UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                          Washington, DC   20549
                                FORM 10-K


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

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

                         Commission File Number 0-25230

                       FIRST WASHINGTON REALTY TRUST, INC.

            (Exact name of registrant as specified in its charter)

         Maryland                                                52-1879972
(State of Incorporation or Organization)                      (I.R.S. employer
                                                            identification no.)

4350 East-West Highway                                       (301) 907-7800
Suite 400                                               (Registrant's telephone
Bethesda, MD   20814                                number, including area code)
(Address of principal executive offices)

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

Title of Each Class                   Name of Each Exchange on Which Registered
Common Stock, $.01 par value                            New York Stock Exchange

9.75% Series A Cumulative Participating
Convertible Preferred Stock
Liquidation Preference of $25 per Share                 New York Stock Exchange


     Securities registered pursuant to Section 12(g) of the Act:   NONE

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 and (2) has been subject to such filing requirements for
the past 90 days.

                    Yes   X       No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.     X

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  was  approximately  $119 million  based on the closing price of such
shares on the New York Stock Exchange as of March 25, 1997.

The number of shares of the Registrant's Common Stock outstanding was 4,946,245
on March 25, 1997

                     DOCUMENTS INCORPORATED BY REFERENCE

Part III - Portions of the definitive  proxy statement for the Annual Meeting of
Shareholders  presently  scheduled  to be  held  on May 16,  1997,  to be  filed
pursuant to Regulation 14A.

This report including Exhibits, contains 61 pages.



<PAGE>







                         FIRST WASHINGTON REALTY TRUST, INC.
                          1996 ANNUAL REPORT ON FORM 10-K

                                 TABLE OF CONTENTS







  Item
   No.                                                                     Page
                                          PART I

1.    Business.........................................................      1
2.    Properties.......................................................      9
3.    Legal Proceedings................................................     16
4.    Submission of Matters to a Vote of Security Holders..............     16

                                                      PART II

5.    Market for the Registrant's Common Equity and Related
          Shareholder Matters..........................................     17
6.    Summary of Selected Financial Data...............................     21
7.    Management's Discussion and Analysis of Financial Condition and
          Results of Operations........................................     22
8.    Consolidated Financial Statements and Supplementary Data.........     28
9.    Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure.....................................     28

                                         PART III

10.   Directors and Executive Officers of the Registrant...............     29
11.   Executive Compensation...........................................     29
12.   Security Ownership of Certain Beneficial Owners and Management...     29
13.   Certain Relationships and Related Transactions...................     29

                                         PART IV

14.   Exhibits, Financial Statement Schedules, and Reports on
      Form 8-K.........................................................     29






<PAGE>




                                        PART I



Item 1.  Business

General

      First Washington  Realty Trust, Inc. (the "Company") is a fully integrated
real estate  organization with expertise in acquisitions,  property  management,
leasing,   renovation  and   development  of  principally   supermarket-anchored
neighborhood  shopping  centers.  The  Company  owns a  portfolio  of 39  retail
properties (the "Retail  Properties")  containing a total of  approximately  4.1
million square feet of gross  leasable area ("GLA") and two related  multifamily
properties (the  "Multifamily  Properties")  located in the Mid-Atlantic  region
(the Retail Properties and the Multifamily  Properties are collectively referred
to as the "Properties").

      The Retail  Properties are  strategically  located  neighborhood  shopping
centers principally  anchored by well known tenants such as Giant Food, Safeway,
Shoppers Food Warehouse,  Food Lion, A&P Superfresh,  Winn Dixie,  Weis Markets,
Acme  Market,  CVS/Pharmacy  and Rite Aid.  Neighborhood  shopping  centers  are
typically open-air centers ranging in size from 50,000 to 150,000 square feet of
GLA and anchored by supermarkets and/or drug stores. The Retail Properties range
in size from  approximately  3,000 square feet of GLA to  approximately  335,000
square feet of GLA, and average  approximately  100,000  square feet of GLA. The
anchor  tenants  typically  offer daily  necessity  items rather than  specialty
goods.  Eight of the Retail  Properties are relatively  small in size, with less
than 50,000 square feet of GLA. Such properties do not have a large  supermarket
or drug store anchor tenant,  and as such may be subject to greater  variability
in consumer traffic and operating performance.

Organization

      The  Company  was  formed  in  April  1994  to  continue  and  expand  the
neighborhood  shopping center acquisition,  management and renovation strategies
of First  Washington  Management,  Inc.  ("FWM"),  which has been engaged in the
business  since  1983.  FWM was  founded  by Stuart D.  Halpert,  the  Company's
Chairman,  William J. Wolfe,  President and Chief Executive Officer,  and Lester
Zimmerman, an Executive Vice President (the "Principals").

      On June 27,  1994,  the  Company  consummated  the  private  placement  of
1,920,000  shares  of  9.75%  Series  A  Cumulative  Participating   Convertible
Preferred  Stock,  par value $0.01 per share  ("Preferred  Stock") and 1,282,051
shares  of  Common   Stock,   par  value  $0.01  per  share   ("Common   Stock")
(collectively,  the  "June  1994  Offering").  Concurrently  with the June  1994
Offering,  the Company  consummated a series of  transactions  that  transferred
ownership of the Properties to First Washington  Realty Limited  Partnership,  a
limited  partnership  in which the  Company  is the sole  general  partner  (the
"Operating  Partnership").  In addition,  the  Operating  Partnership  issued in
private  placements the following  securities  convertible or exchangeable  into
Common  Stock  or  Preferred  Stock  of the  Company:  (i)  Common  Units of the
Operating Partnership ("Common Units"), exchangeable for shares of Common Stock;
(ii) Exchangeable  Preferred Units of the Operating  Partnership  ("Exchangeable
Preferred Units"), exchangeable for shares of Preferred Stock; (iii) $25 million
in aggregate  principal  amount of 8.25%  Exchangeable  Debentures due 1999 (the
"Exchangeable  Debentures"),  exchangeable for shares of Preferred Stock; (iv) a
$2.0  million  promissory  note of the  Operating  Partnership  (the "VC Note"),
exchangeable for shares of Preferred  Stock;  and (v) a $4.8 million  promissory
note of the Operating  Partnership (the "FS Note"),  for shares of Common Stock.
The Properties acquired by the Company in the formation transactions include (i)
14  Retail  Properties  and  two  Multifamily  Properties  (together,  the  "FWM
Properties")  that were  managed by FWM prior to  formation  of the  Company and
which  were  acquired   from   partnerships   affiliated   with  FWM  (the  "FWM
Partnerships")  and (ii) six Retail Properties (two of which were managed by FWM
prior to formation of the Company) that were acquired from third parties.

      The  Company  currently  owns  approximately   83.8%  of  the  partnership
interests in the  Operating  Partnership.  All of the Company's  operations  are
conducted through the Operating  Partnership.  The Operating Partnership owns 27
Properties  directly and 14 Properties are owned by lower tier  partnerships  or
limited  liability  companies  in which  the  Operating  Partnership  owns a 99%
partnership  interest  and the  Company  (or a  wholly-owned  subsidiary  of the
Company) owns a 1% partnership interest.


                                                         1

<PAGE>




      The Operating Partnership also owns 100% of the non-voting Preferred Stock
of FWM  (entitled to 99% of the cash flow from FWM).  FWM  provides  management,
leasing and related services for the Properties.  In addition to the Properties,
as of December 31, 1996, FWM provides  management,  leasing and related services
to 30 properties comprising  approximately 3.2 million square feet of GLA for 16
third-party clients, including individual,  institutional and corporate property
owners. FWM is referred to herein as the "Management Company".

      The Company is incorporated in the State of Maryland with its headquarters
located at 4350 East-West Highway, Suite 400, Bethesda,  Maryland. The telephone
number is (301) 907-7800.  The Company has regional property  management offices
located  in  North  Carolina,   Pennsylvania  and  Virginia.   The  Company  has
approximately 70 employees.

Operating Strategies

      The Company seeks to increase cash flow and distributions,  as well as the
value of its  portfolio,  through  intensive  property  management and strategic
renovation and expansion of its properties and the opportunistic  acquisition of
additional  neighborhood  shopping centers within the Mid-Atlantic region, where
the Company has extensive knowledge of local market growth patterns and economic
conditions.

      Intensive Management.  A key aspect of the Company's strategy is improving
the operating performance of its properties over time through intensive property
management.   The  Company  seeks  to  increase   operating  margins  through  a
combination of increasing  revenues (through  increased  occupancy and/or rental
rates), maintaining high tenant retention rates (i.e., the percentage of tenants
who renew their leases upon  expiration),  and aggressively  managing  operating
expenses.

      The Company believes that, as a fully integrated real estate  organization
with both  owned  and  third-party  managed  properties,  it enjoys  significant
operating efficiencies relative to many of its competitors that operate smaller,
fragmented portfolios.  These operating efficiencies are the result of economies
of scale in operating  expenses,  more effective leasing and marketing  efforts,
and enhanced tenant retention levels. The Company also benefits from effectively
spreading  certain fixed  property  management and leasing costs over its entire
owned and third-party  managed portfolio.  Management believes that the scope of
the  Company's  portfolio,   combined  with  the  Principals'  professional  and
community  ties to the  Mid-Atlantic  region,  enables  the  Company  to develop
long-term relationships with national and regional tenants which occupy multiple
properties in its portfolio, which improves occupancy rates and tenant retention
levels.

      Strategic  Renovation  and  Expansion.   The  Company  seeks  to  increase
operating  results through the strategic  renovation and expansion of certain of
the Properties.  The Retail Properties are typically adaptable for varied tenant
layouts and can be reconfigured to accommodate new tenants or the changing space
needs of existing tenants.  In determining  whether to proceed with a renovation
or  expansion,  the  Company  considers  both  the  cost  of such  expansion  or
renovation  and  the  increase  in  rent   attributable  to  such  expansion  or
renovation.  The  Company  believes  that the  Retail  Properties  will  provide
opportunities for renovation and expansion.

      The following table sets forth  information  with respect to the Company's
recent and ongoing renovations and expansions:
<TABLE>
<S>              <C>                     <C>        <C>        <C>

                                         Estimated
                                         Completion Estimated  Additional
Name             Description             Date       Cost       Square Feet

1996 Completed
Projects:
 Centre Ridge    Expansion -
                 Sears Paint & Hardware  Completed  $950,000       24,500
 Fox Mill        Expansion -
                 Giant Food              Completed       -(1)      10,560
 Glen Lea        Facade and
                 common area renovation  Completed    182,500           -
 Kenhorst Plaza  Expansion -
                 Sears Paint & Hardware  Completed  1,250,000      24,440
 Laburnum Square Facade and
                 common area renovation  Completed    182,600           -
 Potomac Plaza   Facade and
                 common area renovation  Completed    400,000           -
 Takoma Park     Expansion -
                 Shoppers Food Warehouse Completed        -(1)          -

</TABLE>

                                                         2

<PAGE>

<TABLE>
<S>               <C>                    <C>                 <C>          <C>
1997 Projects:
 Centre Ridge     Expansion -
                  In-line retail         First Quarter 1997  $ 455,000    9,900
 Firstfield       Facade and
                  common area renovation First Quarter 1997    122,000        -
 First State      Expansion -
                  Shop Rite Supermarket  First Quarter 1997        -(1)   2,075
 Laburnum Square  Expansion -
                  Hannaford Bros.        First Quarter 1997    700,000   14,000
 Takoma Park      Facade and
                  common area renovation Second Quarter 1997   868,000        -
 Valley Centre    Expansion -
                  T.J. Maxx              First Quarter 1997    625,000    8,000
 Brafferton       Facade and
                  common area renovation Second Quarter 1997   212,000        -
 Kenhorst Plaza   Expansion -
                  Redner's Supermarket   Second Quarter 1997       -(1)   8,000
 Southside
 Marketplace      Facade and
                  common area renovation Second Quarter 1997   208,000        -
 Laburnum Park    Expansion -
                  Ukrops Supermarket     Fourth Quarter 1997       -(1)  10,000
 Valley Centre    Purchase of land
                  and development
                  of pad site            Fourth Quarter 1997 1,058,000    6,800
</TABLE>


     (1) Paid by tenant.

