially
offset by increased interest and other operating expenses. FFO increased
$118,000 to $22,392,000 in 1997 from $22,274,000 in 1996.

RESULTS OF OPERATIONS

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

Net income increased $736,000 to $13,616,000, or $0.78 per share (calculated
using diluted weighted average shares outstanding), in 1998, from $12,880,000,
or $0.75 per share (calculated using diluted weighted average shares
outstanding), in 1997. This 6% increase in net income is principally due to (i)
increased revenues, (ii) the absence, in 1998, of the management restructuring
charge and loss on early extinguishment of debt incurred in 1997, partially
offset by, (iii) the reduction in gains on sales of properties of $2,423,000
between the years and increased interest and other operating expenses.

During 1998, the Company entered into agreements to acquire or control the
operations of several shopping centers. These transactions are the primary
contributing factors for increased revenues, increased interest expense and
property related expenses:


                                     27

<PAGE>

     -        On January 21, 1998, the Company acquired a 214,770 square foot
              shopping center located in Modesto, California, for $17.5 million.

     -        On February 9, 1998, the Company acquired a 126,500 square foot
              shopping center located in Windsor, California, for $20.9 million.

     -        On May 29, 1998, the Company entered into agreements to redevelop
              and finance, by initially funding a $22.2 million participating
              mortgage, a shopping center located in Walnut Creek, California. A
              separate agreement also grants the Company a right of first offer
              to purchase the property. The participating mortgage, secured by
              the property, is expected to earn a fixed interest rate of 9.0%
              plus 25% of the property's cash flow, as defined.

     -        On September 9, 1998, the Company entered into a master leasehold
              interest in a 154,000 square foot shopping center located in
              Dublin, California, that provides an option to purchase the
              property at a fixed price during the first quarter of 2001. Under
              the master lease, Western has full control of all leasing,
              management and capital-expenditure decisions for the property. As
              part of the transaction, Western funded an $8.2 million, 8.5%
              fixed-rate first trust-deed loan secured by the property.

     -        On September 25, 1998, through a joint venture arrangement, the
              Company acquired a 127,600 square foot shopping center located in
              Blaine, Washington for $7.6 million.

     -        On October 30, 1998, the Company completed the acquisition of
              Kienow's Food Stores, Inc., a Portland, Oregon-based corporation
              (See Note 5 to the consolidated financial statements).

The Company continually assesses its portfolio for possible dispositions of
properties that no longer fit its investment criteria due to limited prospects
for growth in income, property type or for other reasons. Two single-tenant
retail properties, one industrial property and a parcel of undeveloped land were
sold in 1998. The sale of these properties resulted in partial offsets to
increases in revenues, interest and property-related expenses:

     -        On June 23, 1998, the Company sold a 58,704 square foot parcel of
              undeveloped land located in North Reno, Nevada, for $292,000, at a
              loss of $ 30,000.

     -        On November 19, 1998, the Company sold a 20,300 square foot
              industrial property located in Commerce City, Colorado, for
              $1,100,000, at a loss of $19,000.

     -        On December 23, 1998, the Company sold a 41,013, square foot
              freestanding grocery store located in Newman, California, for
              $3,536,000, at a gain of $445,000.

     -        On December 29, 1998, the Company sold a 34,400, square foot
              freestanding grocery store located in El Cerrito, California, for
              $2,752,000, at a gain of $2,079,000.


                                      28

<PAGE>

The average occupancy for all property types (exclusive of the Kienow's
portfolio-see Note 5) at December 31, 1998 was 93.8% as compared with the
December 31, 1997 percentage of 92.2%.

Other income increased $276,000 to $981,000 in 1998 from $705,000 in 1997,
mainly due to fees earned on the Walnut Creek development.

The following table provides information on interest costs for the years ended
December 31, 1998, 1997 and 1996 (in thousands, except percentages):

<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                        ------------------------------------------------
                                                                                  1998          1997             1996
             -----------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                  <C>               <C>
             Interest incurred.......................................         $13,689        $11,523           $11,417
             Interest capitalized....................................             275             12               128
                                                                        ------------------------------------------------
             Interest expense........................................         $13,414        $11,511           $11,289
                                                                        ------------------------------------------------
                                                                        ------------------------------------------------

             Interest paid...........................................         $12,562         $9,714           $11,217
                                                                        ================================================

             Weighted average interest rate on Bank Line.............            6.83%          7.27%             7.33%
</TABLE>

Other operating expense increased $1,401,000 during 1998 to $4,412,000 from
$3,011,000 in 1997. This increase is due primarily to (i) increased compensation
costs for increased staffing associated with the Company's enhanced acquisition,
development and property operations capabilities and (ii) the master lease
payment on the Dublin shopping center (see above).

General and administrative expense increased $992,000 during 1998 to $2,733,000
from $1,741,000 in 1997. This increase is primarily due to increased
compensation costs.

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

Net income increased $649,000 to $12,880,000, or $0.75 per share (calculated
using diluted weighted average shares outstanding), in 1997, from $12,231,000,
or $0.72 per share (calculated using diluted weighted average shares
outstanding), in 1996. This 5% increase in net income is principally due to 1997
gains on sales of properties of $4,898,000 versus gains on sale of $1,115,000 in
1996, partially offset by a $1,842,000 management restructuring charge and a
$1,620,000 extraordinary loss resulting from the early extinguishment of debt.

Minimum rents decreased $528,000 to $37,845,000 in 1997 from $38,373,000 in
1996. This decrease primarily reflects the vacancy of the Petaluma property as
well as five property dispositions. The properties sold in 1997 were three
single-tenant retail properties, one multi-tenant retail property that was part
of a large mixed-use center, and one small commercial property. The average
occupancy for all property types at December 31, 1997 was 92.2% as compared to
the December 31, 1996 percentage of 93.7%.

Interest income increased $336,000 to $361,000 in 1997 from $25,000 in 1996,
primarily due to the interest earned on short-term investment of a portion of
the 1997 Senior Note sales proceeds until the Convertible Debentures were
redeemed. Redemption occurred following a 30-day notification period to holders
of the Convertible Debentures.


                                      29

<PAGE>

Interest expense increased $222,000 to $11,511,000 in 1997 from $11,289,000 
in 1996, primarily as a result of increased borrowings during the 30-day 
notification period prior to redeeming the Convertible Debentures, partially 
offset by reduced borrowings under the Bank Line and reduced interest rates.

Other operating expenses decreased $470,000 to $3,011,000 in 1997 from
$3,481,000 in 1996. The most significant factor in this 14% decrease is a
reduction in leasing and property management expenses.

As part of the 1997 management restructuring, participants in the Trustee
Emeritus and Death and Disability Programs have terminated their participation
in these programs. The most significant portion of the management restructuring
charge relates to this participation termination.

The early extinguishment loss results from the write-off of deferred debt
issuance costs relating to the October 1997 redemption of Convertible
Debentures.

INFLATION

Substantially all of the Company's leases with tenants contain provisions that
somewhat mitigate the impact of inflation. These provisions include, but are
not limited to, clauses providing for increases in base rent and/or clauses
enabling the Company to receive percentage rent based on tenants' gross sales.
Additionally, substantially all leases require the tenant to pay their
proportionate share of operating expenses, including common area maintenance
and real estate taxes, thereby reducing the Company's exposure to increased
costs and operating expenses resulting from inflation.

POTENTIAL FACTORS AFFECTING FUTURE OPERATING RESULTS

At December 31, 1998, the Company had total debt outstanding with a carrying
value of $220,503,000, including $85,700,000 outstanding under its Bank Line.
The Bank Line represents approximately 37% of the Company's total liabilities
and approximately 17% of the Company's historical cost of real estate owned.

At the present time, borrowings under the Company's Bank Line bear interest at
a floating rate. The Company recognizes that its results from operations may be
impacted negatively by future increases in interest rates.

While the Company has historically been successful in renewing and reletting
space, the Company is subject to the risk that certain leases expiring in 1999
and beyond may not be renewed or the terms of renewal may be less favorable to
the Company than current lease terms. The Company expects to incur costs in
making improvements or repairs to its portfolio of properties required by new or
renewing tenants and expects to incur costs associated with brokerage
commissions payable in connection with the reletting of space.

Many other factors affect the Company's actual financial performance and may
cause the Company's future results to be markedly outside of the Company's
current expectations.


                                      30

<PAGE>

COMPUTER SYSTEMS AND THE MILLENNIUM

As a result of computer programs being written using two digits (rather than
four digits) to define the applicable year, many computer systems will not be
able to process information beyond December 31, 1999. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures. At December 31, 1998, a significant portion of the Company's
Local Area Network and Wide Area Network are Year 2000 compliant.

During 1998, the Company undertook the conversion and upgrade of its management
information system. The Company expects to spend approximately $600,000 by the
end of 1999. It is anticipated that the new system will support planned future
growth and increase efficiencies relating to property operations. These costs
will be recorded as assets and amortized.

Additionally, the Company undertook a survey of its key tenants, vendors, banks
and other parties the Company has significant business dealings with to
determine if reliance on these external sources could interrupt Company
operations. Based on the results of this survey, the Company does not expect its
operations to be significantly impacted. However, contingency plans are being
considered in order to attempt to mitigate any potential disruption to business
operations as a result of non-compliant systems utilized by third parties.

INCOME TAX STATUS AND TAXABILITY OF DIVIDENDS

The Company has elected to be taxed as a real estate investment trust under the
applicable provisions of the Internal Revenue Code and the comparable California
statutes. Under such provisions, the Company will not be taxed on that portion
of its taxable income currently distributed to shareholders, provided that at
least 95% of its real estate investment trust taxable income is so distributed.
Management believes that the Company has qualified, and will continue to
qualify, for tax purposes as a real estate investment trust. As the Company
intends to make distributions in excess of taxable income, no provision is
required to be made for federal or state income taxes in the accompanying
financial statements.

Federal taxable income of the Company prior to the dividend-paid deductions for
the three years ended December 31, was: $14,619,000 in 1998; $14,327,000 in
1997; and $16,187,000 in 1996. The difference between net income for financial
reporting purposes and taxable income results primarily from different methods
of accounting for leases, depreciation of investment properties and gains on
property dispositions.


                                      31

<PAGE>

The table below summarizes the taxability of distributions and dividends paid
during the years ended December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>


                                                           Year Ended December 31,
                                          ----------------------------------------------------
                                                1998               1997             1996
----------------------------------------- ------------------ ----------------- ---------------
<S>                                       <C>               <C>                <C>            
Ordinary income...................              78.1%             67.5%             80.2%

Return of capital.................              20.3%             23.2%             12.6%

Capital gains.....................               1.6%              9.3%              7.2%
                                         ----------------- ----------------- -----------------

Total.............................             100.0%            100.0%            100.0%
                                         ================= ================= =================
</TABLE>

No assurances can be made that future dividends and distributions will be
treated similarly. Each holder of stock may have a different basis in its stock
and accordingly, each holder is advised to consult its tax advisors.

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

Pursuant to General Instruction 1 to Item 305 of Regulation S-K, the Company is
exposed to interest rate changes primarily as a result of its Bank Line and
long-term debt used to maintain liquidity and fund capital expenditures and
expansion of the Company's real estate investment portfolio and operations. The
Company's interest rate risk-management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. The Company's objective with regards to long-term debt is to
borrow primarily at fixed rates.

The Company's interest rate risk is monitored using a variety of techniques. The
following table presents the principal amounts, weighted average interest rates,
fair values and other terms required by year of expected maturity to evaluate
the expected cash flows and sensitivity to interest rate changes (in thousands
except for percentages):
<TABLE>
<CAPTION>
                                                                                                             Fair
                                 1999     2000       2001    2002      2003   Thereafter      Total         Value
   -------------------------- --------- -------- ---------- ------- --------- ----------- ----------- -------------
   <S>                        <C>       <C>       <C>       <C>     <C>       <C>         <C>          <C>
   Variable rate bank line           --     --    $85,700      --        --          --     $85,700       $85,700
   Average interest rate                            6.83%

   Fixed rate senior notes           --     --         --      --        --    $124,794    $124,794      $114,130
   Average interest rate                                                          7.47%

   Fixed rate mortgage note        $201   $217       $234    $252      $272      $8,833     $10,009       $10,009
   Average interest rate          7.61%  7.61%      7.61%   7.61%     7.61%       7.61%



</TABLE>


                                         32
<PAGE>



As the table incorporates only those exposures that exist as of December 31,
1998, it does not consider those exposures or positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
above, the information presented therein has limited predictive value. As a
result, the Company's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during the period, the
Company's hedging strategies at that time and interest rates.