     As a  fully-integrated  real estate  organization,  the  Company  maintains
expertise in the development of new retail properties, having developed three of
the  FWM  Properties  containing  approximately  525,000  square  feet  of  GLA.
Management  believes the Company's  principal  anchor tenants and others present
the Company with development opportunities which the Company may pursue.

     Opportunistic  Acquisitions.  Another principal  component of the Company's
strategy is the acquisition of additional  neighborhood  shopping centers within
the Mid-Atlantic  region.  The Company will seek to acquire properties which are
strategically located along major traffic arteries in well-established,  densely
populated  communities.  The Company typically  selects  properties in locations
where it believes the supply of developable land and zoning  restrictions impede
the  development  of  competing  shopping  centers and where  tenants'  location
alternatives are limited.

     Through its third-party  management,  leasing and related service  business
and network of regional management and leasing offices,  the Company is familiar
with local  conditions in its given markets.  Because the Company's  third-party
clients  frequently seek assistance with the  revitalization  and disposition of
the  properties,  the Company  believes it is in a unique position to ultimately
acquire such properties. For example, prior to the formation of the Company, FWM
provided property  management and leasing services for two of the six properties
acquired  in the  June  1994  offering  and has  subsequently  acquired  another
property from a  third-party  client.  The Company  believes  opportunities  for
neighborhood  shopping center  acquisitions are particularly  attractive at this
time because of the  fragmentation in ownership of such properties,  the limited
amount of available capital for non-institutional owners of retail property, and
the decline in the construction of new retail properties.

     When  evaluating  potential  acquisitions,  the Company will  consider such
factors  as:  (i)  economic,  demographic,  and  regulatory  conditions  in  the
property's local and regional market; (ii) the location,  construction  quality,
and design of the  property;  (iii) the current and  projected  cash flow of the
property and the potential to increase cash flow; (iv) the potential for capital
appreciation  of the  property;  (v) the terms of tenant  leases,  including the
relationship  between  the  property's  current  rents and market  rents and the
ability to increase rents upon lease rollover;  (vi) the occupancy and demand by
tenants for properties of a similar type in the market area; (vii) the potential
to complete a strategic renovation,  expansion,  or retenanting of the property;
(viii) the property's  current  expense  structure and the potential to increase
operating  margins;  (ix) the  ability of the  Company to  subsequently  sell or
refinance the property;  and, (x) competition from comparable  retail properties
in the market area. The Company  successfully  completed the  acquisition of six
new  properties  in  connection  with  the  June  1994  Offering,  purchased  an
additional  seven  properties  during 1995 and an additional  nine properties in
1996.  In addition,  the Company has acquired  four new  properties as described
below in "Recent Developments".

Recent Developments

     On December 2, 1996, the Company  completed a public  offering of 1,500,000
shares of Common Stock (the "December 1996 Offering").  The shares of stock were
priced at $21.75  per  share,  resulting  in gross  offering  proceeds  of $32.6
million.  The Company  netted $30.2  million after  deducting  the  underwriters
discount and offering expenses of $2.4 million.

     On December 30, 1996,  an  additional  155,000  shares of Common Stock were
issued pursuant to the exercise of a portion of the underwriters  over-allotment
option.  The  Company  received  additional  proceeds  of  $3.2  million  net of
underwriters discount.

                                                         3

<PAGE>







     On December 19,  1996,  the Company  acquired  Kings Park  Shopping  Center
located in Burke,  Virginia for an approximate price of $5.7 million. The center
is anchored by Giant Food and CVS/Pharmacy. The acquisition was financed through
the assumption of a $4.3 million first trust mortgage, issuance of approximately
36,000  Common Units to the seller of the property  with a value of $0.8 million
and $0.6 million cash. The mortgage loan bears  interest at 9.00% per annum,  is
self amortizing over a 17 year period, and is due November 2014.

     On December 27, 1996, the Company  acquired  Newtown Square Shopping Center
located in  Newtown  Square,  Pennsylvania,  for an  approximate  price of $11.7
million. The center is anchored by Acme Markets and Thrift Drug.
The property was financed from the proceeds of the December 1996 Offering.

     On December 30, 1996, the Company acquired Northway Shopping Center located
in Millersville,  Maryland for an approximate price of $9.1 million.  The center
is anchored by Metro Foods and Rite Aid. The  acquisition  was financed  through
the  assumption of a $7.8 million  mortgage,  issuance of  approximately  48,000
Common Units to the seller of the property  with a value of  approximately  $1.1
million  and $0.2  million  in  cash.  The  mortgage  loan of $7.8  million  was
subsequently  split into two loans. A first trust mortgage loan in the amount of
$6.0 million bears interest at 8.5% per annum and is payable  monthly based on a
25 year amortization  schedule.  The loan is due in January 2007. A second trust
mortgage in the amount of $1.8 million bears interest at 10.25% per annum and is
payable  monthly based on a 28 year  amortization  schedule.  The loan is due in
August 1999.

     On January  24,  1997,  the Company  acquired  City Line  Shopping  Center,
located in Philadelphia, Pennsylvania for an approximate price of $14.8 million.
The shopping center is anchored by Acme Market and Thrift Drugs. The acquisition
was financed through the issuance of  approximately  143,000 Common Units to the
seller of the  property  with a value of  approximately  $3.4  million,  assumed
mortgage  indebtedness of approximately $10.0 million,  new indebtedness of $1.0
million and $0.4 million in cash.  The mortgage loan bears interest at 8.00% per
annum and is payable monthly based on a 24 year amortization  schedule. The loan
is due in October 2005.

     On January 28, 1997,  the Company  acquired Four Mile Fork Shopping  Center
located in  Fredericksburg,  Virginia for an approximate  price of $5.7 million.
The center is anchored by Safeway and CVS/Pharmacy. The acquisition was financed
with proceeds of the December 1996 Offering.

     On January 28, 1997, the Company sold Thieves Market located in Alexandria,
Virginia. The center was sold for an approximate price of $1.2 million.

     On January 31, 1997,  the Company  acquired  Shoppes of Graylyn  located in
Wilmington,  Delaware. The price of the property was $7.2 million. The center is
anchored by Rite Aid. The acquisition was financed by a $3.8 million draw on the
Company's  line of credit,  $.4 million from the proceeds of the sale of Thieves
Market and $3.0 million in cash from the proceeds of the December 1996 Offering.

     On March 19, 1997 (effective  March 1, 1997),  the Company acquired Ashburn
Farms Village  Center located in Ashburn,  Virginia for an approximate  price of
$9.2 million. The center is anchored by Superfresh Supermarket.  The acquisition
was financed with mortgage debt of $6.8 million,  the issuance of  approximately
55,000 Common Units to the seller of the property with a value of  approximately
$1.2 million,  the issuance of approximately 9,500 Preferred Units to the seller
of the property  with a value of  approximately  $0.2 million and  approximately
$1.0 million in cash. The mortgage loan bears interest at LIBOR + 1.5% per annum
and has an annual amortization of approximately $.1 million.  The loan is due in
January 2001.

Financing Strategies

     The Company intends to finance its  acquisition and development  activities
with the most  appropriate  sources of capital  available at the time, which may
include  undistributed funds from operations,  the net proceeds from issuance of
equity  securities  (including  Operating  Partnership  units),  bank and  other
institutional  borrowings,  sale  of  investments,  and  the  issuance  of  debt
securities.



                                                         4

<PAGE>






     Future  borrowings  may be either  on a secured  or  unsecured  basis.  The
Company's ratio of debt to total market  capitalization  as of December 31, 1996
was  approximately  47.0%  (including  the  Exchangeable  Debentures)  and 40.3%
excluding  the  Exchangeable  Debentures.  The Company is subject to a number of
risks associated with borrowing,  including the uncertainty  associated with the
ability of the  Company to  refinance  mortgage  indebtedness  of  approximately
$110.1  million  (including  Exchangeable  Debentures) at maturity dates ranging
from 1998 to 2002, that the  indebtedness  might be refinanced on less favorable
terms,  that there is a lack of limitations on the amount of  indebtedness  that
the Company may incur,  that interest  rates might  increase on variable rate or
refinanced  indebtedness  and that the Company's level of leverage may limit its
ability to grow through additional debt financing.

Marketing and Promotion

     The  Company  engages  in  various  marketing  and  promotional  activities
designed to increase consumer traffic,  retail sales and percentage rents at its
Properties.

Environmental Regulations

     The  Company,   as  an  owner  of  real  estate,   is  subject  to  various
environmental laws of Federal and local  governments.  Compliance by the Company
with  existing  laws has not had a  material  adverse  effect  on its  financial
condition  and  management  does not  believe it will have such an effect in the
future. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Properties.

     All of the Properties have been subjected to Phase I environmental  audits.
Such audits have not  revealed,  nor is  management  aware of any  environmental
liability that management  believes would have a material  adverse impact on the
consolidated financial position, results from operations or liquidity, including
the three situations discussed below.  Management is unaware of any instances in
which  it  would  incur  and  be  financially   responsible   for  any  material
environmental costs if any or all Properties were sold, disposed or abandoned.

     Contamination  caused by dry cleaning  solvents has been detected in ground
water below the Penn Station  Shopping Center.  The source of the  contamination
has not been determined.  Potential  sources include a dry cleaner tenant at the
Penn Station Shopping Center and a dry cleaner located in an adjacent  property.
Sampling  conducted at the site indicates that the  contamination is limited and
is unlikely to have any effect on human  health.  The Company has made a request
for closure to the State of Maryland.  Management believes that there is minimal
exposure at this time,  and therefore has not recorded an accrued  environmental
clean-up liability.

     Petroleum  has been  detected in the soil of a parcel  adjacent to Fox Mill
Shopping Center on property occupied by Exxon Corporation ("Exxon") for use as a
gas  station  (the "Exxon  Station").  Exxon has taken  steps to  remediate  the
petroleum in and around the Exxon  Station,  which is located down gradient from
the Fox Mill Shopping Center.  Exxon has agreed to take full  responsibility for
the  remediation of such petroleum.  Currently,  the company is not aware of any
contamination  of the  Company's  property  and none is  expected  to occur.  In
addition,  a dry cleaning solvent has been detected in the groundwater below the
Fox Mill Shopping Center. A groundwater pump and treatment  system,  approved by
the Virginia Water Control Board,  was installed in July 1992, and was operating
until recently when the Control Board ordered quarterly sampling to determine if
further  remediation  is  necessary.  The total  cost of  running  the pumps and
monitoring the  contamination is estimated to be approximately  $75,000 and will
be expended over the course of the next three to four years.  The previous owner
of the Fox Mill Shopping Center has agreed to pay for these costs and has agreed
to fully remediate the groundwater  contamination  to the extent required by the
applicable  regulatory  authority.  Management  believes  that  there is minimal
exposure at this time and, therefore,  has not recorded an accrued environmental
clean-up liability.

     A dry  cleaning  solvent has been  detected in the soil and water below the
Four Mile Fork Shopping Center. Testing conducted at the site indicates that the
contamination is limited and is unlikely to have any effect on human health.  In
addition,  the previous owner of the Four Mile Fork Shopping Center has provided
an  indemnification  for all  costs and  expenses  to  obtain  closure  from the
responsible  regulatory  authority.  Management  believes  that there is minimal
exposure at this time and, therefore,  has not recorded an accrued environmental
clean-up liability.



                                                         5

<PAGE>




Insurance

     Under their leases,  the Company's  tenants are generally  responsible  for
providing  adequate insurance on the Properties they lease. The Company believes
the  Properties  are  covered by adequate  fire,  flood and  property  insurance
provided by reputable companies. However, some of the Properties are not covered
by disaster  insurance with respect to certain hazards (such as earthquakes) for
which coverage is not available or available only at rates which, in the opinion
of the Company, are prohibitive.

Policies with Respect to Certain Activities

     The following is a discussion of certain investment,  financing,  conflicts
of  interest  and  other  policies  of the  Company.  These  policies  have been
determined by the  Company's  Board of Directors and generally may be amended or
revised  from  time to time by the  Board  of  Directors  without  a vote of the
stockholders.

Investment Policies

     Investments in Real Estate or Interests in Real Estate. The Company intends
to conduct all its investment  activities through the Operating  Partnership for
as long as the Operating  Partnership exists. The Company's investment objective
is to achieve stable and increasing cash flow available for  distributions  and,
over time,  to  increase  portfolio  value  through  the  intensive  management,
expansion  and  renovation  of its  properties,  by  developing  or  selectively
acquiring  additional  retail  properties,   or  by  expanding  its  third-party
management, leasing and related service business.

     The Company expects to pursue its investment  objectives through the direct
or indirect ownership of properties.  The Company intends to primarily invest in
or acquire retail properties  concentrated in the Mid-Atlantic region.  However,
future  development  or  investment  activities  will  not  be  limited  to  any
geographic  area or product type or to a specified  percentage  of the Company's
assets.  The Company will not have any limit on the amount or  percentage of its
assets invested in one property. Subject to the percentage ownership limitations
and gross income tests  necessary for REIT  qualification,  the Company also may
invest in securities of entities engaged in real estate activities or securities
or other  issuers,  including  for the purpose of  exercising  control over such
entities,  although it has not done so in the past.  The Company may acquire all
or  substantially  all of the  securities  or assets of other  REITs or  similar
entities  where  such  investments   would  be  consistent  with  the  Company's
investment policies.

     Investments in Others. The Company also may participate with other entities
in property  ownership,  through  joint  ventures  or other types of  ownership.
Equity  investments  may be subject to  existing  mortgage  financing  and other
indebtedness  which have  priority  over the equity of the Company.  The Company
will not enter into a joint venture or  partnership  to make an investment  that
would not otherwise meet its investment policies.

     Investments  in Real Estate  Mortgages.  While the  Company has  emphasized
equity real estate investments,  it may, in its discretion,  invest in mortgages
and other real  estate and  related  interests,  including  securities  of other
REITs.  The Company has not  previously  invested in mortgages or  securities of
other REITs and the Company does not presently intend to invest to a significant
extent in mortgages  or  securities  of other  REITs.  The Company may invest in
participating or convertible  mortgages if it concludes that it may benefit from
the cash flow or any appreciation in the value of the subject property.

     Interim Investments. The Company may invest funds in deposits at commercial
banks, money market accounts,  certificates of deposit, government securities or
other  liquid  investments  (including  GNMA,  FNMA,  and FHLMC  mortgage-backed
securities) as the Board of Directors deems appropriate.

Financing Policies

     The Company's  current policy is to maintain a ratio of debt (excluding the
Exchangeable  Debentures) to total market capitalization of approximately 50% or
less. As of December 31, 1996,  the ratio of the Company's  debt  (including the
Exchangeable  Debentures) to total market capitalization was approximately 47.0%
and the ratio of the Company's debt (excluding the  Exchangeable  Debentures) to
total market  capitalization was approximately  40.3%. The Company may, however,
from time to time  re-evaluate  its borrowing  policies in light of then current
economic conditions, relative costs of debt and equity capital, the market value
of its properties, growth and acquisition opportunities and other factors. There
is no limit on the Company's ratio of debt-to-total market capitalization, and

                                                         6

<PAGE>



accordingly  the Company  may modify its  borrowing  policy and may  increase or
decrease its ratio of debt-to-total market capitalization. The Company may raise
such capital through additional equity offerings, debt financing or retention of
cash flow  subject  to  provisions  in the Code  concerning  transferability  of
undistributed REIT income, or a combination of these methods.

     The Company presently  anticipates that most additional borrowings would be
made  through  the  Operating  Partnership,   although  the  Company  may  incur
indebtedness,   the  proceeds  of  which  may  be  reloaned  to  the   Operating
Partnership.  Borrowings may be unsecured or may be secured by any or all of the
Properties  and may have full or  limited  recourse  to all or any assets of the
Company, the Operating Partnership or any new property-owning  partnership.  The
Company  anticipates that all or substantially all of the proceeds of any future
sale of shares of capital stock will be transferred to the Operating Partnership
in exchange for Units in the Operating Partnership.

     The  Company  intends  to  finance  future   acquisitions   with  the  most
advantageous  sources  of  capital  available  at the time,  which  may  include
undistributed  cash or the  reinvestment of the proceeds from the disposition of
assets.  The Company may incur additional  indebtedness to finance  acquisitions
through secured or unsecured borrowings.  The Company may finance the properties
through  the  issuance  of  additional   partnership   units  in  the  Operating
Partnership,  shares  of  Common  Stock,  shares  of  Preferred  Stock  or other
securities. In addition to the Exchangeable Debentures, which rank senior to the
Common Stock and the  Convertible  Preferred  Stock,  the Company may also issue
additional  securities  senior to the  shares of  Common  Stock and  Convertible
Preferred Stock, including preferred shares and debt securities (either of which
may be convertible into beneficial interests in the Company or be accompanied by
warrants  to  purchase  beneficial  interest  in the  Company).  The Company may
acquire  properties  subject  to seller  financing,  existing  loans  secured by
mortgages, deeds of trust or similar liens. The Company may also obtain mortgage
financing for properties it acquires and refinance its existing properties.

     To the extent the Company  determines to obtain  additional debt financing,
the Company  may do so  generally  through  mortgage  loans  secured by liens on
Properties.  These  mortgage  loans may be recourse or  non-recourse  and may be
cross-collateralized or contain cross-default  provisions.  The Company does not
have a policy  limiting the number or amount of mortgages  that may be placed on
any  particular  property,  but mortgage  financing  instruments  usually  limit
additional  liens on such  properties.  Future  credit  facilities  and lines of
credit  may  be  used  for  the  purpose  of  making   acquisitions  or  capital
improvements or to provide working capital.

     The Company may incur  indebtedness for purposes other than the acquisition
of properties when it deems it advisable to do so. For example,  the Company may
borrow to meet the REIT taxable income  distribution  requirement under the Code
if the Company has taxable  income  without  receipt of cash  sufficient to meet
these distribution requirements.  For short-term purposes, from time to time the
Company  may  borrow  under  lines of credit  or  arrange  for other  short-term
borrowings from banks or other sources.  The Company's financing strategy may be
reviewed from time to time and changed by the Board of Directors  without a vote
of the stockholders.

Conflict of Interest Policies

     The Company  has  adopted  certain  policies  designed to reduce  potential
conflicts  of  interest.  In general,  the Company  will not:  (i) engage in any
transaction with any director,  officer or affiliate  thereof involving the sale
or disposition  of any equity  interest in Company  property to such person;  or
(ii) sell any of the FWM  Properties,  without  approval  of a  majority  of the
Company's  disinterested  directors,  and other transactions between the Company
and any director or officer, or affiliate thereof, generally must be approved by
a majority vote (or in certain cases by a unanimous  vote) of the  disinterested
directors  (including a majority of the  independent  directors)  as being fair,
competitive,  and  commercially  reasonable and no less favorable to the Company
than  similar   transactions   between   unaffiliated  parties  under  the  same
circumstances.  Such  restrictions do not apply where such director,  officer or
affiliate  has acquired the  property for the sole purpose of  facilitating  its
acquisition by the Company, and the total consideration paid by the Company does
not exceed the cost of the property to such person  (where the cost is increased
by the person's holding costs and decreased by any income received by the person
from the property) and no special benefit results to such person.

     Stuart D.  Halpert,  the  Company's  Chairman of the Board,  and William J.
Wolfe,  the Company's  President  and Chief  Executive  Officer,  are subject to
certain  conflict  of  interest  restrictions  as set forth in their  employment
agreements  with the Company.  Certain of the  Company's  independent  directors
generally  may  engage  in real  estate  transactions  which  may be of the type
conducted by the Company,  but it is not anticipated that such transactions will
have a material affect upon the Company's operations.

                                                         7

<PAGE>



     There can be no assurance  that these  conflicts of interest  policies will
successfully eliminate the influence of potential conflicts of interest, and, if
they are not  successful,  decisions  could be made that  might  fail to reflect
fully the interests of all stockholders.

Development Policies

     The Company  anticipates  that it will invest  primarily in existing retail
properties,  although  it also may  invest in newly  constructed  properties  or
properties under development.

Policies with Respect to Other Activities

     The Company has  authority to offer shares of Common Stock and  Convertible
Preferred Stock or other securities and to repurchase or otherwise reacquire its
shares of Common Stock and Convertible  Preferred Stock or any other  securities
and may engage in such activities in the future. The Company expects (but is not
obligated)  to issue  shares of Common  Stock to holders of Common  Units in the
Operating Partnership upon exercise of their exchange rights. The Company has no
outstanding  loans to other  entities or persons,  including  its  officers  and
trustees.  The Company may in the future  make loans to other  persons  with the
approval of the independent  directors.  The Company has not engaged in trading,
underwriting or agency  distribution or sale of securities of other issues other
than the Operating  Partnership,  nor has the Company invested in the securities
of other issuers other than the Operating Partnership and Management Company for
the purpose of exercising control, and does not intend to do so.

     The Company  intends to make  investments in such a way that it will not be
treated as an Investment Company under the Investment Company Act of 1940.

     The Company has delivered and intends to continue to deliver annual reports
to its  stockholders.  At all times,  the Company intends to make investments in
such a manner as to  qualify  as a REIT,  unless  because  of  circumstances  or
changes  in the Code  (or the  Treasury  Regulations),  the  Board of  Directors
determines  that it is no longer in the best  interest of the Company to qualify
as a REIT.

     The Company's  policies with respect to all of the above  activities may be
reviewed  and  modified  from time to time by the  Company's  Board of Directors
without a vote of the stockholders.

     Certain  statements in this Form 10-K may be deemed to be  "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
Such forward-looking  statements involve known and unknown risks,  uncertainties
and other  factors  which may cause the  actual  results  of the  Company  to be
materially  different from historical  results or from any results  expressed or
implied by such forward-looking  statements. Such risks, uncertainties and other
factors include,  but are not limited to, the following risks:  risks associated
with borrowing;  limitations on the level of distributions payable on the Common
Stock;  the level of  distributions  on Common Stock that  represent a return of
capital for federal  income tax  purposes;  general real estate  investment  and
financing  risks;  risks  associated  with the Company's  third-party  business;
possible  conflicts of interest;  limitations  on the  stockholders'  ability to
change control of the Company and failure of the Company to qualify as a REIT.

                                                         8

<PAGE>


Item 2  Properties
      The  following  table  sets  forth  certain  information  relating  to the
Properties as of December 31, 1996.