This discussion of the Company's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward - looking
statements.

                                           33
<PAGE>


                      WESTERN INVESTMENT REAL ESTATE TRUST

                        Consolidated Financial Statements

                                       and

                          Financial Statement Schedule

                                Form 10-K Item 8

                                December 31, 1998





                                          34
<PAGE>



<TABLE>
<CAPTION>

                       WESTERN INVESTMENT REAL ESTATE TRUST
                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                           PAGE
<S>                                                                       <C>
Independent Auditors' Report                                                 36

Consolidated Balance Sheets - December 31, 1998 and 1997                     37

Consolidated Statements of Income - For the Years Ended
     December 31, 1998, 1997 and 1996                                        38

Consolidated Statements of Shareholders' Equity - For the Years Ended
     December 31, 1998, 1997 and 1996                                        39

Consolidated Statements of Cash Flows - For the Years Ended
     December 31, 1998, 1997 and 1996                                        40

Notes to Consolidated Financial Statements                                41-57

Financial Statement Schedule III:  Real Estate and
     Accumulated Depreciation                                             58-59

</TABLE>
                                     35

<PAGE>


                      Independent Auditors' Report



To the Trustees and Shareholders
Western Investment Real Estate Trust:

We have audited the consolidated financial statements of Western Investment Real
Estate Trust (a California real estate investment trust) and subsidiaries as
listed in the accompanying index. In connection with our audit of the
consolidated financial statements, we have also audited the financial statement
schedule listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Western Investment
Real Estate Trust and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also in our opinion, the related 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.

                                                 KPMG LLP

San Francisco, California
February 3, 1999, except 
For Note 17, which is as of
March 1, 1999



                                    36
<PAGE>
<TABLE>
<CAPTION>



CONSOLIDATED BALANCE SHEETS                                                   WESTERN INVESTMENT REAL ESTATE TRUST
------------------------------------------------------------------------------------------------------------------
                                                                                                    December 31,
ASSETS                                                                                      1998                   1997
                                                                                  ---------------------- --------------------------
                                                                                          (In thousands except share data)
<S>                                                                                     <C>                      <C>

Real estate investments:

   Real estate properties.......................................................            $410,183               $392,470
   Less accumulated depreciation and amortization...............................             (82,660)               (77,642)
                                                                                          -----------            -----------
                                                                                             327,523                314,828

   Real estate properties held for sale.........................................              30,288                  5,382
   Less accumulated depreciation and amortization...............................              (7,452)                (1,861)
                                                                                         ------------           ------------
                                                                                              22,836                  3,521

   Unconsolidated real estate subsidiary (Note 5)...............................              43,854                    ---
   Mortgage notes receivable....................................................              16,160                  1,292
                                                                                          ----------       ----------------
      Net real estate investments...............................................             410,373                319,641

Cash and cash equivalents.......................................................               1,512                  1,463
Accounts receivable, acquisition deposits, and other assets.....................              13,704                 15,279
Deferred debt issuance costs, net...............................................               1,302                  1,138
                                                                                         -----------            -----------
                                                                                            $426,891               $337,521
                                                                                            ========               ========


LIABILITIES AND SHAREHOLDERS' EQUITY

Bank line (Note 8)..............................................................            $ 85,700              $  19,100
Senior notes, net (Note 8)......................................................             124,794                124,766
Mortgage payable................................................................              10,009                    ---
                                                                                           ---------         --------------
                                                                                             220,503                143,866

Interest payable................................................................               3,670                  2,917
Prepaid rents and security deposits.............................................               2,161                  1,428
Other liabilities...............................................................               3,517                  3,061
                                                                                          ----------            -----------

   Total liabilities............................................................             229,851                151,272
                                                                                            --------              ---------

Minority interests (Note 5).....................................................              17,416                    ---

Shareholders' equity:                                                                                                              
   Preferred stock, 2,000,000 shares authorized;                                                                                   

      Shares issued or outstanding..............................................                 ---                    ---
   Shares of beneficial interest, no par value,
      Unlimited share authorization.

      Issued and outstanding: December 31, 1998 - 17,216,550 shares.............
                              December 31, 1997 - 17,191,860 shares.............             241,741                242,682

   Accumulated dividends in excess of net income................................             (62,117)               (56,433)
                                                                                             --------            -----------
Commitments and contingencies (Notes 4, 8 and 16)

Total shareholders' equity......................................................             179,624                186,249
                                                                                             -------              ---------
                                                                                            $426,891               $337,521
                                                                                            ========               ========

</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                    37
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF INCOME                                                         WESTERN INVESTMENT REAL ESTATE TRUST
------------------------------------------------------------------------------------------------------------------------------
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                  1998             1997              1996
                                                                          ------------------ ---------------- ----------------
                                                                            (In thousands, except per share and share data)
<S>                                                                         <C>              <C>               <C>  
REVENUES:

   Minimum rents.......................................................           $42,350            $37,845          $38,373
   Percentage rents....................................................               539                552              649
   Recoveries from tenants.............................................             8,551              8,088            8,138
   Interest income.....................................................               933                361               25
   Other income........................................................               981                705              604
                                                                                  -------            -------          -------
Total revenues.........................................................            53,354             47,551           47,789
                                                                                  -------            -------          -------

EXPENSES:

   Interest............................................................            13,414             11,511           11,289
   Property operating costs............................................             9,253              8,798            8,933
   Depreciation and amortization.......................................            12,401             11,046           11,264
   Other operating expenses............................................             4,412              3,011            3,481
   General and administrative..........................................             2,733              1,741            1,706
   Management restructuring charge.....................................               ---              1,842           ---
                                                                                  -------            -------          -------
Total expenses.........................................................            42,213             37,949           36,673
                                                                                  -------            -------          -------

   Income before gains on sales of real estate                                                                                
      investments and extraordinary item...............................            11,141              9,602           11,116

   Gains on sales of real estate investments...........................             2,475              4,898            1,115
                                                                                  -------            -------          -------

   Income before extraordinary item....................................            13,616             14,500           12,231

   Extraordinary item - loss on early extinguishment of debt...........               ---            (1,620)              ---
                                                                                  -------            -------          -------

   Net income..........................................................           $13,616            $12,880          $12,231
                                                                                  =======            =======          =======

Basic earnings per share data:

   Income before gains on sales of real estate                                                                                
      investments and extraordinary item...............................            $ 0.65            $  0.56          $  0.65
                                                                                   ======            =======          =======
   Gains on sales of real estate investments...........................            $ 0.14            $  0.28          $  0.07
                                                                                   ======            =======          =======
   Income before extraordinary item....................................            $ 0.79            $  0.84          $  0.72
                                                                                   ======            =======          =======
   Extraordinary item - loss on early extinguishment of debt...........             $ ---            $(0.09)        $    ---
                                                                                    =====            =======        ========

   Net income..........................................................            $ 0.79            $  0.75          $  0.72
                                                                                   ======            =======          =======

Diluted earnings per share data:

   Income before gains on sales of real estate                                                                                
      investments and extraordinary item...............................             $0.64              $0.56            $0.65
                                                                                    =====              =====            =====
   Gains on sales of real estate investments...........................             $0.14              $0.28            $0.07
                                                                                    =====              =====            =====
   Income before extraordinary item....................................             $0.78              $0.84            $0.72
                                                                                    =====              =====            =====
   Extraordinary item - loss on early extinguishment of debt...........             $ ---            $ (0.09)           $ ---
                                                                                    =====            ========           =====

   Net income..........................................................             $0.78              $0.75            $0.72
                                                                                    =====              =====            =====
Cash dividends paid....................................................             $1.12            $  1.12          $  1.12
                                                                                    =====            =======          =======

Weighted average number of shares outstanding-Basic....................        17,206,868         17,144,674       17,055,496
                                                                               ==========         ==========       ==========
Weighted average number of shares outstanding-Diluted..................        17,487,443         17,158,292       17,068,701
                                                                               ==========         ==========       ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                         38

<PAGE>
<TABLE>
<CAPTION>



CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY                            WESTERN INVESTMENT REAL ESTATE TRUST
---------------------------------------------------------------------------------------------------------------

                                     Years Ended December 31, 1998, 1997 and 1996
                                         (In thousands, except share data)

                                                                                             ACCUMULATED
                                                                                              DIVIDENDS            TOTAL
                                                                  SHARES OF                  IN EXCESS OF         SHARE-
                                                             BENEFICIAL INTEREST                 NET              HOLDERS'
                                                          NUMBER             AMOUNT             INCOME            EQUITY
                                                          ------             ------             ------            ------
<S>                                                    <C>                <C>                   <C>               <C>
Balances, January 1, 1996                                 16,972,496           $240,034           $(43,235)         $196,799

Debenture redemptions................................        165,936              2,020                ---             2,020
Net income...........................................            ---                ---             12,231            12,231
Cash dividends paid..................................            ---                ---            (19,102)          (19,102)
                                                          ----------         ----------         ----------        ----------

Balances, December 31, 1996                               17,138,432            242,054            (50,106)          191,948

Net proceeds from issuance of shares.................         53,160                622                ---               622
Debenture redemptions................................            268                  6                ---                 6
Net income...........................................            ---                ---             12,880            12,880
Cash dividends paid..................................            ---                ---            (19,207)          (19,207)
                                                          ----------         ----------         ----------        ----------

Balances, December 31, 1997                               17,191,860            242,682            (56,433)          186,249

Net proceeds from issuance of shares.................         12,453                182                ---               182
Shares issued under restricted stock plan............         12,237                176                ---               176
Loans to officers....................................            ---             (1,299)               ---            (1,299)
Net income...........................................            ---                ---             13,616            13,616
Cash dividends paid..................................            ---                ---            (19,300)          (19,300)
                                                          ----------         ----------         ----------        ----------

BALANCES DECEMBER 31, 1998                                17,216,550           $241,741           $(62,117)         $179,624
                                                          ==========           ========           =========         ========


</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                        39
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS                                          WESTERN INVESTMENT REAL ESTATE TRUST
-------------------------------------------------------------------------------------------------------------------
                                                                                                YEAR ENDED DECEMBER 31,
                                                                                                ----------------------
                    
                                                                                      1998               1997            1996
                                                                              -----------------------------------------------------
                                                                                                 (In thousands)
<S>                                                                               <C>                 <C>              <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income................................................................      $  13,616           $ 12,880         $ 12,231
   Adjustments to reconcile net income to net cash provided
         by operating activities:

      Depreciation and amortization..........................................         12,401             11,046           11,264
      Amortization of deferred debt issuance costs...........................            373                369              365
      Gains on sales of real estate investments..............................         (2,475)            (4,898)          (1,115)
      Earned compensation on restricted stock plan...........................            176                ---              ---
      Loss on early extinguishment of debt...................................            ---              1,620              ---
      Increase in accounts receivable and other assets.......................         (2,350)              (418)            (279)
      Increase in accrued rent receivable....................................           (379)              (471)            (797)
      Increase (decrease) in interest payable................................            753              1,440             (164)
      Increase in prepaid rents,                                                                                   
         security deposits and other liabilities.............................          1,153              1,709              451
                                                                                   ---------          ---------       ----------
      Net cash provided by operating activities..............................         23,268             23,277           21,956
                                                                                    --------           --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sales of real estate investments............................          7,237             10,135            1,371
   Proceeds from sale of marketable securities...............................             48                ---              234
   Investment in mortgage note receivable....................................        (14,869)            (1,300)             ---
   (Acquisitions) recovery of acquisition costs of real estate investments...        (35,843)              (283)              36
   Investment in unconsolidated real estate subsidiary.......................        (26,438)               ---              ---
   Funds released from escrow................................................          7,117                ---              ---
   Funds escrowed pending acquisition........................................         (2,625)            (7,117)             ---
   Improvements of real estate investments:

      Build-to-suit developments.............................................           (335)            (1,561)          (4,239)
      New leases.............................................................         (2,725)            (3,264)          (1,707)
      General................................................................           (668)              (666)            (192)
   Recovery of investment in direct financing leases.........................            364                316              272
                                                                                  -----------          ---------       ----------