                     FIRST WASHINGTON REALTY TRUST, INC.
                            PROPERTY SUMMARY TABLE
<TABLE>
<S>                <C>          <C>         <C>   <C>      <C>    <C>


                                                                  Significant
                                                                  Tenants
                                             Land                 (Lease
                                    Year     Area Leasable %      Expiration
Property           Location     Constructed (acr) Area(Sf) Leased Date)
 Maryland
Bryans Road        Bryans Road,                                   Safeway(2014),
Shopping Center    MD              1972      11.8 118,676  95.8   CVS/Pharmacy
                                                                  (1998)
Capital Corner     Landover,
Shopping Center    MD              1987       4.1  42,625  93.4   Burger King
                                                                  (2007), Dollar
                                                                  Bills (2001),
                                                                  Gallo Clothing
                                                                  (2001)
Clinton Square     Clinton,
Shopping Center    MD              1979       2.0  18,961 100.0   Mattress
                                                                  Discounters
                                                                  (1997)
Clopper's Mill     Germantown,
Shopping Center    MD              1995      14.2 137,952 100.0  Shoppers Food
                                                                 Warehouse
                                                                 (2015, CVS/
                                                                 Pharmacy(2006)
Festival At        Baltimore,
Woodholme          MD              1986       7.1  81,027 100.0  Sutton Place
                                                                 Gourmet(2006),
                                                                 Pier One
                                                                 Imports(1999)
Firstfield         Gaithersburg,
Shopping Center    MD              1978       2.4  22,504  93.3  Jerry's Sub
                                                                 (2010)
Northway           Millersville,
Shopping Center    MD              1987       9.6  91,276 100.0  Metro Foods
                                                                 (2007), Rite
                                                                 Aid (1997)
P.G. County        Beltsville,
Commercial Park    MD              1988       9.7 146,438  94.1  Montgomery
                                                                 Automotive
                                                                 (2006)
Penn Station       District Heights,
Shopping Center(2) MD              1989      22.5 334,970  99.1  Safeway (N/A),
                                                                 Service
                                                                 Merchandise
                                                                 (2006), Kid
                                                                 City Clothing
                                                                 (2003)
Rosecroft          Temple Hills,
Shopping Center    MD              1963       8.3 119,010  90.3  Food Lion
                                                                 (2015), Rite
                                                                 Aid (1998)
Southside          Baltimore,
Marketplace        MD              1990       9.1 125,146  95.1  Metro Foods
                                                                 (2016), Rite
                                                                 Aid (2001)
Takoma Park        Takoma Park,
Shopping Center    MD              1960       9.8 105,156  87.7  Shoppers Food
                                                                 Warehouse(2011)
Valley Centre      Owings Mills,
                   MD              1987      33.0 229,449  95.9  Weis Markets
                                                                 (2002), TJ Maxx
                                                                 (2007), Ross
                                                                 (1998), Sony
                                                                 Theatre (2005)
 Virginia
Brafferton Center  Garrisonville,
                   VA              1974       9.4  94,731  98.4  Giant Food
                                                                 (2009)
Centre Ridge       Centreville,
Marketplace        VA              1996      10.9 107,354 100.0  A&P Superfresh
                                                                 (2016), Sears
                                                                 Paint&Hardware
                                                                 (2007)
Chesapeake         Alexandria,
Bagel Building     VA           Late 1800's   0.1  11,288 100.0  Chesapeake
                                                                 Bagel Bakery
                                                                 (1998)
Davis Ford         Manassas,
Crossing           VA              1988      20.8 147,622  88.5  Weis Markets
                                                                 (2010), CVS/
                                                                 Pharmacy(2000)
Fox Mill           Reston,
Shopping Center    VA              1977      14.0  97,119  97.0  Giant Food
                                                                 (2018),
                                                                 Blockbuster
                                                                 (2001)
Glen Lea           Richmond,
Shopping Center    VA              1969       9.2  78,823 100.0  Winn Dixie
                                                                 (2005), Revco
                                                                 (2000)
Hanover Village    Mechanicsville,
Shopping Center    VA              1971       9.5  95,331  95.3  Rack `N Sack
                                                                 (2008), Rite
                                                                 Aid (1998)
Kings Park         Burke, VA       1966       8.6  76,212 100.0  Giant (2013),
                                                                 CVS/Pharmacy
                                                                 (1998)
</TABLE>


                                                                     9

<PAGE>


Item 2  Properties



FIRST WASHINGTON REALTY TRUST, INC.
    PROPERTY SUMMARY TABLE
          (Continued)

<TABLE>
<S>                  <C>         <C>          <C>   <C>       <C>    <C>
                                                                     Significant
                                                                     Tenants
                                              Land                   (Lease
                                 Year         Area  Leasable  %      Expiration
Property             Location    Constructed  (acr) Area (Sf) Leased Date)

Laburnum Park(3)     Richmond,
                     VA          1988          9.3  113,992   100.0  Ukrops
                                                                     Supermarket
                                                                     (N/A), Rite
                                                                     Aid (2007)
Laburnum Square      Richmond,
                     VA          1975         11.4  109,405    98.2  Hannaford
                                                                     Brothers
                                                                     (2013),CVS/
                                                                     Pharmacy
                                                                     (1999)
Potomac Plaza        Woodbridge,
                     VA          1963          5.4   85,400    92.3  Western
                                                                     Sizzlin
                                                                     (2000),
                                                                     Aaron Rents
                                                                     (2001)
Thieves Market(6)    Alexandria,
                     VA          1946          2.3   15,835    75.3
North Carolina
Shoppes Of Kildaire  Cary,
                     NC          1986         14.0  148,205    98.9  Winn Dixie
                                                                     (2006)
 Pennsylvania
Colonial Square
Shopping Center      York,
                     PA          1955          2.9   27,488    98.8  Minich
                                                                     Pharmacy
                                                                     (1999),York
                                                                     National
                                                                     Bank (1999)
15th & Allen
Shopping Center      Allentown,
                     PA          1958          4.1   46,503    98.1  Laneco
                                                                     (2003),
                                                                     Thrift Drug
                                                                     (2004)
Kenhorst Plaza
Shopping Center      Reading,
                     PA          1990         19.2  161,434    99.2  Redners
                                                                     (2009),Rite
                                                                     Aid (2000)
Mayfair
Shopping Center      Philadelphia,
                     PA          1988          5.7  112,275    93.4  Shop 'N Bag
                                                                     Supermarket
                                                                     (2013),
                                                                     Thrift Drug
                                                                     (2006)
Newtown Square       Newtown
                     Square, PA  1960's-70's  14.4  137,569    91.7  Acme Market
                                                                     (1999),
                                                                     Thrift Drug
                                                                     (1999)
Stefko Boulevard     Bethlehem,
                     PA          1958-60-75   10.3  135,864    95.6  Laneco
                                                                     (2003),
                                                                     McCrory
                                                                     (1998)
Delaware
First State Plaza    New Castle
                     County,DE   1988         21.0  162,404   100.0  Shop Rite
                                                                     Supermarket
                                                                     (2009),
                                                                     Cinemark
                                                                     USA (2011)
South Carolina
Branchwood Apts      Charleston,
                     SC          1986          5.4  96 units   93.0
Broadmoor Apts       Charleston,
                     SC          1973         21.2  305 units  95.0
James Island
Shopping Center      Charleston,
                     SC          1967          6.5   88,557   100.0  Piggly
                                                                     Wiggly
                                                                     (2010),Rite
                                                                     Aid (1997)

</TABLE>

                                                                    10

<PAGE>

<TABLE>
<S>                   <C>         <C>         <C>   <C>       <C>    <C>
                                                                     Significant
                                                                     Tenants
                                              Land                   (Lease
                                  Year        Area  Leasable  %      Expiration
Property              Location    Constructed (acr) Area(Sf)  Leased Date)
 Washington,DC
The Georgetown
Shops(1)              Washington,
                      DC          Late 1800's   0.3    22,052 100.0  Radio Shack
                                                                     (1999)
Connecticut
Avenue Shops          Washington,
                      DC          1954          0.1     3,000 100.0  Mill End
                                                                     Shop(1997)
                      Subtotal/
                      Average(4)              379.6 3,651,653  96.4
Post December 31, 1996
Acquisitions:
City Line
Shopping Center(5)    Philadelphia,
                      PA          1950's-60's  12.2   153,899  89.1  Acme Market
                                                                     (1999),
                                                                     Thrift Drug
                                                                     (1999),
                                                                     T.J. Maxx
                                                                     (2001),
                                                                     Rickels
                                                                     (1998)
Four Mile Fork        Fredericksburg,
                      VA          1975         10.3   101,262  91.8  Safeway
                                                                     (2000),
                                                                     CVS/
                                                                     Pharmacy
                                                                     (2001)
Shopping Center(5)
Shoppes of Graylyn(5) Wilmington,
                      DE          1971          5.0    65,746  92.9  Rite Aid
                                                                     (2016)
Ashburn Farm
Village Center(7)     Ashburn,VA  1996         10.2    88,948  98.6  A&P
                                                                     Superfresh
                                                                     (2016)
                      Subtotal/
                      Average                  27.5   409,855  90.8
                      Total/Average           417.3 4,061,508  96.0

</TABLE>

(1) Represents  five (5) historic  retail shops all clustered in close proximity
in the central shopping  district in Georgetown,  Washington,  D.C. (2) Includes
Safeway  (50,000  sq.ft) and  Bowling  Alley  (40,000  sq.ft) pad sites owned by
others.
(3) Includes Ukrops Supermarket (43,500 sq ft) pad site owned by the tenant.
(4) Based on square footage of Retail Properties only.
(5) Under firm contract in December 1996, actual closing took place in January
    1997.
(6) Sold in January 1997 for $1,200,000.
(7) Closed March 19, 1997.


                                                                    11

<PAGE>




Competition

      There are numerous commercial developers,  real estate companies and other
owners of real estate that operate in the  Mid-Atlantic  region and compete with
the Company in seeking acquisition opportunities and tenants for its properties.
In addition,  retailers at the shopping centers face increasing competition from
malls,   factory  outlet  centers,   discount   shopping  clubs,   direct  mail,
telemarketing and the Internet.

      Retail Properties.  The Properties consist of 39 Retail Properties and two
Multifamily   Properties   located  in  Maryland,   Virginia,   North  Carolina,
Pennsylvania,  Delaware, South Carolina and the District of Columbia. The Retail
Properties are primarily  neighborhood  shopping  centers  containing a total of
approximately  4.1 million  square feet of GLA  occupied  by  approximately  796
tenants.  The Retail  Properties range in size from  approximately  3,000 square
feet  of  GLA  to  approximately   335,000  square  feet  of  GLA,  and  average
approximately  100,000  square feet of GLA. A substantial  portion of the income
from the Properties  consists of rent received  under long term leases.  Most of
these  leases  provide for the payment of fixed  minimum rent monthly in advance
and for the  payment by tenants of a pro-rata  share of the real  estate  taxes,
insurance,  utilities  and common  area  maintenance  of the  shopping  centers.
Certain of these tenant leases  provide for exclusion  from some or all of these
expenses.  The Company's  portfolio is comprised of a  diversified  tenant base,
with no single tenant  representing  more than 2.7% of the Company's  annualized
minimum rent.  All of the Retail  Properties  are managed by the Company.  As of
December 31, 1996, 60% of the Retail  Properties'  annualized minimum rents were
derived from lease payments by national and regional tenants. As of December 31,
1996, the Retail Properties were 96.4% leased.

      Lease Expirations. The majority of leases on the Retail Properties provide
for lease terms of between three and 20 years.  The following  table shows lease
expirations (excluding renewal options) for the calendar years 1997 through 2035
and thereafter:
<TABLE>
<S>       <C>    <C>      <C>         <C>         <C>        <C>
                                                  Percent
                 Approx   Percent of              of Total   Average
                 GLA in   Total GLA   Annualized  Annualized Annual
          No. of Square   Represented Minimum     Minimum    Rent
Year      Leases Feet     by Expiring Rent        Rent       per SF
                (in 000's)Leases      (in 000's)

1997      147      334         9.1%    $3,433       8.8%       $10.28
1998      137      426        11.6%     4,213      10.8%         9.89
1999      125      399        10.9%     4,488      11.5%        11.25
2000      103      354         9.7%     3,875       9.9%        10.95
2001      106      343         9.4%     4,467      11.4%        13.02
2002       38      147         4.0%     1,984       5.1%        13.50
2003       26      193         5.3%     1,851       4.7%         9.59
2004       16       66         1.8%       913       2.3%         0.00
2005       20      160         4.4%     2,004       5.1%        12.53
2006       27      220         6.0%     2,589       6.6%        11.77
Thereafter 51    1,018        27.8%     9,210      23.6%         9.05
           --    -----        -----     -----      -----         ----

          796    3,660        100.0%  $39,028     100.0%       $10.66
          ===    =====        ======  =======     ======       ======
</TABLE>

                                                        12

<PAGE>





      Tenant  Diversification.   The  following  table  sets  forth  information
regarding the Company's leases with its 20 largest tenants based upon annualized
minimum rents:
<TABLE>
<S>               <C>      <C>           <C>             <C>
                           Number                        Percentage of Aggregate
                           of            Annualized      Annualized Minimum
Tenant            GLA (SF) Properties    Minimum Rent    Minimum Rents
                                         (in 000's)

A&P Superfresh    112,167  2              $ 1,080                2.7%
Shoppers Food
Warehouse         129,113  2                1,075                2.7%
Metro Foods        93,292  2                  847                2.2%
Weis Markets       86,890  2                  786                2.0%
Rite Aid           92,168  8                  693                1.8%
Giant Food        121,518  3                  607                1.5%
CVS/Pharmacy       77,350  7                  528                1.3%
Safeway            74,851  2                  485                1.2%
Winn Dixie         79,000  2                  482                1.2%
Hollywood Video    22,366  3                  425                1.1%
Redner's
Supermarket        52,570  1                  417                1.1%
Shop Rite
Supermarket        55,244  1                  387                1.0%
Sony Theatres      32,058  1                  385                1.0%
Thrift Drug        36,662  4                  380                1.0%
T.J. Maxx          46,686  2                  360                0.9%
Laneco
Supermarket        95,075  2                  323                0.8%
Blockbuster
Video              17,715  3                  330                0.8%
Service
Merchandise        50,000  1                  325                0.8%
Cinemark USA       29,452  1                  302                0.8%
Sutton Place
Gourmet            14,207  1                  298                0.8%

Total            1,318,384                $10,519               26.7%
</TABLE>


      Multifamily  Properties.  The two Multifamily  Properties,  comprising 401
units, are located in Charleston,  South Carolina,  in close proximity to one of
the Retail Properties, effectively forming a single economic unit for management
purposes.  The Multifamily Properties comprise a relatively small portion of the
Company's  revenues (4.2% as of December 31, 1996), and the Company  anticipates
that its principal  strategic focus will be the acquisition of additional retail
properties.

      Significant  Properties.  As of December 31, 1996, two of the  Properties,
Penn Station Shopping Center and Valley Centre, either had a book value equal to
or greater than 10% of the total assets of the Company or gross  revenues  which
accounted for more than 10% of the Company's aggregate gross revenues. Set forth
below is additional information with respect to such Properties.

      Penn  Station  Shopping  Center.  Penn  Station is a 334,970  square  foot
shopping  center  occupied  by 48 tenants  and  located at the  intersection  of
Pennsylvania  Avenue and Silver Hill Road in Prince George's  County,  Maryland,
two miles outside of  Washington,  D.C. and one and one-half miles inside of the
Capital  Beltway.  The  center is  fully-integrated  with a Safeway  Supermarket
(50,000 square feet) and a bowling alley (40,000 square feet), both of which are
owned by third parties.  Other tenants include Service Merchandise,  Blockbuster
Video and Kid City  Clothing.  Penn  Station was 99.1% leased as of December 31,
1996.



                                                        13

<PAGE>




      Service Merchandise, a catalogue showroom and retailer, is the only tenant
which  occupies  more than ten  percent  of the GLA at Penn  Station,  occupying
50,000  square  feet of GLA under a lease  which  expires in  February  2006 and
having five renewal  options of five years each.  The annual minimum rent of the
Service Merchandise lease is $325,000.

      The  following  table sets forth a schedule of lease  expirations  at Penn
Station, assuming none of the tenants exercise renewal options:

<TABLE>
<S>       <C>    <C>        <C>             <C>        <C>           <C>
                            Percent of                 Percent of    Avg Annual
          No. of GLA        Total GLA       Annualized Total         Minimum
Year      Leases in SF      Represented by  Minimum    Annualized    Rent
                 (in 000's) Expiring Leases Rent       Minimum Rent  per SF
                                                                     (in 000's)

1997        4      12         5.0%          $  188       6.6%           $15.67
1998        8      19         8.0%             275       9.6%            14.47
1999       13      36        15.1%             606      21.2%            16.83
2000        8      37        15.5%             411      14.4%            11.11
2001        5      16         6.7%             238       8.3%            14.88
2002        2       6         2.5%              97       3.4%            16.17
2003        2      20         8.4%             245       8.6%            12.25
2004        2      21         8.8%             186       6.5%             8.86
2005        2      16         6.7%             207       7.3%            12.94
2006        1      50        21.0%             325      11.4%             6.50
Thereafter  1       5         2.1%              78       2.7%            15.60
           --      --         ----           -----      -----           ------
           48     238       100.0%          $2,855     100.0%           $12.00
           ==     ===       ======          ======     ======           ======
</TABLE>


         The following table sets forth the average annual rents per square foot
of GLA and the percentage of GLA leased at Penn Station:

<TABLE>
         <S>                 <C>                         <C>
                             Average Annual
                             Minimum Rent                Percentage
                             per Square Foot             Leased

         1992                $11.64                      90.0%
         1993                $11.68                      94.7%
         1994                $11.64                      97.8%
         1995                $11.94                      98.3%
         1996                $11.70                      99.1%
</TABLE>


      Depreciation (for tax purposes) on the Penn Station Property is taken on a
straight line basis over 39 years,  resulting in a rate of  approximately  2.56%
per year.  Depreciation for book purposes in calculated on a straight-line basis
over 31 1/2 years.  At  December  31,  1996,  the  federal tax basis of the Penn
Station Shopping Center was approximately $21.4 million.  The realty tax rate on
the property is $3.45 per $100 of assessed value, resulting in a 1996 realty tax
of approximately $269,000.

      Valley  Centre.  Valley Centre is a 229,449  square foot  shopping  center
occupied by 27 tenants and located on U.S.  Route 140,  approximately  two miles
from the Baltimore Beltway (1-695) in Owings Mills,  Maryland. The major tenants
are Weis  Supermarket,  T.J. Maxx, Ross Stores,  Annie Sez,  Cosmetic Center and
Sony Theatre. Valley Centre was 95.9% leased as of December 31, 1996.


                                                        14

<PAGE>



      Four tenants, Weis Markets, T.J. Maxx, Ross Stores and Sony Theaters, each
occupy  in  excess  of  10% of  the  GLA  at  Valley  Centre.  Weis  Markets,  a
supermarket,  occupies  41,350 square feet of GLA under a lease which expires in
May 2002 and has three renewal  options of five years each.  The annual  minimum
rent is $330,800,  which is subject to a $1.00 per square foot increase for each
option period. T.J. Maxx, a ladies apparel retailer, occupies 32,148 square feet
of GLA under a lease which  expires in May 2007 and has two  renewal  options of
five years each.  The annual  minimum  rent of the T.J.  Maxx lease is $297,369,
plus  percentage  rent equal to 2% of gross  sales over $7.5  million.  The rent
increases  $0.50 per square foot for each option period.  Ross Stores,  a ladies
apparel retailer, occupies 27,618 square feet of GLA under a lease which expires
January 1998 and has two renewal  options of five years each. The annual minimum
rent of the Ross Stores lease is $220,944,  plus  percentage rent equal to 2% of
gross sales over  approximately $11 million.  The rental amounts for the renewal
options are set at fixed amounts which average  approximately 9.25% increase per
option period. Sony Theaters,  a movie theatre operator,  occupies 32,058 square
feet of GLA under a lease which  expires  February,  2005 and has three  renewal
options of five years each.  The annual  minimum rent of the Sony Theaters lease
is $384,696  with an  increase of $1.00 per square foot in the year 2000.  Under
the terms of the lease,  the tenant  pays  percentage  rent equal to 8% of gross
sales over $4.8 million.  The lease  provides for rental  increases of $0.50 per
square foot for each option period.

      The following  table sets forth a schedule of lease  expirations at Valley
Centre for the next ten years,  assuming  none of the tenants  exercise  renewal
options.

<TABLE>
<S>        <C>    <C>       <C>             <C>        <C>         <C>
                            Percent of                 % of Total  Avg Annual
           No. of GLA       Total GLA       Annualized Annualized  Minimum Rent
Year       Leases in SF     Represented by  Minimum    Minimum     Rent per SF
                  (in 000's)Expiring Leases Rent       Rent        (in 000's)

1997        5       34        15.5%          $    312    12.1%     $9.18
1998        3       39        17.8%               367    14.2%      9.41
1999        2        7         3.2%               123     4.8%     17.57
2000        5       18         8.2%               344    13.3%     19.11
2001        3       19         8.7%               233     9.0%     12.26
2002        5       61        27.9%               627    24.2%     10.28
2003        1        2         0.9%                36     1.4%     18.00
2004        0        0         0.0%                 0     0.0%      0.00
2005        1       32        14.6%               417    16.1%     13.03
2006        0        0         0.0%                 0     0.0%      0.00
Thereafter  2        7         3.2%               126     4.9%     18.00
           --      ---         ----           -------    -----     -----
           27      219       100.0%           $ 2,586   100.0%     11.81
           ==      ===       ======            ======   ======     =====
</TABLE>


      The  following  table sets forth the average  rents per square foot of GLA
and the percentage of GLA leased at Valley Centre:

<TABLE>
         <S>                         <C>                              <C>
                                      Average Rent                    Percentage
                                     per Square Foot                    leased

         1992                            $10.55                          98.0%
         1993                            $10.86                         100.0%
         1994                            $11.10                          99.4%
         1995                            $11.42                         100.0%
         1996                            $11.40                          95.9%
</TABLE>




                                                        15

<PAGE>



      Depreciation   (for  tax   purposes)  on  Valley  Centre  is  taken  on  a
straight-line  basis over 39 years,  resulting in a rate of approximately  2.56%
per year.  At December  31,  1996,  the  federal tax basis of Valley  Centre was
approximately  $22.5 million.  Depreciation for book purposes is calculated on a
straight-line  basis over 31 1/2 years.  The realty tax rate on Valley Centre is
approximately  $3.07 per $100 of assessed value,  resulting in a 1996 realty tax
of approximately $293,000.