      Net cash used in investing activities..................................        (68,737)            (3,740)          (4,225)
                                                                                   ----------          ---------       ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Advances on bank line.....................................................        107,350             50,050           40,468
   Principal payments on bank line...........................................        (40,750)           (63,200)         (37,468)
   Principal payments on real estate loan payable............................           (156)               ---           (1,294)
   Loans to officers.........................................................         (1,299)               ---              ---
   Redemption of convertible debentures......................................            ---            (61,310)             (40)
   Net proceeds from issuance of shares......................................            182                628              ---
   Net proceeds from senior notes offering...................................            ---             74,851              ---
   Deferred long-term debt issuance costs....................................           (509)              (838)             ---
   Cash dividends paid.......................................................        (19,300)           (19,207)         (19,102)
                                                                                   ----------          ---------       ----------
      Net cash provided by (used in) financing activities....................         45,518            (19,026)         (17,436)
                                                                                   ----------          ---------       ----------

   Net increase in cash and cash equivalents.................................             49                511              295

     Cash and cash equivalents, at beginning of period.......................          1,463                952              657
                                                                                  ----------          ---------       ----------

     Cash and cash equivalents, at end of period.............................     $    1,512          $   1,463       $      952
                                                                                  ==========          =========       ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

   Cash paid during the year for interest....................................      $  12,562          $   9,714         $ 11,217
                                                                                   =========          =========         ========

NON CASH FINANCING ACTIVITY:

   Real estate acquisition debt..............................................      $  10,164       $        ---     $        ---
                                                                                   =========       ============     ============
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                             40

<PAGE>


                      WESTERN INVESTMENT REAL ESTATE TRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1:       ORGANIZATION AND BASIS OF PRESENTATION 

Founded in 1962, Western Investment Real Estate Trust ("Western") and its
affiliates own and operate community and neighborhood shopping centers located
in the western United States. At December 31, 1998, Western and its affiliates
had investments in 66 properties, primarily anchored by supermarkets and drug
stores, containing approximately 5.7 million square feet of gross leasable area.
The corporate office of the self-administered equity real estate investment
trust is in the San Francisco Bay Area city of Emeryville, California. Its
shares are traded on the American Stock Exchange under the symbol "WIR".

The accompanying consolidated financial statements include the accounts of
Western, Western/Kienow's L.P. and a joint venture in which Western has a
controlling financial interest as of December 31, 1998 (collectively, the
Company). Western is the sole general partner in Western/Kienow's L.P. and owned
a 60% interest as of December 31, 1998.

The Western and its affiliates use the equity method of accounting to account
for investments that do not qualify for consolidation.

All significant intercompany accounts and transactions have been eliminated.

Note 2:       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REAL ESTATE INVESTMENTS

Properties composing real estate investments are carried at the lower of
depreciated cost or fair value. Acquisition and development costs, which include
fees and costs incurred in acquiring or developing new properties, are
capitalized as incurred. Upon completion of acquisition or construction, these
costs are depreciated over the useful lives of the properties on a straight-line
basis. The estimated useful lives for properties range from 23 to 40 years for
buildings and two to 31 years for improvements.

The Company has adopted FASB No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF." Accordingly, in
the normal course of the Company's business, when it decides to dispose of a
property, the Company will assess the recoverability of the net recorded value
of the property and discontinue the periodic depreciation of that property.
Additionally, whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, the recoverability of the
carrying value of that property is evaluated. If the sum of the undiscounted,
expected future cash flows, exclusive of interest, is less than the carrying
value of that asset, a determination of fair value of that asset is made. If the
fair value is less than the carrying value of that asset, an impairment charge
is recognized. No impairment losses have been recorded in the years ended
December 31, 1998, 1997 or 1996.


                                     41


<PAGE>


Included in real estate investments are net investments in two direct financing
leases. These investments are carried at the aggregate minimum lease payments to
be received over the terms of the leases, plus an estimated residual value, less
unearned income.

Expenditures for ordinary maintenance and repairs are expensed as incurred.
Significant renovations and improvements that enhance and/or extend the useful
life of a property are capitalized and depreciated over its estimated useful
life.

LEASING COMMISSIONS AND LEASING-RELATED COSTS

Direct, incremental leasing commissions and leasing-related costs are
capitalized and amortized over the terms of the associated leases. The following
table provides a reconciliation of leasing commissions and leasing-related
costs:

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                       --------------------------------------------------------------------
                                                                  1998                   1997                  1996
-------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                    <C>                    <C>
Balance at beginning of year......................              $1,630                 $1,587                $1,673
    Additions.....................................                 761                    366                   350
    Dispositions..................................                 (37)                   ---                   ---
    Amortization..................................                (379)                  (323)                 (436)
                                                      --------------------------------------------------------------
Balance at end of year............................              $1,975                 $1,630                $1,587
                                                      ===================================================================
</TABLE>
RENTAL INCOME

The Company accrues base rental income (minimum contractual lease payments) as
earned. Certain of the Company's leases provide for additional rent based on
specified percentages of the lessee's store sales. Such percentage-based rental
income was recognized during 1996, 1997 and the first two quarters of 1998,
based on estimates. Commencing on July 1, 1998, for the last two quarters of
1998, the Company recognized percentage-based rental income in accordance with
EITF 98-9 issued in May 1998. EITF 98-9 permits revenue recognition of
percentage-based rental income only when tenants sales exceed the level at which
percentage-based rents are owed. In November 1998, the EITF amended 98-9,
permitting use of the requirements thereof or the method used prior to its
issuance. The Securities and Exchange Commission ("SEC") has this issue under
review and may require companies to account for percentage-based rental income
as originally required by EITF 98-9. Western's recognition of percentage-based
rental income is in accordance with such original requirements. The effect of
this change on the Company's financial results for the last two quarters of 1998
was to reduce percentage rents by approximately $300,000.

The Company recognizes rental income and related accrued rental receivable in
accordance with FASB No. 13, "ACCOUNTING FOR LEASES." Accrued rent receivable
(straight-line rental revenues in excess of contractually required payments)
included in income was $379,000 in 1998, $471,000 in 1997 and $797,000 in 1996.

CASH EQUIVALENTS

Cash equivalents comprise certain highly liquid investments with original
maturities of less than three months.


                                        42


<PAGE>


DEFERRED DEBT ISSUANCE COSTS

Deferred debt issuance costs incurred in connection with the issuance of debt
are amortized over the term of the associated debt arrangements using a method
that approximates the interest method.

USE OF 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, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

RECLASSIFICATION

Certain prior-year financial statement amounts and related footnote information
for 1997 and 1996 have been reclassified to conform with the 1998 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Financial Accounting Statement No. 133 (FASB 133),
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." The Company will
adopt FASB 133 for interim periods beginning in 2000, the effective date of FASB
133. Management believes that the adoption of this Statement will not have a
material impact on the Company's financial statements.


                                    43
<PAGE>

Note 3:  REAL ESTATE INVESTMENTS

The following table provides a reconciliation of real estate properties,
properties held for sale and the related accumulated depreciation and
amortization for each (in thousands):

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                           -----------------------
                                                                                  1998             1997              1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>               <C>
REAL ESTATE PROPERTIES:
   Balance at beginning of year........................................         $392,470         $384,550          $395,800
   Increases:     Acquisitions ........................................           46,064              288               ---
                  Improvements.........................................            2,967            4,878             5,788
                  Properties reclassified from held for sale...........              ---            3,070               ---
   Decreases:     Properties reclassified as held for sale.............          (30,593)             ---           (16,161)
                  Dispositions.........................................             (304)             ---              (569)
                  Recovery of acquisition costs........................              (57)             ---               (36)
                  Amortization of direct financing leases..............             (364)            (316)             (272)
                                                                                --------         --------          --------
   Balance at end of year..............................................         $410,183         $392,470          $384,550
                                                                                ========         ========          ========

  ACCUMULATED DEPRECIATION AND AMORTIZATION:
   Balance at beginning of year........................................        $  77,642        $  66,271         $  61,249
   Increases:     Additions charged to operations......................           11,915           10,625            10,722
                  Accumulated depreciation of properties                                 
                     reclassified from held for sale...................              ---              746               ---
   Decreases:     Dispositions.........................................              ---              ---              (175)
                  Accumulated depreciation of properties                                                                    
                     held for sale.....................................           (6,897)             ---            (5,525)
                                                                                --------         --------          --------
   Balance at end of year..............................................        $  82,660        $  77,642         $  66,271
                                                                               =========        =========         =========

REAL ESTATE PROPERTIES HELD FOR SALE:

   Balance at beginning of year........................................       $    5,382        $  16,161     $         ---
   Increases:     Improvements.........................................              ---               29               ---
                  Properties reclassified as held for sale.............           30,593               --            16,161
   Decreases:     Properties no longer held for sale...................              ---           (3,070)              ---
                  Dispositions.........................................           (5,687)          (7,738)              ---
                                                                                --------         --------          --------
   Balance at end of year..............................................         $ 30,288       $    5,382         $  16,161
                                                                                ========       ==========         =========

  ACCUMULATED DEPRECIATION AND AMORTIZATION:

   Balance at beginning of year........................................        $   1,861       $    5,525     $         ---
   Increases:     Accumulated depreciation of properties
                     reclassified as held for sale.....................            6,897              ---             5,525
   Decreases:     Accumulated depreciation of properties
                     removed from market...............................              ---             (746)              ---
                  Dispositions.........................................           (1,306)          (2,918)              ---
                                                                               ----------      -----------   --------------
   Balance at end of year..............................................        $   7,452       $    1,861        $    5,525
                                                                               =========       ==========        ==========

</TABLE>

At December 31, 1998, the Company owned nine properties that were held for sale.
These properties total 355,000 leasable square feet and have a net aggregate
carrying value of $22,836,000. The Company has determined that these properties
do not meet the Company's long-term strategic objectives, has developed
disposition plans, and is marketing the properties for sale. Estimated fair
values for these properties are in excess of recorded carrying values. The
Company ceases depreciation on assets classified as held for sale. The net
operating income from these properties included in 1998 operations was
$3,008,000. It is anticipated that these properties will be sold in 1999.


                                     44
<PAGE>



As of December 31, 1998, only one of the Company's properties was security for a
mortgage. However, if amounts due under the Bank Line are not paid at maturity,
the lender, at its option, can require the Company to provide security interests
in Company properties. The Company has an ownership interest in two properties
where the co-owner is obligated under a note that is secured by the property.

Most of the Company's leases require the tenant to be responsible for, or
reimburse the Company for, liability insurance coverage on the properties. The
Company maintains umbrella liability insurance on all of its properties and
monitors tenant compliance with liability insurance coverage requirements.

While the Company believes its properties are adequately insured, the Company
does not carry earthquake (except for the Windsor, California, property where
the secured lender requires earthquake insurance), flood or pollution coverage.
However, most major anchor tenants are required to rebuild or repair their
leased premises if damaged or destroyed, regardless of the cause. Most of the
Company's properties are located in areas of California and Nevada where
earthquakes have been known to occur. In the event of a major earthquake,
Company properties could suffer substantial damage or destruction. Since it
commenced real estate operations in 1964, the Company has not incurred any
material expense nor, to its knowledge, have any of its properties incurred any
material damage from earthquakes or floods.

The Company periodically considers the merits of purchasing earthquake insurance
for its properties. To date, the Company has not purchased earthquake insurance
because of (i) the high premiums and deductibles and (ii) the Company's
geographically diversified portfolio that reduces the likelihood of material
loss as a consequence of earthquakes. Furthermore, the majority of properties in
the portfolio principally consist of relatively new, single-story buildings.