Mortgages, Notes and Loans Payable

      Information  relating to future  maturities of mortgages,  notes and loans
payable  at  December  31,  1996 is set  forth in  Management's  Discussion  and
Analysis of Financial  Condition  and Results of Operation and footnotes 5 and 6
to the  Consolidated  Financial  Statements  included with this Form 10-K and is
incorporated by reference herein.

Item 3.  Legal Proceedings

      The Company is not presently  involved in any material  litigation nor, to
its knowledge,  is any material litigation threatened against the Company or its
properties,  other than routine  litigation  arising in the  ordinary  course of
business  or  which  is  expected  to be  covered  by  the  Company's  liability
insurance.  In the opinion of management of the Company,  such litigation is not
expected to have a material adverse effect on the business,  financial condition
or results of operations of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

      No  matter  was  submitted  to a vote  of  security  holders  through  the
solicitation  of proxies or otherwise  during the fourth  quarter of fiscal year
1996.





























                                                        16

<PAGE>





                                                      PART II


Item 5.  Market for the Registrant's Common Equity and Related
Shareholder Matters

(a)  Market Information

      The Company's Common Stock and Preferred Stock began trading on the NASDAQ
National  Market  System on June 27,  1995.  On August 13, 1996,  the  Company's
common and preferred  stock began trading on the New York Stock  Exchange  under
the symbol FRW. The high and low market values of the Company's Common Stock for
1995 and 1996 are as follows:

<TABLE>
<S>      <C>                   <C>               <C>             <C>
                                                                 Distributions
                                High               Low           Per Share

1995
         Third Quarter         $18.00            $17.00                $.4875
         Fourth Quarter         18.50             17.00                 .4875
1996
         First Quarter          19.00             17.75                 .4875
         Second Quarter         20.50             18.25                 .4875
         Third Quarter          21.25             19.25                 .4875
         Fourth Quarter         23.63             20.13                 .4875
</TABLE>


(b)  Holders of Record

         As of March 25,  the  approximate  number of  holders  of record of the
Common Stock was 73.

(c)  Dividends

         The Company intends to make quarterly  distributions  to its common and
preferred stockholders. Quarterly distributions made during 1996 are as follows:

<TABLE>
<S>                     <C>                                    <C>
Record Date             Payment Date                           Amount Per Share

Common Stock
  February 1, 1996      February 15, 1996                         $0.4875
  May 1, 1996           May 15, 1996                              $0.4875
  August 1, 1996        August 15, 1996                           $0.4875
  November 1, 1996      November 15, 1996                         $0.4875

Preferred Stock
  February 1, 1996      February 15, 1996                         $0.6094
  May 1, 1996           May 15, 1996                              $0.6094
  August 1, 1996        August 15, 1996                           $0.6094
  November 1, 1996      November 15, 1996                         $0.6094
</TABLE>


      The actual cash flow that the Company  will  realize will be affected by a
number of factors,  including the revenues received from rental properties,  the
operating  expenses of the Company,  the interest expense on its borrowing,  the
ability of  lessee's to meet their  obligations  to the  Company,  unanticipated
capital  expenditures and dividends received from the Company's interest in FWM.
Future  distributions  paid  by the  Company  will be at the  discretion  of the
Directors of the Company and will depend on the actual cash flow of the Company,
its  financial  condition,   capital   requirements,   the  annual  distribution
requirements  under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code") and such other factors as the Directors of the Company deem
relevant.

      For the fiscal year ended  December 31, 1996,  75.6% of the  distributions
made on the Common Stock  represented a return of capital for federal income tax
purposes.



                                                        17

<PAGE>




Recent Sales of unregistered equity securities

      (a)     Securities sold

              The following table sets forth the date of sale,  title and amount
              of   unregistered   securities  sold  by  the  Company  since  its
              incorporation on April 25, 1994:

<TABLE>
               <S>                 <C>                  <C>
               Date of Sale        Title                Amount

               04/28/94            Common Stock               100 shares
               06/27/94            Common Stock         1,574,359 shares
               06/27/94            Preferred Stock      1,920,000 shares
               06/27/94            Preferred Units        352,000 units
               06/27/94            Common Units           347,056 units
               06/01/95            Common Units            95,877 units
               06/30/95            Preferred Stock        358,000 shares
               11/15/95            Preferred Stock         36,189 shares
               01/04/96            Common Units           120,785 units
               03/20/96            Common Units           171,910 units
               03/20/96            Preferred Units         67,609 units
               12/19/96            Common Units            36,266 units
               12/30/96            Common Units            48,013 units
               01/24/97            Common Units           143,385 units
               03/19/97            Common Units            55,335 units
               03/19/97            Preferred Units          9,538 units
</TABLE>


      (b)     Underwriters and other purchasers

              i.  April 28, 1994 Sales.  Underwriters were not retained in
      connection with the sale of these securities. These shares were "founders
      shares" sold to officers and directors of the Company.

              ii. June 27, 1994 Sales.  Friedman,  Billings,  Ramsey & Co., Inc.
      ("FBR") acted as placement agent and as the initial purchaser with respect
      to such sales of Common Stock and Preferred Stock. Such sales were made in
      a private  placement  to  "accredited  investors".  Underwriters  were not
      retained in connection with the sale of Common Units and Preferred  Units.
      The Preferred  Units were issued to the sellers of Davis Ford Crossing and
      Mayfair Shopping  Center,  "accredited  investors".  The Common Units were
      issued to certain  investors in the partnership  that owned certain of the
      properties that were transferred to the Company at its formation.

              iii.June  1,  1995  Sales.   Underwriters  were  not  retained  in
      connection with the sale of these securities. These units were sold to the
      seller of Festival at Woodholme Shopping Center, an "accredited investor".

              iv.  June  30,  1995  Sales.  Underwriters  were not  retained  in
      connection with the sale of these securities.  These shares were issued to
      the sellers of The UDR Properties, an "accredited investor".

              v.  November  15, 1995 Sales.  Underwriters  were not  retained in
      connection with the sale of these securities.  These shares were issued to
      the seller of Firstfield Shopping Center, an "accredited investor".

              vi.  January 4, 1996  Sales.  Underwriters  were not  retained  in
      connection with the sale of these securities. These units were sold to the
      seller of Stefko  Boulevard  Shopping  Center and 15th and Allen  Shopping
      Center, an "accredited investor".

              vii.March  20,  1996  Sales.  Underwriters  were not  retained  in
      connection with the sale of these securities. These units were sold to the
      seller  of  Clopper's  Mill  Village  Shopping   Center,   an  "accredited
      investor".

              viii.        December 19, 1996 Sales.  Underwriters were not
      retained in connection with the sale of these securities.  These units
      were sold to the seller of Kings Park Shopping Center, an "accredited
      investor".


                                                        18

<PAGE>



              ix.  December  30, 1996 Sales.  Underwriters  were not retained in
      connection with the sale of these securities. These units were sold to the
      seller of Northway Shopping Center, an "accredited investor".

              x.  January  26,  1997 Sales.  Underwriters  were not  retained in
      connection with the sale of these securities. These units were sold to the
      seller of City Line Shopping Center, an "accredited investor".

              xi.  March 19,  1997  Sales.  Underwriters  were not  retained  in
      connection with the sale of these securities. These units were sold to the
      seller of Ashburn Farm Village Shopping Center, an "accredited investor".

      (c)     Consideration

              i.     April 28, 1994 Sales.  The aggregate offering price of the
      shares of Common Stock was $100.  There were no underwriting discounts or
      commissions with respect to such securities.

              ii. June 27, 1994.

              a)  The   Company   received   approximately   $73.0   million  in
      consideration  for the  sale of  1,282,051  shares  of  Common  Stock  and
      1,920,000  shares of Convertible  Preferred  Stock.  As  compensation  for
      acting as initial  purchaser  and placement  agent in connection  with the
      sale of such shares,  FBR received  from the Company an initial  purchaser
      discount,  placement agent fees and a financial advisory fee which totaled
      $5.0 million in the aggregate.  The shares of Common Stock and Convertible
      Preferred Stock were sold to "accredited investors".

              b) 189,744  shares of Common  Stock were issued to four  executive
      officers and directors of the Company in exchange for the  contribution of
      promissory  notes (the "FWM Notes") having a value of  approximately  $3.7
      million.  No underwriting fees or commissions were paid in connection with
      the issuance of such shares.

              c) 102,564  shares of Common Stock were issued to Farallon and its
      affiliate in consideration for Farallon's  agreement to fund approximately
      $2.0 million of the expenses of June 1994  Offering.  Concurrent  with the
      issuance  of such  shares the Company  also made a cash  reimbursement  of
      approximately $1.1 million to Farallon.

              d) The Preferred Units were issued, in addition to debt assumption
      of $16.3  million,  in  consideration  for the  purchase  of two  shopping
      centers. These units were valued, at such time, at $8.8 million.

              e) The  Common  Units were  issued in  consideration  for  certain
      properties transferred to the Company at the time of its formation.  These
      units were valued, at such time, at approximately $6.8 million.

              iii.June  1, 1995 Sales.  These units were issued in exchange  for
      property  having a value of  approximately  $1.6  million,  net of assumed
      indebtedness.  There were no  underwriting  discounts or commissions  with
      respect to such securities.

              iv. June 30, 1995 Sales.  These shares were issued, in addition to
      cash payment of $12.2 million,  in  consideration  for the UDR Properties.
      These shares were valued,  at such time,  at $8.1  million.  There were no
      underwriting discounts or commissions with respect to such securities.

              v. November 15, 1995 Sales.  These shares were issued, in addition
      to a seller  purchase note of $2.5 million and a cash payment of $100,000,
      in consideration  for the purchase of Firstfield  Shopping  Center.  These
      shares  were  valued,  at  such  time,  at  $0.8  million.  There  were no
      underwriting discounts or commissions with respect to such securities.

              vi. January 4, 1996 Sales. These units were issued, in addition to
      cash payments of $9.4 million,  in  consideration  for the purchase of two
      shopping centers.  These units were valued, at such time, at approximately
      $2.2 million.  There were no  underwriting  discounts or commissions  with
      respect to such securities.

              vii.March 20, 1996 Sales.  These units were issued, in addition to
      cash  payments of $14.5  million,  in  consideration  for the  purchase of
      Clopper's Mill Village Shopping Center.  These units were valued,  at such
      time,  at  approximately  $3.3  million  (Common  Units) and $1.6  million
      (Preferred Units).


                                                        19

<PAGE>



              viii. December 19, 1996 Sales. These units were issued in exchange
      for property having a value of approximately $1.4 million,  net of assumed
      indebtedness.  There were no  underwriting  discounts or commissions  with
      respect to such securities.

              ix.  December 30, 1996 Sales.  These units were issued in exchange
      for property having a value of approximately $1.3 million,  net of assumed
      indebtedness.  There were no  underwriting  discounts or commissions  with
      respect to such securities.

              x. January 24, 1997 Sales. These units were issued in exchange for
      property  having a value of  approximately  $4.8  million,  net of assumed
      indebtedness.  There were no  underwriting  discounts or commissions  with
      respect to such securities.

              xi. March 19, 1997 Sales.  These units were issued in exchange for
      property  having a value of  approximately  $3.8  million,  net of assumed
      indebtedness.  There were no  underwriting  discounts or commissions  with
      respect to such securities.

      (d)     Exemption from registration claimed.

              Each of the transactions is exempt from  registration  pursuant to
      Section 4(2) of the Securities Act of 1933, as amended (the "Act").

      (e)     Terms of Conversion

              The Preferred Units are  exchangeable for Preferred Stock on a one
      for one basis. The Common Units are exchangeable, at the Company's option,
      for cash equal to the fair market  value of a share of Common Stock at the
      time of exchange or one share of Common Stock.  Holders of the Convertible
      Preferred  Stock have the right,  exercisable on or after May 31, 1999, to
      convert  shares  of  Convertible  Preferred  Stock  (with  each  share  of
      Convertible  Preferred Stock valued at the current Liquidation  Preference
      Amount of $25.00 per share)  into shares of Common  Stock at a  conversion
      price of $19.50 per share of Common Stock,  subject to adjustment upon the
      occurrence of certain events.

Item 6.  Summary of Selected Financial Data

      The  following   table  sets  forth   selected   financial  and  portfolio
information  on the  Company,  and  on a  combined  basis  for  its  predecessor
business,  and should be read in  conjunction  with the  discussion set forth in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations," and all of the consolidated  financial statements and notes thereto
included in this Form 10-K.






















                                                        20

<PAGE>



SELECTED CONSOLIDATED FINANCIAL INFORMATION (1)
<TABLE>
<S>                              <C>       <C>        <C>      <C>      <C>

                                              Year Ended December 31,
                                   1996       1995       1994     1993     1992
                                  (dollars in thousands, except per share data)
OPERATING DATA
 Revenues:
  Minimum Rent                  $31,925    $23,276    $14,701  $10,594  $10,242
  Tenant reimbursements           6,704      4,362      2,823    1,889    1,642
  Percentage rent                   664        495        255       68      114
  Third-party fees                    -      1,912      4,396    3,095    1,400
  Other income                    1,672      1,447        508      245      310
                                -------    -------    -------  -------  -------
   Total revenues                40,965     29,580     20,199   17,192   15,403
                                 ------     ------    -------  -------  -------

 Expenses:
  Operating and maintenance      10,270      7,229      6,299    5,137    4,726
  General and administrative      3,137      2,831      1,356    2,665    2,115
  Interest                       14,986     11,230      9,301    7,909    8,144
  Depreciation and amortization   8,019      5,808      4,579    2,721    2,514
                                 ------     ------    -------  -------  -------
   Total expenses                36,412     27,098     21,535   18,432   17,499
                                 ------     ------    -------  -------  -------

Income (Loss) before
 income from Management
 Company, extraordinary
 item, minority interest
 and distributions to
 Preferred Stockholders          4,553      2,482     (1,336)  (1,240)  (2,096)
Income from Management Company     221        449        500     -        -
                                ------     ------    -------  --------    -----
Income (Loss) before
 extraordinary item, minority
 interest and distribution
 to Preferred Stockholders       4,774      2,931       (836)  (1,240)  (2,096)
Extraordinary item                 -          -         2,251    2,665     -
                                -------    ------     -------  --------   -----
Net income                                                    $  1,425 $(2,096)
                                                               =======  =======
Income before minority interest
 and distributions
 to Preferred Stockholders       4,774      2,931      1,415
Income allocated to
 minority interest                (694)      (602)    (1,101)

Income before distributions
 to Preferred Stockholders       4,080      2,329        314
Distributions to Preferred
 Stockholders                   (5,641)    (5,117)    (1,811)
                               --------   --------  ---------
Loss allocated to
 Common Stockholders           $(1,561)   $(2,788)   $(1,497)
                               ========   ========   =======
Net loss per Common
 Share (2)                      ($0.46)    ($1.19)    ($0.95)
                               ========    =======    ======
Shares of Common Stock
 (in thousands)                  3,367      2,351      1,574
                                =======     ======    =======

BALANCE SHEET DATA:
  Rental properties, gross    $314,235   $228,092   $175,213  $87,749  $87,299
  Total assets                $313,613   $227,405   $172,487  $81,056  $82,798
  Mortgage and other
  notes payable               $167,047   $116,182   $ 89,858  $92,382  $93,918
  Debentures                   $25,000    $25,000   $ 25,000   -        -
  Total Liabilities           $198,375   $145,241   $117,925  $96,216  $99,235
  Minority Interest            $16,661    $11,088   $  8,580     -        -
  Stockholders equity
  (deficit)                    $98,577    $71,076   $ 45,982 $(15,160)$(16,437)

PORTFOLIO PROPERTY DATA
(end of period):
  Retail Occupancy               96.4%       96.0%     96.2%    95.4%    94.6%
  Number of retail
  properties                       36          27        20       14       14
  Number of multi-family
  properties                        2           2         2        2        2
  Average rent (3):
  Retail properties
  (per square feet)            $10.44      $10.28    $10.08    $9.16    $9.07
  Multi-family properties
  (per unit)                     $392      $  407    $  407     $407     $401
  Retail Properties GLA
    (thousands of sf)           3,652       2,668     2,014    1,186    1,186
  Multi-family properties
  (number of units)               401         401       401      401      401

OTHER DATA:
  Funds From Operations(4)(5) $14,290     $10,539
  Cash flow from operating
  activities                  $11,616     $10,003    $3,164     $831   $1,037
  Cash flow (used in)
  investing
  activities                  (56,994)    (29,884)  (56,236)    (450)  (1,636)
  Cash flow provided by
  (used in)
  financing activities         49,352      26,574    53,615     (529)     367
</TABLE>


(1)   See Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operation.
(2) Net loss per share is based on the weighted  average  total shares of Common
Stock  outstanding.  Because  the  Company's  income is based on its  percentage
interest in the Operating  Partnership's income, the net loss per share would be
unchanged for the periods  presented even if the Common Units were exchanged for
Common Stock of the Company.
(3)   Represents base rent divided by square feet or units, as applicable, for
the annualized 12-month period.
(4) The Company considers Funds From Operations to be an appropriate  measure of
the  performance of an equity REIT. On March 3, 1995,  NAREIT adopted the NAREIT
White Paper on Funds From  Operations  (the "NAREIT White Paper") which provided
additional  guidance on the  calculation  of Funds From  Operations.  Funds From
Operations  is defined  by NAREIT as net income  (computed  in  accordance  with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring  and sales of property,  plus  depreciation  and  amortization and
after   adjustments  for   unconsolidated   partnerships   and  joint  ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect Funds of Operations on the same basis.  Funds From  Operations  does not
represent cash generated from operating  activities in accordance with generally
accepted  accounting  principles  and  is not  necessarily  indicative  of  cash
available to fund cash needs and should not be considered an  alternative to net
income  as  an  indicator  of  the  Company's  operating  performance  or  as an
alternative  to cash  flow as a  measure  of  liquidity  or of  ability  to make
distributions.  (5) Before  minority  interest  and  distributions  to Preferred
Stockholders.

                                                            21

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operation

Overview

         The  following  discussion  should  be read  in  conjunction  with  the
"Selected  Consolidated  Financial Information" and the Financial Statements and
notes thereto of the Company appearing elsewhere in this Form 10-K.

Comparison of the year ended December 31, 1996 to the year ended December 31,
1995

         For the year ended  December  31,  1996,  net loss  allocated to common
shareholders decreased by $1,227,000 from a net loss of $2,788,000 to a net loss
of $1,561,000,  when compared to the year ended December 31, 1995, primarily due
to an increase in revenues offset by increases in expenses and  distributions to
holders of Convertible Preferred Stock.

         Total revenues  increased by $11,385,000 or 38.5%,  from $29,580,000 to
$40,965,000,  due primarily to an increase in minimum  rents of  $8,649,000  and
tenant  reimbursements  of  $2,342,000.  The increases were primarily due to the
acquisition  of Festival at Woodholme on June 1, 1995  (resulting  in only seven
months  revenues being included in the year ended December 31, 1995),  Glen Lea,
Hanover Village, Laburnum Park and Laburnum Square on July 1, 1995 (resulting in
only six months  revenues  being  included in the year ended December 31, 1995),
Kenhorst  Plaza on October 12, 1995  (resulting  in only three  months  revenues
being  included in the year ended December 31, 1995),  and  Firstfield  Shopping
Center on November 15, 1995  (resulting  in only one and a half months  revenues
being  included  in the year  ended  December  31,  1995)  (together  the  "1995
Acquisitions"), Stefko Boulevard and 15th & Allen Shopping Centers on January 4,
1996,  Clopper's  Mill Village on March 20, 1996,  Centre Ridge  Marketplace  on
March 29, 1996, Takoma Park on April 29, 1996, Southside  Marketplace on June 7,
1996,  Kings Park on December 19, 1996,  Newtown Square on December 28, 1996 and
Northway   Shopping   Center  on   December   30,  1996   (together   the  "1996
Acquisitions").

         Property operating and maintenance expense increased by $3,041,000,  or
42.1%, from $7,229,000 to $10,270,000, due primarily to the purchase of the 1995
and 1996 Acquisitions.

         General and administrative  expenses  increased by $306,000,  or 10.8%,
from  $2,831,000  to  $3,137,000,  due  primarily to the accrual of  performance
bonuses of $155,000 and an initial NYSE listing fee of $115,000.

         Interest expense increased by $3,756,000, or 33.4%, from $11,230,000 to
$14,986,000, due primarily to the financing of the 1995 and 1996 Acquisitions.

         Depreciation  and  amortization  expenses  increased by $2,211,000,  or
38.1%,  from  $5,808,000  to  $8,019,000,   primarily  due  to  an  increase  in
depreciable basis due to the purchase of the 1995 and 1996 Acquisitions.

         During  1996,  distributions  payable  to  owners  of  the  Convertible
Preferred  increased by $524,000 from $5,117,000 to $5,641,000  primarily due to
the issuance of an  additional  358,000  shares in June 1995 and the issuance of
36,189 shares of Preferred Stock in November 1995.

         Net cash flow  provided by operating  activities  increased  from $10.0
million in 1995 to $11.6 million in 1996,  primarily due to the  acquisition  of
new  properties  during  1996 and  realizing  the  full  years  operations  from
properties purchased in 1995 and improved property  performance.  Net cash flows
used in  investing  activities  increased  from  $29.9  million in 1995 to $57.0
million  in  1996  primarily  due to an  increase  in  the  amount  of  property
acquisitions  during  1996.  Net cash  flow  provided  by  financing  activities
increased  from $26.6 million to $49.4  million  primarily due to an increase in
the amount of equity  capital  raised and an increase in proceeds  from mortgage
notes due to an increase in  acquisitions  in 1996  resulting in more  financing
needs.

Comparison of the year ended December 31, 1995 to the year ended December 31,
1994

         For the year ended  December  31,  1995,  net loss  allocated to common
shareholders increased by $1,291,000 from a net loss of $1,497,000 to a net loss
of $2,788,000,  when compared to the year ended December 31, 1994, primarily due
to an increase in expenses and distributions to holders of Convertible Preferred
Stock,  offset by increases  in revenues  and a decrease in income  allocated to
minority interest.


                                                        22

<PAGE>



         Total revenues  increased by $9,381,000 or 46.4%,  from  $20,199,000 to
$29,580,000,  due primarily to an increase in minimum  rents of  $8,575,000  and
tenant  reimbursements  of  $1,539,000,   partially  offset  by  a  decrease  in
third-party  fees  of  $1,912,000  due to the  change  in the  ownership  of the
Management  Company from voting to nonvoting stock and the related change in the
method of accounting  for the Management  Company,  effective June 27, 1994. The
increases  were  primarily  due to the  purchase of the six  properties  (" 1994
Acquisitions")  on June 27, 1994  resulting  in only six months  revenues  being
included in the year ended  December  31, 1994 and the  acquisition  of the 1995
Acquisitions.