Note 4:           CAPITAL EXPENDITURES

It is the Company's practice to capitalize costs that exceed $4,000 and are
associated with the improvement and rental of real estate investments.
Capitalized costs include leasing-related costs and property improvements.
Capital expenditures for the twelve months ended December 31, 1998, and 1997 are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                               Twelve Months Ended December 31,
                                                                      ----------------------------------------------------
                                                                                1998                       1997
--------------------------------------------------------------------- -------------------------- -------------------------
<S>                                                                           <C>                        <C>             
"Build to Suit" capital improvements...........................                   $335                     $1,561
Capitalized costs incurred in connection with leasing previously                                
    UNLEASED space.............................................                     78                        142
Capitalized costs incurred in connection with leasing previously                                
    LEASED space...............................................                  2,647                      3,122
Capitalized costs that relate to improvements to common                                         
    areas......................................................                    668                        666
                                                                                ------                     ------
Total capitalized expenditures.................................                 $3,728                     $5,491
                                                                                ======                     ======

Improvements...................................................                 $2,967                     $4,907
Leasing-related costs..........................................                    761                        584
                                                                                ------                     ------
Total capitalized expenditures.................................                 $3,728                     $5,491
                                                                                ======                     ======

</TABLE>

                                          45
<PAGE>

During the year ended December 31, 1998, the Company entered into new leases
that obligate the Company to fund leasing commissions, tenant improvements and
build-to-suit developments. These obligations relate both to new leases and
lease renewals, a portion of which were funded during 1998 and are reflected in
the preceding table. In addition, a portion remains an obligation of the Company
at December 31, 1998 (See Note 16).

The aggregate and per square foot information for 1998 is as follows (in
thousands, except for per square foot data):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                        NEW LEASES

                                                                           TENANT                      LEASING
                                        BUILD TO SUIT                   IMPROVEMENTS                 COMMISSIONS
                                        -------------                   ------------                 -----------
                                                   PER                            PER                            PER
                                   AGGREGATE     SQUARE        AGGREGATE         SQUARE        AGGREGATE       SQUARE
         PROPERTY TYPE              AMOUNT        FOOT           AMOUNT           FOOT           AMOUNT         FOOT
         -------------              -------     --------         -------        --------         -------      ------
<S>                                 <C>         <C>            <C>              <C>             <C>           <C>
Shopping centers  retail                                                                                               
properties                                ---          ---            $1,860         $7.50             $551      $2.22

Commercial                                ---          ---               681        $18.27              205      $5.50

Industrial                                ---          ---               ---           ---              ---        ---
</TABLE>
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------
                                                                        RENEWAL LEASES

                                                   TENANT                                        LEASING
                                                 IMPROVEMENTS                                 COMMISSIONS
                                                 ------------                                 -----------
                                                                PER                                         PER
                                       AGGREGATE               SQUARE               AGGREGATE              SQUARE
        PROPERTY TYPE                   AMOUNT                  FOOT                  AMOUNT                FOOT
        -------------                  ---------               ------               ---------              ------
<S>                                    <C>                     <C>                   <C>                   <C>
Shopping centers and                                                                                 
  retail properties                      $98                   $0.40                  $204                 $0.82

Commercial                               ---                    ---                    ---                  ---

Industrial                               ---                    ---                    ---                  ---
-----------------------------------------------------------------------------------------------------------------
</TABLE>


Note 5:           UNCONSOLIDATED REAL ESTATE SUBSIDIARY

In October 1998, the Company acquired Kienow's Food Stores, Inc. (Kienow's), a
Portland, Oregon-based grocery wholesaler and retailer, whose principal assets
are its real estate properties, in a transaction valued at approximately $55
million. Following an agreed-upon $11,000,000 stock redemption from Kienow's
cash on hand, the purchase price was paid $26,240,000 in cash and by issuance of
1,432,364 units in a newly formed DownREIT limited partnership valued at
$17,416,000. The limited partnership units are exchangeable into shares of the
Company on a one-for-one basis after certain conditions have been met. The
acquisition has been accounted for by the purchase method. The Company
consolidates the DownREIT limited partnership, which accounts for its investment
in the newly formed parent company of Kienow's, on the equity basis of
accounting. The interests of the limited partners in the DownREIT limited
partnership are presented as minority interests in the accompanying consolidated
financial statements.


                                    46
<PAGE>


The 545,495 square foot real estate portfolio of Kienow's comprises six shopping
centers, four freestanding stores and seven non-core properties. The Company
intends to retain and redevelop 10 core retail properties (six shopping centers
and four freestanding stores), encompassing 449,217 square feet, located in the
greater Portland area. After completing the disposition of the seven non-core
properties and renovating the 10 core properties, it is anticipated that the net
real estate value at cost will be approximately $43,000,000.

The Company intends to discontinue the wholesale and retail grocery operations,
retenant the anchor-store space of the 10 core properties and dispose of
non-core properties. The purchase price was allocated to the core properties
after valuing the properties to be disposed of at estimates of net realizable
value. There was no excess of purchase price over the value of the assets
acquired. As certain properties have and will be disposed of and as the
remaining Kienow's properties will be converted from operating wholesale and
retail grocery businesses to rental properties, historical revenues and net
income of Kienow's are not relevant to the past or present operating results of
the Company.

Since the close of escrow (October 30, 1998), the Company has been engaged in
the process of redeveloping and retenanting the core properties. During the
period from October 30, 1998 to December 31, 1998, the Company capitalized
$255,000 of interest expense and has reduced its investment by $139,000 of
incidental income generated by the Kienow's operations.

Summarized financial information for Kienow's as of December 31, 1998 is as
follows (in thousands):

<TABLE>
                <S>                      <C>
                Total assets             $47,984
                Total  liabilities        (4,196)
                Net assets               $43,788
</TABLE>

With respect to the planned disposition of the non-core properties, any gains or
losses on disposition will be accounted for as adjustments to the purchase price
of the core properties (See Note 17).

Note 6:       LEASES

OPERATING LEASE-RECEIVABLE

Future minimum lease payments scheduled to be received under operating leases
that have initial or remaining noncancelable lease terms in excess of one year
as of December 31, 1998, are as follows (in thousands):

<TABLE>
                        <S>                                  <C>
                        1999                                 $  43,800
                        2000                                    41,274
                        2001                                    36,841
                        2002                                    33,760
                        2003                                    29,820
                        Thereafter                             218,723
                                                              --------
                        Total                                 $404,218
                                                              ========
</TABLE>
                                       47
<PAGE>


DIRECT FINANCING LEASE - RECEIVABLE

Future minimum lease payments scheduled to be received under direct financing
leases that have initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1998, range from $212,000 in 1999 to $142,000 in 2003.

At December 31, 1998, the Company's investment in direct financing leases was
$1,118,000, and was determined by adding the estimated residual value of
$383,000 to the total remaining minimum lease payments of $920,000, less
unearned income of $185,000. The original cost of the properties subject to
these direct financing leases was $4,449,000. Included in other income is income
recorded under direct financing leases of $105,000, $155,000 and $197,000 in
1998, 1997 and 1996, respectively.

OPERATING LEASE - PAYABLE

Future minimum lease payments scheduled to be paid that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1998, are as follows (in thousands):
<TABLE>
                        <S>                                          <C>
                        1999                                         $ 831
                        2000                                           853
                        2001                                         1,489
                        2002                                         1,529
                        2003                                         1,577
                        Thereafter                                  15,240
                                                                  --------
                        Total                                     $ 21,519
                                                                  ========

</TABLE>


Note 7:       MAJOR TENANT

Total revenues attributable to the 23 anchor store properties dispersed
throughout Northern California and Nevada and leased to Raley's (including its
subsidiary, Nob Hill Foods), a grocery and drug retailer, and the Company's most
significant tenant, were $10,413,000, $9,178,000 and $9,382,000 in 1998, 1997
and 1996, respectively. These amounts represented 20%, 19% and 20% of total
revenues during 1998, 1997 and 1996, respectively.

Note 8:       BANK LINE AND NOTES PAYABLE

BANK LINE OF CREDIT

At December 31, 1998, the Company had $85,700,000 outstanding under its
$100,000,000 unsecured bank line of credit (the Bank Line). Interest on funds
drawn under the Bank Line is LIBOR plus 1.15% and is payable at the maturity of
each LIBOR contract. At December 31, 1998, the weighted average interest rate
was 6.38%. In addition, the Company pays an annual fee of one quarter of one
percent (0.25%) of the total commitment. The Company is not required to pledge
any assets or maintain compensating balances for this Bank Line, although the
Company has agreed to certain covenants that impose limitations on the
incurrence of debt and other restrictions. Additionally, if amounts due under
the Bank Line are not paid at maturity, the lender, at its option, can require
the Company to provide security interests in Company properties. The Company
intends to renew or

                                    48
<PAGE>

replace this facility before it expires on September 30, 2001.

In connection with the redevelopment of a property located in Walnut Creek, 
California, the Company has obtained an irrevocable standby letter of credit 
in the amount of $3,336,000 from one of the lenders with which the Company 
has its Bank Line. The amount available under the Bank Line is reduced by the 
amount of the letter of credit. This letter of credit expires April 30, 2006.

SENIOR NOTES

In February 1994, the Company sold $50,000,000 of unsecured Senior Notes (the
1994 Notes) in a public offering. The 1994 Notes are due in 2004 and contain
certain covenants that impose limitations on the incurrence of debt and other
restrictions. These restrictions include a cap on total borrowings, minimum
shareholders' equity and income-coverage requirements. The 1994 Notes are not
redeemable prior to maturity.

In September 1997, the Company sold $75,000,000 of unsecured Senior Notes (the
1997 Notes) in a public offering, comprising $25,000,000 due 2006, $25,000,000
due 2008 and $25,000,000 due 2010. The 1997 Notes were issued under the
Company's $150,000,000 shelf registration.

All Senior Notes outstanding at December 31, 1998 are summarized in the
following table (in thousands except for interest rate and year data):
<TABLE>
<CAPTION>
                       
                       Net Amount        Coupon Interest Rate           Due Date               Years to Maturity
<S>                    <C>               <C>                       <C>                         <C>
----------------------------------------------------------------------------------------------------------------
                         $49,925                 7.875%            February   15, 2004                  5
                          24,970                 7.100%             September 15, 2006                  8
                          24,948                 7.200%             September 15, 2008                 10
                          24,951                 7.300%             September 15, 2010                 12
                        --------                 ======                                                ==
Total/Weighted                                                                          
Average                 $124,794                 7.470%                                                 8
                        ========                 ======                                                ==
</TABLE>

As of December 31, 1998, the Senior Notes carried "investment grade" ratings
from Moody's Investor Service (Baa3) and Standard & Poor's (BBB-).

Note 9:       LOANS TO RELATED PARTIES

The Board of Trustees approved loans totaling $1.3 million to the Company's
Chief Executive Officer; Chief Financial Officer; Senior Vice President,
Investments; and Senior Vice President, Operations. The loan proceeds were used
to fund the purchase of Company shares of beneficial ownership by these
individuals in order to increase their ownership in the Company and to more
closely align their interests with those of shareholders. The loans bear
interest at a rate of 5.58%, are recourse and are secured by a pledge of certain
shares of beneficial ownership of the Company.

The Board of Trustees also approved loans to the Company's Chief Executive 
Officer and Chief Financial Officer to fund their acquisition of the common 
stock of Western Real Estate Services, Inc. (WRESI), in which the Company has 
a 97% economic interest. WRESI was formed to facilitate the acquisition of 
Kienow's (see Note 5). The amount loaned to each individual was $283,750 with 
interest at 7.5% and maturity dates of October 30, 2008.

                                        49
<PAGE>


Note 10:      DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB No. 107 requires disclosure about fair value for all financial instruments.
The Company believes that the carrying amount approximates fair value for cash,
cash equivalents and interest payable as of December 31, 1998 and 1997, due to
the short-term nature of these instruments.

The Company further believes that the carrying amounts of the Bank Line and
mortgage payable approximate fair value as of December 31, 1998 and 1997 because
interest rates and yields for these instruments are consistent with yields
currently available to the Company. The fair value of the Company's Senior Notes
are based on quoted market prices.

The estimated fair values of the Company's  financial  instruments as of 
December 31 are stated in the following table (in thousands):
<TABLE>
<CAPTION>
                                                                     1998                                 1997
                                                     -------------------------------------------------------------------
                                                         CARRYING             FAIR             Carrying            Fair
                                                          AMOUNT              VALUE             Amount             Value
                                                     -------------------------------------------------------------------
<S>                                                  <C>              <C>                   <C>              <C>
Cash and cash equivalents............................ $    1,512         $    1,512          $   1,463        $    1,463

Bank line ........................................... $   85,700          $  85,700          $  19,100         $  19,100
Senior notes ........................................    124,794            114,130            124,766           125,848
Mortgage payable.....................................     10,009             10,009                ---               ---
Interest payable.....................................      3,670              3,670              2,917             2,917

</TABLE>

Note 11:      SEGMENT DISCLOSURE

FASB No. 131 requires disclosure about segments of the Company and related 
information.

The Company evaluates performance and makes resource-allocation decisions on an
individual property basis. For financial reporting purposes, the Company has
grouped its properties into three segments: shopping centers, single-tenant
retail and other commercial properties. Investments principally consist of real
estate, but also include real estate secured loans (three) and a real estate
joint venture (one).

Non-segment revenue consists mainly of interest income. Non-segment assets
include cash, accounts receivable and deferred financing costs.

The accounting policies of the segments are the same as those described in Note
1.

The Company assesses and measures segment operating results based on a
performance measure referred to as Funds From Operations ("FFO"). The National
Association of Real Estate Investment Trusts defines FFO as net income,
calculated in accordance with generally accepted accounting principles (GAAP),
plus depreciation and amortization of assets uniquely significant to the real
estate industry (a) reduced by gains and increased by losses on (i) sales of
property and (ii) extraordinary and unusual items and (b) after adjustments for
unconsolidated partnerships and joint ventures, so as to reflect FFO on the same
basis. FFO does not represent cash flows from operations as defined by GAAP and
should not be considered a substitute for net income as an indicator of the
Company's operating performance, or for cash flows as a measure of liquidity.
Furthermore, FFO as disclosed by other REITs may not be comparable to the
Company's calculation of FFO.

                                    50


<PAGE>

The revenues, profit (loss), assets and real estate investment capital
expenditures for each of the reportable segments are summarized as follows for
the years ended and as of December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                           -----------------------
                                                                                  1998             1997              1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>               <C>      
REVENUES
         Shopping centers                                                        $46,746          $41,121           $40,761
         Single-tenant retail                                                      2,428            2,722             3,045
         Other commercial                                                          4,072            3,360             3,863
         Non-segment                                                                 108              348               120
                                                                                 -------          -------           -------
                Total revenue                                                    $53,354          $47,551           $47,789
                                                                                 =======          =======           =======

PROFIT   (LOSS) Funds from operations:

         Shopping centers                                                        $37,119          $32,310           $31,697
         Single-tenant retail                                                      2,292            2,591             2,908
         Other commercial                                                          3,795            3,035             3,525
                                                                                 -------          -------           -------
                Total segment contribution to FFO                                 43,206           37,936            38,130

         Interest income                                                              93              359                24
         Other income                                                                 15              (11)               96
         Interest expense                                                        (13,414)         (11,511)          (11,289)
         Other operating expenses                                                 (3,624)          (2,542)           (2,875)
         Personal property depreciation                                             (108)             (98)             (106)
         General and administrative                                               (2,733)          (1,741)           (1,706)
                                                                                  -------          -------           -------
                Consolidated FFO                                                  23,435           22,392            22,274

         Depreciation and amortization                                           (12,294)         (10,948)          (11,158)
         Gains on sales of real estate investments                                 2,475            4,898             1,115
         Loss on early extinguishment of debt                                        ---           (1,620)             ---
         Management restructuring charges                                            ---           (1,842)             ---
                                                                                 -------          -------           -------
         Net income                                                              $13,616          $12,880           $12,231
                                                                                 =======          =======           =======

</TABLE>

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                                  1998            1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>        
ASSETS
         Shopping centers                                                       $364,879         $285,521
         Single-tenant retail                                                     20,352           10,925
         Other commercial                                                         25,627           21,903
         Non-segment                                                              16,033           19,172
                                                                                --------         --------
                  Total assets                                                  $426,891         $337,521
                                                                                ========         ========
</TABLE>
                                             51
<PAGE>

<TABLE>
<CAPTION>


                                                                                          Year Ended December 31,
                                                                                --------------------------------------------
                                                                                         1998         1997           1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>       <C>           <C>          
REAL ESTATE INVESTMENT CAPITAL EXPENDITURES

          Acquisitions

                  Shopping centers                                                       $35,843    $ 283         $  ---
                  Single-tenant retail                                                       ---      ---            ---
                  Other commercial                                                           ---      ---            ---
                                                                                         -------    -----         ------
                       Total acquisitions                                                $35,843    $ 283         $  ---
                                                                                         =======    =====         ======
          Developments

                  Shopping centers                                                      $  2,691   $5,442         $5,923
                  Single-tenant retail                                                       ---      ---            ---
                  Other commercial                                                         1,036       49            215
                                                                                         -------    -----         ------
                       Total developments                                               $  3,727   $5,491         $6,138
                                                                                        ========   ======         ======
</TABLE>

Note 12:      STOCK OPTION PLAN

1988 STOCK OPTION PLAN

In May 1988, the Company adopted a non-qualified stock option plan (the "1988
Plan"). The purchase price of shares of beneficial interest purchased pursuant
to this plan is to be not less than the fair market value of the shares on the
date of grant. Options granted under the plan, which expire six years from the
grant date if not exercised, vest and become exercisable at a rate of 20% per
year from the date of grant until completely vested. A total of 300,000 shares
of beneficial interest have been authorized under the Plan. In 1998, as part of
adopting a new Equity Incentive Plan, the 1988 Plan was terminated;
consequently, no further options will be granted under the 1988 Plan.

Activity in the Company's 1988 share option plan during the three years ended
December 31, 1998, is summarized in the following table:

<TABLE>
<CAPTION>
                                                     Shares Available             Options                  Weighted
                                                        for Future              Granted and                Average
                                                      Options Grants            Outstanding             Exercise Price
----------------------------------------------------------------------------------------------------------------------
12/31/95  Balance                                            50,840                249,000                  $12.57
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                <C>                    <C>                    <C>     
                          Exercised                             ---                    ---                     ---
                          Expired                             6,000                 (6,000)                 $11.66
                          Granted                           (29,000)                29,000                  $13.31
----------------------------------------------------------------------------------------------------------------------
12/31/96  Balance                                            27,840                272,000                  $12.67
----------------------------------------------------------------------------------------------------------------------
                          Exercised                             ---                (53,160)                 $11.72
                          Expired                             9,040                 (9,040)                 $12.45
                          Granted                           (36,300)                36,300                  $13.59
----------------------------------------------------------------------------------------------------------------------
12/31/97  Balance                                               580                246,100                  $13.02
----------------------------------------------------------------------------------------------------------------------
                          Exercised                             ---                 (1,400)                 $11.46
                          Expired                             8,300                 (8,300)                 $12.76
                          Plan Terminated                    (8,880)                   ---                     ---
----------------------------------------------------------------------------------------------------------------------
12/31/97 Balance                                                ---                236,400                  $13.03
----------------------------------------------------------------------------------------------------------------------

</TABLE>

                                              52
<PAGE>



The following table summarizes information about the Company's 1988 Plan
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING                                          OPTIONS EXERCISABLE
-----------------------------------------------------------------------------------              ----------------------
                              Number of                Weighted            Weighted                            Weighted
                               Options                  Average             Average                             Average
      Range of             Outstanding at              Remaining           Exercise                            Exercise
  Exercise Prices         December 31, 1998        Contractual life          Price               Options         Price
-----------------------------------------------------------------------------------              ----------------------
<S>                       <C>                      <C>                     <C>                   <C>           <C>     
   $11.00-$13.88               236,400                 2.3 years            $13.03               191,240        $13.04

</TABLE>

1998 EQUITY INCENTIVE PLAN

In May 1998, the Company adopted the 1998 Equity Incentive Plan (the "1998
Plan"). This Plan permits the Company to grant incentive stock options,
restricted stock, unrestricted stock, stock appreciation rights and
non-qualified stock options. A total of 850,000 shares of beneficial interest
have been authorized under the 1998 Plan.

Activity in the Company's 1998 Equity Incentive Plan is summarized in the
following table:
<TABLE>
<CAPTION>
                                  Shares                                                                             
                                 Available                                                              Non-           Weighted
                                   for       Incentive                                  Stock         Qualified        Average
                                 Future        Stock        Restricted  Unrestricted  Appreciation      Stock          Exercise
                                 Grants       Options        Stock         Stock         Rights        Options           Price
----------------------------- ------------- ------------- ------------ ------------- ------------- -------------- -------------
<S>                           <C>            <C>           <C>          <C>          <C>            <C>            <C>         
12/31/1997  Balance                   -0-            -0-          -0-           -0-           -0-            -0-         $ -0-
----------------------------- ------------- ------------- ------------ ------------- ------------- -------------- -------------
Plan Adopted                       850,000           ---          ---           ---           ---            ---         $ ---
Options Granted                   (532,000)      532,000                                                                $13.92
Options Expired                      1,500        (1,500)                                                               $13.00
Restricted Stock Granted           (41,500)                    41,500                                                   $14.36
Restricted Stock Issued                                      (12,237)                                                   $14.40

----------------------------- ------------- ------------- ------------ ------------- ------------- -------------- -------------
12/31/1998  BALANCE                278,000       530,500       29,263           -0-           -0-            -0-        $13.95
----------------------------- ------------- ------------- ------------ ------------- ------------- -------------- -------------

</TABLE>

The following table summarizes information about the Company's 1998 Equity
Incentive Plan grants outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                                    GRANTS OUTSTANDING
                                            ---------------------------------
                                            Number of                Weighted                 Weighted
                                             Grants                  Average                  Average
                    Range of             Outstanding at             Remaining                 Exercise
                Exercise Prices         December 31, 1998        Contractual life              Price
             ----------------------- ------------------------ ----------------------- -------------------------
                <S>                     <C>                      <C>                          <C>              
                 $12.59-$14.78               559,763                5.0 years                  $13.95

</TABLE>


                                                53
<PAGE>



ACCOUNTING FOR STOCK-BASED COMPENSATION

Under FASB No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," the Company has
elected to continue to follow Accounting Principles Board Opinion 25 to account
for stock-based compensation and to make the disclosures set forth below as
required by FASB No. 123. Consequently, the Company has recorded no compensation
costs related to its stock options granted during 1998, 1997 and 1996.

The pro-forma effects on net income and net income pershare data as if the
Company had elected to use the fair value approach to account for its employee
stock-based compensation plans are as follows (in thousands, except for per
share data):
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                           1998                            1997                            1996
                               ------------------------------ -------------------------------- ----------------------------
                                     AS          ADJUSTED           As           Adjusted           As          Adjusted
                                  REPORTED      PRO-FORMA        Reported        Pro-Forma       Reported      Pro-Forma
                                 ------------ --------------- --------------- ---------------- -----------   -------------
<S>                            <C>             <C>             <C>             <C>             <C>             <C>      
Net income                         $13,616       $13,299         $12,880          $12,852         $12,231       $12,214
Per share net income-Basic          $0.79         $0.78           $0.75            $0.75           $0.72         $0.72
</TABLE>

The weighted average fair value per option granted during the year ended
December 31, 1998, 1997 and 1996, estimated on the date of grant using an
option-pricing model that approximates the Black-Scholes method, was $1.48,
$1.58 and $1.69, respectively. The exercise price of options granted was the
market price on the date of grant. The following assumptions were used for the
options granted in 1998, 1997 and 1996, respectively: risk-free interest rate of
4.67%, 5.86% and 6.05%; forfeiture rate, 2.3%, 8.6% and 7.4%; share-volatility
rate, 20.9%, 21.1% and 21.9%; and dividend yield, 8.05%, 8.18% and 8.37%.

Note 13:      DIVIDEND REINVESTMENT PLAN

In accordance with the Dividend Reinvestment and Share Purchase Plan adopted by
the Company in 1990, during 1998, the Company received $166,000 net of issuance
costs and issued 11,053 shares of beneficial interest. Additionally, $495,000 in
dividend reinvestment proceeds were used to purchase shares in the open market
for participating shareholders in 1998. During 1997 and 1996, dividend
reinvestment proceeds of $699,000 and $706,000, respectively, were used to
purchase shares in the open market for participating shareholders.

                                 54
<PAGE>



Note 14:      EARNINGS PER SHARE

In February 1997, the FASB issued FASB No. 128, "EARNINGS PER SHARE." The
purpose of this pronouncement is to show the effect of the exercise of certain
options and other convertible securities on earnings per share. A reconciliation
of the denominator used in the calculation of "DILUTED EARNINGS PER SHARE" for
the year ended December 31, 1998, 1997 and 1996 is shown below:
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,

                                                                        ----------------------------------------------------
                                                                               1998             1997              1996
                                                                        ----------------------------------------------------
<S>                                                                      <C>                 <C>               <C>            
Weighted average shares outstanding...............................           17,206,868       17,144,674        17,055,496

Plus: Options with exercise prices below year-end                                                          
              market price of common stock .......................               11,931           13,618            13,205
         Stock issued under restricted stock plan.................               29,263              ---               ---
         OP units convertible into shares of beneficial interest..              239,381              ---               ---
                                                                        ----------------------------------------------------
Adjusted weighted average shares outstanding......................           17,487,443       17,158,292        17,068,701
</TABLE>



                                 55
<PAGE>


Additionally, during the years 1997 and 1996, the Company had Convertible
Debentures outstanding. The principal balance of all debentures outstanding was
redeemed during October 1997. The principal balance of the debentures at
December 31, 1996 was $61,310,000 and was convertible prior to maturity at a
conversion price equal to $22.23 per share. Hypothetical conversion of these
debentures had the effect of increasing earnings per share for 1997 and
1996, and as such, conversion was not assumed in the above calculation.

The following stock options are not included in the diluted earnings per share
calculation because the options' exercise price was greater than the average
market price of the common shares for the year and, therefore, the effect would
be antidilutive:
<TABLE>
<CAPTION>
                                                1998                  1997                 1996
                                   ------------------ --------------------- --------------------
<S>                                 <C>                <C>                   <C>               
    Number of options                        563,000                86,000              116,000
    Range of exercise prices           $13.31-$14.78         $13.81-$13.88        $13.31-$13.88

</TABLE>

Note 15:      QUARTERLY RESULTS OF OPERATIONS

The following is a summary of quarterly financial information for the last two
years:
<TABLE>
<CAPTION>

Unaudited                                                                                Quarters
                                                               -------------------------------------------------------------
(In thousands, except per share and share data)                       First          Second          Third     Fourth
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>              <C>       <C>     
1998
TOTAL REVENUES................................................        $11,872         $13,333        $12,969     $15,180
                                                                      =======         =======        =======     =======

INCOME BEFORE GAINS ON SALES OF REAL
   ESTATE INVESTMENTS AND EXTRAORDINARY ITEM..................         $2,391          $2,659         $2,737      $3,354
                                                                       ======          ======         ======      ======

NET INCOME....................................................         $2,391          $2,629         $2,737      $5,859
                                                                       ======          ======         ======      ======

BASIC EARNINGS PER SHARE......................................          $0.14           $0.15          $0.16       $0.34
DILUTED EARNINGS PER SHARE....................................          $0.14           $0.15          $0.16       $0.33

DIVIDENDS.....................................................          $0.28           $0.28          $0.28       $0.28
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC.......................     17,194,402      17,204,313     17,210,772  17,214,244
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED.....................     17,266,092      17,269,357     17,249,265  18,195,271

1997
----
Total revenues................................................        $11,141         $12,304        $11,506     $12,600
                                                                      =======         =======        =======     =======

Income before gains on sales of real                                                                                        
   estate investments and extraordinary item..................         $2,789          $2,877         $2,966   $     970
                                                                       ======          ======         ======   =========
Net income....................................................         $2,789          $4,037         $5,703     $   351
                                                                       ======          ======         ======     =======
Basic and diluted earnings per                                                                                              
share..........................                                         $0.16           $0.24          $0.33       $0.02

Dividends.....................................................          $0.28           $0.28          $0.28       $0.28
Weighted average number of shares-Basic.......................     17,138,432      17,138,432     17,139,075  17,162,553
Weighted average number of shares-Diluted.....................     17,146,080      17,162,114     17,157,978  17,176,171

</TABLE>

                                       56
<PAGE>


Note 16:       COMMITMENTS AND CONTINGENCIES

In connection with the redevelopment of a property located in Walnut Creek,
California, the Company was committed to fund $15,804,000 on a note secured by a
first deed of trust on the property under development.

As of December 31, 1998, the Company has entered into several new leases that
call for approximately $898,000 in future real estate improvements and leasing
commissions. The Company expects to pay these expenditures from operating cash
flows or from borrowings under the Bank Line.

The Company is routinely involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsel's evaluation
of such actions, management is of the opinion that such outcomes will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.

Investments in real property create a potential for environmental liability on
the part of the owner of such real property. If hazardous substances are
discovered on or emanating from any of the Company's properties, the Company
and/or others may be held strictly liable for all costs and liabilities relating
to the clean-up of such hazardous substances. The Company carries no insurance
coverage expressly for this type of environmental risk.

Note 17: SUBSEQUENT EVENTS

During the period ended March 1, 1999, the Company sold four non-core properties
in Oregon that were acquired in 1998 as part of the Kienow's Food Stores, Inc.
portfolio. Western, as general partner of the DownREIT limited partnership,
plans on using the sales proceeds of $2.5 million from these four property
dispositions to purchase real estate pursuant to tax-deferred exchanges.


                                       57
<PAGE>

Western Investment Real Estate Trust
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1998
(In thousands except for dates of construction and acquisition 
and depreciable lives)

<TABLE>
<CAPTION>
             Column A                               Column B           Column C                 Column D
------------------------------------------------ -------------  ------------------------- -------------------------
                                                                                          Cost capitalized/(sold)
                                                                 Initial cost to company  Subsequent to acquisition
                                                                 -----------------------  -------------------------
                                                                          Buildings and
            Property Name                           Encumbrance   Land    Improvements       Land   Improvements
----------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>     <C>              <C>      <C>         
Shopping Center
---------------
Anderson Square, Anderson,  CA                                    $1,145       $2,125          $0       $376 
Angel's Camp Town Center, Angels Camp,  CA                           580        4,447           0        148 
Skypark Plaza Shopping Center, Chico,  CA                          2,854       10,454           0      2,260 
Coalinga Shopping Center, Coalinga,  CA                              816        2,144           0        959 
Serra Center, Colma,  CA (30% interest)(1)                           433          914           0        460 
Mercantile Row Shopping Center, Dinuba,  CA                        1,440        6,208           0         64 
Laguna 99 Shopping Center, Elk Grove,  CA                          2,791       11,194           0         16 
Northridge Shopping Center, Fair Oaks,  CA                         1,666        6,830           0        175 
Commonwealth Square Shopping Center, Folsom,  CA                   3,312       13,022           0        845 
Victorian Walk Shopping Center, Fresno,  CA                        1,120        7,356           0        222 
Country Gables Shopping Center, Granite Bay,  CA                   2,704       12,684           0        809 
Pinecreek Shopping Center, Grass Valley, CA                      
  (50% interest)(2)                                                2,725        7,966           0        124 
Heritage Oak Shopping Center, Gridley,  CA                         1,603        3,597           0        117 
Centennial Plaza Shopping Center, Hanford,  CA                     2,225        8,935           0         83 
Plaza 580 Shopping Center, Livermore,  CA                          2,941       11,768         403        765 
Canal Farms Shopping Center, Los Banos,  CA                        1,180        6,904           0        594 
Mission Ridge Shopping Center, Manteca,  CA                        2,373        9,552           0        161 
Century Center, Modesto, CA                                        2,950       14,568           0        (40)
Currier Square Shopping Center, Oroville,  CA                      2,025        7,203           0        961 
Eastridge Plaza Shopping Center, Porterville,  CA                    939        4,390           0         64 
Belle Mill Landing, Red Bluff,  CA                                 2,247        6,043           0      1,927 
Cobblestone Shopping Center, Redding,  CA                          2,375        7,969           0        228 
Kmart Center, Sacramento,  CA                                      1,875        3,116           0        651 
Elverta Crossing Shopping Center, Sacramento,  CA                  3,370        7,477           0        677 
Heritage Park Shopping Center, Suisun,  CA                         3,575       12,187           0        385 
Heritage Place Shopping Center, Tulare,  CA                        1,427        7,117           0        525 
Blossom Valley Plaza, Turlock,  CA                                 2,448        8,315           0        439 
Ukiah Crossroads Shopping Center, Ukiah,  CA                       1,925        8,119           0        348 
Park Place Shopping Center,  Vallejo,  CA                          3,850       11,291         109      1,113 
Lakewood Village, Windsor, CA                      10,009          4,175       16,761           0          0 
Yreka Junction, Yreka,  CA                                         1,350        5,846         288      1,071 
Raley's Shopping Center, Yuba City,  CA                            2,101        5,151           0      1,415 
Eagle Station Shopping Center, Carson City,  NV                    1,735        7,585           0        223 
Elko Junction Shopping Center, Elko,  NV                           2,516        7,631        (184)     6,574 
Dodge Center,  Fallon,  NV (3)                                       405        1,595           0         32 
Caughlin Ranch Shopping Center, Reno,  NV                          2,950        7,123           0        443 
North Hills Shopping Center, Reno,  NV                             5,406        6,911        (304)        91 
Blaine International Center, Blaine, WA                            1,509        6,102           0        114 
                                                   ----------------------------------------------------------
                    Total Shopping Center          10,009         83,061      288,600         312     25,419 

<CAPTION>
                                                                            Column E                   Column F      Column G
                                                      ---------------------------------------------  -------------  -------------
                                                         Gross amount at which carried at close
                                                                          of period
                                                      ---------------------------------------------
                                                                                  Properties
                                                                                   Operating
                                                                                  under Direct
                                                                    Buildings and  Financing          Accumulated     Date of
                                                             Land   Improvements   Leases     Total   Depreciation  Construction
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>            <C>      <C>       <C>          <C>
Shopping Center
---------------
Anderson Square, Anderson,  CA                       $1,145         $2,501                     $3,646         $923       1979     
Angel's Camp Town Center, Angels Camp,  CA              580          4,595                      5,175        1,813       1986     
Skypark Plaza Shopping Center, Chico,  CA             2,854         12,714                     15,568        4,037    1985/1991   
Coalinga Shopping Center, Coalinga,  CA                 816          3,103                      3,919        1,258       1977     
Serra Center, Colma,  CA (30% interest)(1)              433          1,374                      1,807          773       1972     
Mercantile Row Shopping Center, Dinuba,  CA           1,440          6,272                      7,712        1,650       1990     
Laguna 99 Shopping Center, Elk Grove,  CA             2,791         11,210                     14,001        1,671       1993     
Northridge Shopping Center, Fair Oaks,  CA            1,666          7,005                      8,671        1,066    1958/1986   
Commonwealth Square Shopping Center, Folsom,  CA      3,312         13,867                     17,179        3,793    1988/1997   
Victorian Walk Shopping Center, Fresno,  CA           1,120          7,578                      8,698        2,468       1988     
Country Gables Shopping Center, Granite Bay,  CA      2,704         13,493                     16,197        3,423       1988     
Pinecreek Shopping Center, Grass Valley, CA                                                                                       
  (50% interest)(2)                                   2,725          8,090                     10,815        2,619       1988     
Heritage Oak Shopping Center, Gridley,  CA            1,603          3,714                      5,317        1,358       1981     
Centennial Plaza Shopping Center, Hanford,  CA        2,225          9,018                     11,243        1,334       1991     
Plaza 580 Shopping Center, Livermore,  CA             3,344         12,533                     15,877        1,805    1993/1996   
Canal Farms Shopping Center, Los Banos,  CA           1,180          7,498                      8,678        2,659       1988     
Mission Ridge Shopping Center, Manteca,  CA           2,373          9,713                     12,086        1,439       1993     
Century Center, Modesto, CA                           2,950         14,528                     17,478          469       1979     
Currier Square Shopping Center, Oroville,  CA         2,025          8,164                     10,189        2,492    1969/1989   
Eastridge Plaza Shopping Center, Porterville,  CA       939          4,454                      5,393        1,739       1985     
Belle Mill Landing, Red Bluff,  CA                    2,247          7,970                     10,217        2,680  1982/1987/1994
Cobblestone Shopping Center, Redding,  CA             2,375          8,197                     10,572        2,828       1984     
Kmart Center, Sacramento,  CA                         1,875          3,767                      5,642        1,479    1964/1986   
Elverta Crossing Shopping Center, Sacramento,  CA     3,370          8,154                     11,524        1,971    1991/1993   
Heritage Park Shopping Center, Suisun,  CA            3,575         12,572                     16,174        3,560       1989     
Heritage Place Shopping Center, Tulare,  CA           1,427          7,642                      9,069        2,890       1986     
Blossom Valley Plaza, Turlock,  CA                    2,448          8,754                     11,202        2,366    1988/1991   
Ukiah Crossroads Shopping Center, Ukiah,  CA          1,925          8,467                     10,392        2,681       1986     
Park Place Shopping Center,  Vallejo,  CA             3,959         12,404                     16,363        3,540       1987     
Lakewood Village, Windsor, CA                         4,175         16,761                     20,936          496    1993/1995   
Yreka Junction, Yreka,  CA                            1,638          6,917                      8,555        2,092    1984/1997   
Raley's Shopping Center, Yuba City,  CA               2,101          6,566                      8,667        2,138    1963/1984   
Eagle Station Shopping Center, Carson City,  NV       1,735          7,808                      9,543        2,356       1982     
Elko Junction Shopping Center, Elko,  NV              2,332         14,205                     16,537        2,922 1986/1991/1994 
Dodge Center,  Fallon,  NV (3)                          405          1,627                      2,032        1,224       1976     
Caughlin Ranch Shopping Center, Reno,  NV             2,950          7,566                     10,516        1,923    1990/1991   
North Hills Shopping Center, Reno,  NV                5,102          7,002                     12,104        2,409       1986     
Blaine International Center, Blaine, WA               1,509          6,216                      7,725           52       1991     
                                                     --------------------------------------------------------------
                    Total Shopping Center            83,373        314,019             0      397,419       78,396

<CAPTION>
                                                 Column H       Column I
                                                ------------  -------------
                                                                Life on
                                                                 which
                                                              depreciation
                                                              in the latest
                                                                  income   
                                                      Date     statement is
                                                    Acquired     computed  
---------------------------------------------------------------------------
<S>                                               <C>          <C>         
Shopping Center   
---------------                                  
Anderson Square, Anderson,  CA                       1987      5 to 31  
Angel's Camp Town Center, Angels Camp,  CA           1985      5 to 31  
Skypark Plaza Shopping Center, Chico,  CA            1988      3 to 31  
Coalinga Shopping Center, Coalinga,  CA              1987      3 to 31  
Serra Center, Colma,  CA (30% interest)(1)         1973/1988   6 to 31  
Mercantile Row Shopping Center, Dinuba,  CA          1990      3 to 31  
Laguna 99 Shopping Center, Elk Grove,  CA            1994      3 to 31  
Northridge Shopping Center, Fair Oaks,  CA           1994      5 to 31  
Commonwealth Square Shopping Center, Folsom, CA      1990      3 to 31  
Victorian Walk Shopping Center, Fresno,  CA          1988      5 to 31  
Country Gables Shopping Center, Granite Bay, CA      1991      3 to 31  
Pinecreek Shopping Center, Grass Valley, CA                                                                                   
  (50% interest)(2)                                  1989      5 to 31  
Heritage Oak Shopping Center, Gridley,  CA           1987      6 to 31  
Centennial Plaza Shopping Center, Hanford, CA        1994      3 to 31  
Plaza 580 Shopping Center, Livermore,  CA          1994/1996   4 to 31  
Canal Farms Shopping Center, Los Banos,  CA          1986      3 to 32  
Mission Ridge Shopping Center, Manteca,  CA          1994      5 to 31  
Century Center, Modesto, CA                          1998        31                                                           
Currier Square Shopping Center, Oroville,  CA        1989      4 to 31  
Eastridge Plaza Shopping Center, Porterville, CA     1985      3 to 35  
Belle Mill Landing, Red Bluff,  CA                   1987      3 to 31  
Cobblestone Shopping Center, Redding,  CA            1988      3 to 31  
Kmart Center, Sacramento,  CA                        1986      4 to 31  
Elverta Crossing Shopping Center, Sacramento, CA     1990      3 to 31  
Heritage Park Shopping Center, Suisun,  CA           1990      3 to 31  
Heritage Place Shopping Center, Tulare,  CA          1987      5 to 31  
Blossom Valley Plaza, Turlock,  CA                   1990      3 to 31  
Ukiah Crossroads Shopping Center, Ukiah, CA          1989      2 to 31  
Park Place Shopping Center,  Vallejo,  CA            1990      3 to 31  
Lakewood Village, Windsor, CA                        1998        31     
Yreka Junction, Yreka,  CA                         1990/1997   5 to 31  
Raley's Shopping Center, Yuba City,  CA              1986      5 to 40  
Eagle Station Shopping Center, Carson City, NV       1989      3 to 31  
Elko Junction Shopping Center, Elko, NV          191988/1993 73 to 31 7 
Dodge Center,  Fallon,  NV (3)                       1977     24 to 31  
Caughlin Ranch Shopping Center, Reno, NV             1990      3 to 31  
North Hills Shopping Center, Reno,  NV             1988/1993   3 to 31  
Blaine International Center, Blaine, WA              1998        31                                                           
                                                                                                                       
                    Total Shopping Center                                                                              
</TABLE>

<PAGE>

Western Investment Real Estate Trust 
Schedule III - Real Estate and Accumulated Depreciation 
December 31, 1998
(In thousands except for dates of contruction and acquisition 
and depreciable lives)

<TABLE>
<CAPTION>
             Column A                               Column B           Column C                 Column D
------------------------------------------------ -------------  ------------------------- -------------------------
                                                                                          Cost capitalized/(sold)
                                                                 Initial cost to company  Subsequent to acquisition
                                                                 -----------------------  -------------------------
                                                                          Buildings and
            Property Name                           Encumbrance   Land    Improvements       Land   Improvements
----------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>     <C>              <C>      <C>        
Single Tenant
-------------
Nob Hill General Stores, Hollister,  CA (3)                           960      3,869           0         0 
Kmart, Napa,  CA                                                                                           
Nob Hill General Stores, Watsonville,  CA (3)                         416      1,084           0         0 
Raley's Supermarket, Fallon,  NV (3)                                1,000      3,220           0         0 
West Town, Winnemuca,  NV                                             130      3,386           0         0 
                                                       ----------------------------------------------------
                    Total Single Tenant                      0      2,506     11,559           0         0 

Commercial
----------
Coast Savings & Loan, Cupertino,  CA (3)                              615        845           0         0 
Heald Business College, Milpitas,  CA (3)                             979      6,020           0       684 
Coast Savings & Loan, Monterey,  CA                                   911      2,189           0         0 
Redwood II, Petaluma,  CA (3)                                       1,017      3,052           0       813 
Coast Savings & Loan, Salinas,  CA (3)                                516      1,632           0         0 
Coast Savings & Loan (Market St), San Francisco, CA                   873      1,068           0         0 
Coast Savings & Loan (Taraval St), San Francisco, CA                  366      1,824           0         0 
3450 California St., San Francisco,  CA                             1,450      1,159           0       279 
Viking Freight Systems, Santa Clara,  CA (3)                          548          0           0         0 
Coast Savings & Loan, Santa Cruz,  CA                                 205        823           0         0 
                                                       ----------------------------------------------------
                    Total Commercial                         0      7,480     18,612           0     1,776 
                                                       ====================================================
                    Total All Properties               $10,009    $93,047   $318,771        $312   $27,195 
                                                       ====================================================

<CAPTION>
                                                                            Column E                   Column F      Column G
                                                      ---------------------------------------------  -------------  -------------
                                                         Gross amount at which carried at close
                                                                          of period
                                                      ---------------------------------------------
                                                                                  Properties
                                                                                   Operating
                                                                                  under Direct
                                                                    Buildings and  Financing          Accumulated     Date of
                                                             Land   Improvements   Leases     Total   Depreciation  Construction
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>            <C>      <C>       <C>          <C>
Single Tenant
-------------
Nob Hill General Stores, Hollister,  CA (3)                   960       3,869                4,829          492       1994    
Kmart, Napa,  CA                                                                    133        133          N/A       1964    
Nob Hill General Stores, Watsonville,  CA (3)                 416       1,084                1,500          700       1982    
Raley's Supermarket, Fallon,  NV (3)                        1,000       3,220                4,220          805       1991    
West Town, Winnemuca,  NV                                     130       3,386                3,516        1,879    1978/1991  
                                                       ------------------------ --------------------------------              
                    Total Single Tenant                     2,506      11,559       133     14,198        3,876               
                                                                                                                              
Commercial                                                                                                                    
----------
Coast Savings & Loan, Cupertino,  CA (3)                      615         845                1,460          442       1980    
Heald Business College, Milpitas,  CA (3)                     979       6,704                7,683        2,408       1987    
Coast Savings & Loan, Monterey,  CA                           911       2,189                3,100        1,138       1963    
Redwood II, Petaluma,  CA (3)                               1,017       3,865                4,882          952       1985    
Coast Savings & Loan, Salinas,  CA (3)                        516       1,632                2,148          429       1937    
Coast Savings & Loan (Market St), San Francisco,  CA          873       1,068                1,941          555       1964    
Coast Savings & Loan (Taraval St), San Francisco,  CA         366       1,824                2,190          949       1975    
3450 California St., San Francisco,  CA                     1,450       1,438                2,888          708    1957/1987  
Viking Freight Systems, Santa Clara,  CA (3)                  548           0       986      1,534     N/A            1978    
Coast Savings & Loan, Santa Cruz,  CA                         205         823                1,028          259       1980    
                                                       ------------------------ --------------------------------              
                    Total Commercial                        7,480      20,388       986     28,854        7,840               
                                                                                                                              
                                                       ======================== ================================              
                    Total All Properties                  $93,359    $345,966    $1,119   $440,471      $90,112               
                                                       ======================== ================================              

<CAPTION>
                                                   Column H      Column I
                                                  ------------  -------------
                                                                  Life on
                                                                   which
                                                                depreciation
                                                                in the latest        
                                                                    income           
                                                        Date     statement is        
                                                      Acquired     computed          
-------------------------------------------------------------------------------------
<S>                                                 <C>          <C>        
Single Tenant                                         
-------------
Nob Hill General Stores, Hollister,  CA (3)              1994        31      
Kmart, Napa,  CA                                         1966        N/A     
Nob Hill General Stores, Watsonville,  CA (3)            1982        25      
Raley's Supermarket, Fallon,  NV (3)                     1991        31      
West Town, Winnemuca,  NV                                1978     25 to 31   
                                                                                                                               
                    Total Single Tenant                                                                                        
                                                                                                                               
Commercial                                                                                                                     
----------
Coast Savings & Loan, Cupertino,  CA (3)                 1985        25      
Heald Business College, Milpitas,  CA (3)                1987     10 to 31   
Coast Savings & Loan, Monterey,  CA                      1985        25      
Redwood II, Petaluma,  CA (3)                            1989      5 to 31   
Coast Savings & Loan, Salinas,  CA (3)                   1986        40      
Coast Savings & Loan (Market St), San Francisco,  CA     1986        25      
Coast Savings & Loan (Taraval St), San Francisco,  CA    1985        25      
3450 California St., San Francisco,  CA                  1987     10 to 31   
Viking Freight Systems, Santa Clara,  CA (3)             1978        N/A     
Coast Savings & Loan, Santa Cruz,  CA                    1986        40      

                    Total Commercial                                                                                           
                    Total All Properties                                                                                      
                                                                                                                              
</TABLE>

(1)  Serra Center is encumbered by a note and deed of trust under which the 
70% co-owner is the borrower.

(2)  Pinecreek is encumbered by a note and deed of trust under which the 50% 
co-owner is the borrower.

(3)  The Company is holding this property for sale.

(4)  The aggregate cost or adjusted basis of rental property for federal 
income tax purposes reconciles to the amount reflected in the financial 
statements at December 31, 1998 as follows:

<TABLE>
   <S>                                                     <C>
    Basis for federal income tax purposes                     $341,863

    Direct financing leases capitalized for
    financial reporting purposes                                (3,153)

    Reduction in tax basis for deferred gains on
    condemnation and other sales and discharge of 
    indebtedness                                                 7,203

    Miscellaneous differences                                       53
                                                             ---------
    Financial statement reporting basis                       $345,966
                                                             =========
</TABLE>

                                      59
<PAGE>

WESTERN INVESTMENT REAL ESTATE TRUST

1998 BUILDING IMPROVEMENT AND LEASING RELATED COST ADDITIONS (Unaudited)

<TABLE>
<CAPTION>
                                                                                                        LEASING
         NAME                               LOCATION                        IMPROVEMENT               RELATED COST
         ----                               --------                        -----------               ------------
                   SHOPPING CENTERS
                   ----------------
<S>     <C>                               <C>                             <C>                        <C>
   72    ANDERSON SQUARE                    ANDERSON, CA                           $8                        $5
   50    ANGELS CAMP TOWN CENTER            ANGELS CAMP, CA                        20                         7
   80    SKYPARK PLAZA                      CHICO, CA                             196                        17
   67    COALINGA                           COALINGA, CA                           22                         2
   39    SERRA CENTER (30%)                 COLMA, CA                             112                        18
   89    MERCANTILE ROW                     DINUIBA, CA                             3                         5
   94    LAGUNA 99 PLAZA                    ELK GROVE, CA                          23                         6
   96    NORTHRIDGE                         FAIR OAKS, CA                         244                        29
   68    COMMONWEALTH SQUARE                FOLSOM, CA                             42                        34
   78    VICTORIAN WALK                     FRESNO, CA                             18                         1
   69    COUNTRY GABLES                     GRANITE BAY, CA                       151                        39
   82    PINECREEK (50%)                    GRASS VALLEY, CA                       12                        35
   70    HERITAGE OAK                       GRIDLEY, CA                            17                         -
   93    CENTENNIAL PLAZA                   HANFORD, CA                             -                         8
   97    PLAZA 580                          LIVERMORE, CA                          91                        24
   61    CANAL FARMS                        LOS BANOS, CA                           -                         8
   95    MISSION RIDGE PLAZA                MANTECA, CA                             8                        12
  101    CENTURY CENTER                     MODESTO, CA                            17                        13
   84    CURRIER SQUARE                     OROVILLE, CA                          218                        26
   49    EASTRIDGE PLAZA                    PORTERVILLE, CA                         5                         -
   71    BELLE MILL LANDING                 RED BLUFF, CA                          61                         2
   77    COBBLESTONE                        REDDING, CA                            43                         9
   62    KMART CENTER                       SACRAMENTO, CA                         81                         6
   91    ELVERTA CROSSING                   SACRAMENTO, CA                          6                        19
   81    HERITAGE PARK                      SUISUN, CA                             27                        22
   51    HERITAGE PLACE                     TULARE, CA                             50                         6
   66    BLOSSOM VALLEY PLAZA               TURLOCK, CA                            29                         3
   86    CROSSROADS                         UKIAH, CA                              21                         9
   65    PARK PLACE                         VALLEJO, CA                            54                         4
  102    LAKEWOOD VILLAGE                   WINDSOR, CA                             -                        10
   85    YREKA JUNCTION                     YREKA, CA                             (11)                        5
   59    RALEY'S CENTER                     YUBA CITY, CA                          24                         26
   83    EAGLE STATION                      CARSON CITY, NV                        55                        36
   79    ELKO JUNCTION                      ELKO, NV                              320                        57
   76    NORTH HILLS                        RENO, NV                               19                        14
   88    CAUGHLIN RANCH                     RENO, NV                               55                        17
  105    BLAINE INTERNATIONAL CENTER        BLAINE, WA                            114                         2

                   SUBTOTAL - SHOPPING CENTERS                                 $1,647                     $ 446
                                                                              --------                    ------

<CAPTION>
                     COMMERCIAL
                     ----------
<S>     <C>                               <C>                             <C>                        <C>
   74    REDWOOD II                         PETALUMA, CA                         $813                      $187
   64    3450 CALIFORNIA STREET             SAN FRANCISCO, CA                       -                        37
                                                                              --------                    ------

                   SUBTOTAL - COMMERCIAL                                        $ 813                     $ 224
                                                                              --------                    ------

                       TOTAL                                                  $ 2,460                     $ 670
                                                                              ========                    ======

</TABLE>

                                      60

<PAGE>

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

There have been no disagreements with the independent accountants on the
Company's accounting and financial disclosure. Additionally, there has been no
change of the independent accountant engaged to audit the Company's financial
statements.

                                    PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information with respect to the trustees and executive officers of the Company
is incorporated by reference to the section entitled "Trustees and Executive
Officers" of the Company's definitive Proxy Statement in connection with the
annual Meeting of Shareholders to be held May 13, 1999, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K, pursuant to General Instruction G to this Form 10-K.

ITEM 11.       EXECUTIVE COMPENSATION.

Information with respect to executive compensation is incorporated by reference
to the sections entitled "Compensation of Trustees", "Compensation of Executive
Officers", "Compensation Pursuant to Plans or Arrangements", "Stock Option
Grants and Exercises" and "Report of Compensation Committee on Executive
Compensation" of the Company's definitive Proxy Statement in connection with the
annual Meeting of Shareholders to be held May 13, 1999, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K, pursuant to General Instruction G to this Form 10-K.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information with respect to security ownership of certain beneficial owners and
management is incorporated by reference to the section entitled "Ownership of
Shares" of the Company's definitive Proxy Statement in connection with the
annual Meeting of Shareholders to be held May 13, 1999, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K, pursuant to General Instruction G to this Form 10-K.


                                      61



<PAGE>

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The following table details Officer loans with the Company as of December 31,
1998:

<TABLE>
<CAPTION>
                 Name                Amounts           Maturity Date      Interest Rate
        ----------------------- ------------------ ---------------------- ---------------
         <S>                       <C>              <C>                   <C>
          Brad Blake                 $ 499,831(1)      February 28, 2001          5.58%
          Dennis Ryan                  300,000(1)      February 28, 2001          5.58%
          Josh Smith                   250,000(1)      February 28, 2001          5.58%
          Jerry Hunt                   250,000(1)      February 28, 2001          5.58%
          Brad Blake                   283,750(2)       October 30, 2008          7.50%
          Dennis Ryan                  283,750(2)       October 30, 2008          7.50%
        ----------------------- ------------------ ---------------------- ---------------
                                    $1,867,331
        ======================= ================== ====================== ===============

</TABLE>

     (1) The loan proceeds were used to fund the purchase of Company shares 
         of beneficial ownership by these individuals in order to increase 
         their ownership in the Company and to more closely align their 
         interests with those of the stockholders.

     (2) The loan proceeds were used to fund their acquisition of the common 
         stock of Western Real Estate Services, Inc. (WRESI), in which the 
         Company has a 97% economic interest. WRESI was formed to facilitate
         the acquisition of Kienow's (see Note 5 to the consolidated financial 
         statements).

                                                       PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.


<TABLE>
<CAPTION>

           (a)    1.         Consolidated Financial Statements - Included in Item 8                                  PAGE
                                                                                                                    ------
<S>                          <C>                                                                                    <C>

                             Report of Independent Certified Public Accountants                                        36
                             Consolidated Balance Sheets - December 31, 1998 and 1997                                  37
                             Consolidated Financial Statements for the Years
                                Ended December 31, 1998, 1997 and 1996:

                                    Consolidated Statements of Income                                                  38
                                    Consolidated Statements of Shareholders' Equity                                    39
                                    Consolidated Statements of Cash Flows                                              40
                                    Notes to Consolidated Financial Statements                                      41-57

                  2.         Financial Statement Schedule III:  Real Estate and
                             Accumulated Depreciation                                                               58-59

                  3.         Additional Information:  1998 Building Improvement
                             and Leasing Related Cost Additions (unaudited)                                            60


           (b) 1.            Reports on Form 8-K.

                             Form 8-K dated September 29, 1998 contained an Item
                             5 disclosure announcing the Company's agreement to
                             acquire control of Kienow's Food Stores, Inc.

                             Form 8-K dated October 30, 1998 contained an Item 5
                             disclosure announcing the completion of the
                             Company's acquisition of Kienow's Food Store, Inc.

                                       62


<PAGE>

<CAPTION>

           (c)    Exhibits.                                                                                          PAGE
                                                                                                                    -----
<S>                          <C>                                                                                    <C>

                  (3)        Declaration of Trust, as amended (filed as Exhibit
                             3 to Registrant's 10-Q for the quarter ended
                             September 30, 1998, and incorporated herein by
                             reference.

              (4.1)          Form of Indenture relating to the Senior Notes (filed as
                             Exhibit 4.1 to Registration Statement on Form S-3 No.
                             33-71270 and incorporated herein by reference).

              (4.2)          Form of Senior Notes (filed as Exhibit 4.2 to Registration
                             Statement on Form S-3 No. 33-71270 and incorporated herein
                             by reference).

              (4.3)          Form of Supplemental Indenture relating to the 7.1% Senior
                             Notes (filed as Exhibit 4.5 on Form 8-K, dated September 24,
                             1997, and incorporated herein by reference).

              (4.4)          Form of Supplemental Indenture relating to the 7.2% Senior
                             Notes (filed as Exhibit 4.6 on Form 8-K, dated September 24,
                             1997, and incorporated herein by reference).

              (4.5)          Form of Supplemental Indenture relating to the 7.3% Senior
                             Notes (filed as Exhibit 4.7 on Form 8-K, dated September 24,
                             1997, and incorporated herein by reference).

              (10.1)         Company's Nonqualified Stock Option Plan (filed as Exhibit
                             4.2 to Registration Statement on Form S-8 No. 33-27016 and
                             incorporated herein by reference).

              (10.2)**       Compensation Agreement (filed as Exhibit 10.3 to
                             Registrant's 10-K for the fiscal year ended
                             December 31, 1997, and incorporated herein by
                             reference).

              (10.3)**       Management Contracts (filed as Exhibit 10.4 to
                             Registrant's 10-Q for the quarter ended March 31,
                             1998, and incorporated herein by reference).

              (10.4)**       Company's 1998 Equity Incentive Plan (filed as
                             Exhibit 10.4 to Registrant's 10-Q for the quarter
                             ended June 30, 1998, and incorporated herein by
                             reference).

                                       63

<PAGE>

<CAPTION>

                                                                                                                     PAGE
                                                                                                                     ----
<S>                          <C>                                                                                     <C>

              (10.5)**       Stock Purchase and Contribution agreement dated
                             September 29, 1998 (filed as Exhibit 10.5 to
                             Registrant's 10-Q for the quarter ended September
                             30, 1998, and incorporated herein by reference).

              (10.6)         Agreement of Limited Partnership of
                             Western/Kienow's, LP dated October 30,1998 (filed
                             as Exhibit 10.6 to Registrant's 10-Q for the
                             quarter ended September 30, 1998, and incorporated
                             herein by reference).

                  (12) *     Computation of Ratio of Earnings to Fixed 
                             Charges for the year ended December 31, 1998, 
                             1997, 1996, 1995, 1994.                                                                   66

                  (23) *     Consent of Independent Certified Public Accountants                                       67


                  (27) *     Financial Data Schedule
</TABLE>
----------

*        Filed with this report.

**       Management contract or compensatory plan or arrangement.


                                       64
<PAGE>

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 there unto duly authorized.

WESTERN INVESTMENT REAL ESTATE TRUST
------------------------------------
(Registrant)

                                            By:    s/ Dennis D. Ryan  
                                                   ---------------------
                                                   Dennis D. Ryan
                                                   Executive Vice President,
                                                       Chief Financial Officer
Dated:   MARCH  30, 1998                               and Trustee

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/ Robert J. McLaughlin                              Chairman                                      March  30, 1999
------------------------------------------              of the Board                             -----------------
Robert J. McLaughlin                                    and Trustee 
                                                        

s/ Bradley N. Blake                                  President,                                    March  30, 1999
------------------------------------------              Chief Executive Officer                  -----------------
Bradley N. Blake                                        and Trustee             
                                                        

s/ Dennis D. Ryan                                    Executive Vice President,                     March  30, 1999
------------------------------------------              Chief Financial Officer                  -----------------
Dennis D. Ryan                                          and Trustee             
                                                        

s/ Joseph Colmery                                    Trustee                                       March  30, 1999
------------------------------------------                                                       -----------------
Joseph Colmery

s/ L. Michael Foley                                  Trustee                                       March  30, 1999
------------------------------------------                                                       -----------------
L. Michael Foley

s/ Reginald B. Oliver                                Trustee                                       March  30, 1999
------------------------------------------                                                       -----------------
Reginald B. Oliver

s/ James L. Stell                                    Trustee                                       March  30, 1999
------------------------------------------                                                       -----------------
James L. Stell

</TABLE>
                                       65