         Property  operating and maintenance  expense increased by $930,000,  or
14.8%, from $6,299,000 to $7,229,000,  due primarily to the purchase of the 1994
Acquisitions  on June 27, 1994  resulting  in only six months of expenses  being
included  in the year  ended  December  31,  1994 and the  purchase  of the 1995
Acquisitions.  Property  operating and  maintenance  expenses as a percentage of
total  revenues  decreased  from  31% in 1994 to 24% in  1995  primarily  due to
savings in property  management  fee expenses due to the  increased  size of the
Company's  portfolio  and a reduction in the reserve for  allowance for doubtful
accounts.

         General and administrative expenses increased by $1,475,000, or 108.8%,
from $1,356,000 to $2,831,000,  due primarily to compensation paid or payable in
company stock in the amount of $1,800,000 to key employees.

         Interest expense increased by $1,929,000,  or 20.7%, from $9,301,000 to
$11,230,000, due primarily to the 1995 Acquisitions.

         Depreciation  and  amortization  expenses  increased by $1,229,000,  or
26.8%,  from  $4,579,000  to  $5,808,000,   primarily  due  to  an  increase  in
depreciable  basis due to the purchase of the 1995 Acquisitions and a full years
depreciation on the 1994 Acquisitions.

         During  1995,  distributions  payable  to  owners  of  the  Convertible
Preferred increased by $3,306,000 from $1,811,000 to $5,117,000 primarily due to
the  preferred  stock  being  outstanding  for only six  months  in 1994 and the
issuance of an  additional  358,000  shares  during  1995.  Income  allocated to
minority interest decreased by $499,000 from $1,101,000 to $602,000 for the year
ended  December  31, 1995  primarily  because all  pre-June  27, 1994 income was
allocated to minority interests in 1994,  partially offset by increased earnings
in 1995. During 1994 there was extraordinary income of $2,251,000.  There was no
such item during 1995.

         Potomac Plaza's  occupancy rate as of December 31, 1995 was 75.3%.  The
Company has recently  completed a renovation of the shopping center which should
increase the  marketability of the property.  As of December 1996, the occupancy
increased to 92.3%.  Broadmoor Apartments occupancy was 71.9% as of December 31,
1995 primarily due to the closing of the Charleston,  South Carolina Naval Base.
Broadmoor has historically  relied on the Navy Base as a source of tenants.  The
Company has completed an exterior renovation of the property and has renamed the
property Park Place.  These  activities have increase the  marketability  of the
apartment. The occupancy is currently 95%.

         Net cash flow  provided by  operating  activities  increased  from $3.2
million in 1994 to $10.0 million in 1995,  primarily due to the  acquisition  of
new  properties  during  1995 and  realizing  the  full  years  operations  from
properties purchased in 1994 and improved property  performance.  Net cash flows
used in  investing  activities  decreased  from  $56.2  million in 1994 to $29.9
million  in  1995  primarily  due  to a  decrease  in  the  amount  of  property
acquisitions  during  1995.  Net cash  flow  provided  by  financing  activities
decreased from $53.6 million to $26.6 million primarily due to a decrease in the
amount of equity  capital  raised and a decrease in proceeds from mortgage notes
due to a decrease in acquisitions in 1995 resulting in less financing needs.

Comparison of the year ended December 31, 1994 to the year ended December 31,
1993


         For  the  year  ended  December  31,  1994,  net  income  decreased  by
$2,922,000  from a net income of  $1,425,000 to a net loss of  $1,497,000,  when
compared to the year ended  December 31, 1993,  primarily  due to an increase in
depreciation  and  amortization  expense,  interest  expense,  distributions  to
holders of Convertible  Preferred Stock, and an allocation of income to minority
interests, offset by an increase in revenues.

         Total revenues  increased by $3,007,000 or 17.5%,  from  $17,192,000 to
$20,199,000,  due primarily to an increase in minimum  rents of  $4,107,000  and
tenant reimbursements of $934,000, partially offset by a decrease in third-party
fees of $2,484,000 due to the change in the ownership of the Management  Company
from  voting  to  nonvoting  stock  and the  related  change  in the  method  of
accounting for the Management Company, effective June 27,

                                                        23

<PAGE>



1994. The increases were primarily due to the purchase of the 1994  Acquisitions
on June 27, 1994  resulting in six months  revenues  being  included in the year
ended December 31, 1994.


         Property operating and maintenance expense increased by $1,162,000,  or
22.6%, from $5,137,000 to $6,299,000,  due primarily to the purchase of the 1994
Acquisitions on June 27, 1994 resulting in six months expenses being included in
the year ended December 31, 1994.


         General and administrative expenses decreased by $1,309,000,  or 49.1%,
from $2,665,000 to $1,356,000, due primarily to the change in accounting for the
Management Company on June 27, 1994, resulting from the change in ownership from
voting  to  non-voting  stock.  Prior  to June 27,  1994,  the  expenses  of the
Management Company were consolidated with the properties. Subsequent to June 27,
1994,  activity of the Management  Company is being  reflected  using the equity
method of accounting.

         Interest expense increased by $1,392,000,  or 17.6%, from $7,909,000 to
$9,301,000,  due primarily to the amortization of loan costs associated with the
$38,500,000 Nomura loan (including  amortization of the interest rate cap in the
amount  of  $510,000),   issuance  of  $25,000,000  Debentures,   assumption  of
$14,400,000  of debt  related  to the  1994  Acquisitions  and  amortization  of
deferred loan costs associated with the modification of existing debt.

         Depreciation  and  amortization  expenses  increased by $1,858,000,  or
68.3%,  from  $2,721,000  to  $4,579,000,   primarily  due  to  an  increase  in
depreciable  basis due to the  purchase of the 1994  Acquisitions.  During 1994,
there were  distributions  of  $1,811,000  payable to owners of the  Convertible
Preferred  Stock.  There was no similar item during the year ended  December 31,
1993. There was $1,101,000 of income allocated to the minority  interests during
the year ended  December  31,  1994.  There was no similar  item during the year
ended December 31, 1993.

         Net cash flow  provided by  operating  activities  increased  from $0.8
million in 1993 to $3.2  million in 1994,  primarily  due to  improved  property
performance  and  income  from the  Management  Company.  Net cash flows used in
investing  activities  increased  from $0.5 million in 1993 to $56.2  million in
1994 due  primarily  to the purchase of the 1994  Acquisitions  in the amount of
$76.1  million  (net of debt  assumed  of $14.4  million)  and the  issuance  of
Exchangeable  Preferred  Units  of $8.8  million.  Net  cash  flow  provided  by
financing  activities  increased  from a use of $0.5  million  in the  1993 to a
source of $53.6 million in 1994. The increase was primarily due to proceeds from
the Exchangeable Debentures, sale of Common Stock, sale of Convertible Preferred
Stock and new mortgage borrowings, offset by repayments of mortgage notes.

Liquidity and Capital Resources

         In 1996, the Company  continued to expand its portfolio of neighborhood
shopping  centers.  During the year, the Company  acquired nine shopping centers
for an  aggregate  acquisition  cost of $81.5  million.  The  acquisitions  were
primarily  located in the  metropolitan  areas of  Philadelphia,  Baltimore  and
Washington,  D.C. The acquisitions  increased the Company's portfolio by 963,000
square feet. The Company financed the acquisitions  through the issuance of both
Common and Preferred Units of $9.0 million, new or assumed mortgage indebtedness
of $51.3 million and cash of $21.2 million.  The cash was provided by both draws
on the  Company's  lines of credit ($9.5  million) and from proceeds of the June
1995 and December 1996 offerings ($11.7 million).

         Since January 1, 1997, the Company acquired four additional  properties
for an  aggregate  acquisition  cost of $36.9  million.  The  acquisitions  were
financed through the issuance of Common and Preferred units of $4.8 million, new
or assumed mortgage indebtedness of $17.8 million and cash of $14.3 million. The
cash was provided by both draws on the Company's lines of credit ($5.2 million),
proceeds from the sale of a property ($0.4  million) and the remaining  proceeds
of the December 1996 Offering ($8.7 million).

         During  1996,  the  Company  renovated  four of its  properties  for an
aggregate  cost of  approximately  $1.6  million.  The company also expanded two
properties  (Kenhorst Plaza and Centre Ridge  Marketplace) for an aggregate cost
of $2.2 million. These expansions added 48,940 square feet to the properties.

         During  1997,  the  Company  expects  to  renovate  a minimum  of three
properties  for an  aggregate  cost of $.5  million.  The Company  also plans to
expend at a minimum  approximately  $2.8  million  for the  purchase  of an out-
parcel and the expansion of two of its properties  (Centre Ridge Marketplace and
Valley Centre). These expansions will add approximately 24,700 quare feet to the
properties.  These  expansions  and  renovations  are  expected  to be  financed
primarily  through a combination  of draws on the Company's  lines of credit and
mortgage financing.

                                                        24

<PAGE>



         The Company expects to continue its renovation and acquisition  program
for the  remainder  of 1997.  However,  the  level  of  future  acquisitions  is
dependent on the Company's  ability to raise  additional  capital through equity
offerings.

         On March 26, 1997, the Company filed a $175 million shelf  registration
statement  with the  Securities  and Exchange  Commission,  which allows for the
issuance of debt or equity.

Indebtedness

         The  following  table  sets forth  certain  information  regarding  the
indebtedness  of the  Company  (excluding  the  Exchangeable  Debentures)  as of
December 31, 1996:

<TABLE>
<S>                 <C>       <C>       <C>          <C>        <C>
                                        Projected
                                        Annual
                              Face      Interest                Balance Due
                    Interest  Amount    Payments     Maturity   at Maturity (5)
Mortgage Loans      Rate     (in thous) (in thous)   Date (1)   (in thousands)
--------------      --------  --------  ----------   ---------  ---------------

Branchwood
 Apartments(11)       6.50%   $ 2,121    $ 138       01/01/97       $2,121
Broadmoor
 Apartments           6.50%     3,826      249       06/30/99        3,826
Bryans Road
 Shopping Center(11)  8.00%       150       12       01/29/97          150
Capital Corner
 Shopping Center      6.50%     3,587      233       05/25/99        3,587
Centre Ridge
 Marketplace(11)      7.67%     7,853      602       03/28/02        7,853
Chesapeake
 Bagel Building       6.50%       735       48       07/01/01          735
Clinton Square
 Shopping Center      6.50%     1,312       85       05/25/99        1,312
Clopper's
 Mill Village         7.18%    14,358    1,031       03/21/06       11,599
Colonial
 Shopping Center(2)   8.25%     1,528      126       02/20/20        1,528
Connecticut
 Avenue Shops         6.50%       626       41       05/25/99          626
Davis Ford;
 First State Plaza;
 James Island;
 Valley Centre
 and Bryans Road(3)   7.09%    38,500    2,730       07/01/99       38,500
Festival at Woodholme 9.60%    11,589    1,113       04/30/00       11,196
Fifteenth & Allen
 and Stefko
 Boulevard(9)         7.75%     6,002      465       01/11/06        4,891
Firstfield
 Shopping Center      7.50%     2,497      187       12/01/05        2,233
FSNote(6)             5.00%     4,800      240       07/01/00        4,800
Glen Lea,
 Hanover Village,
 Laburnum Park
 and Laburnum
 Square(7)            8.57%    13,952    1,196       10/31/05       10,746
Kings Park
 Shopping Center      9.00%     4,315      388       11/30/14            -
Mayfair
 Shopping
 Center(4)(8)         6.10%     7,265      443       06/24/10        3,235
Northway
 Shopping Center      8.50%     6,000      510       01/01/07        4,920
Northway
 Shopping Center     10.25%     1,759      180       08/01/99        1,718
Penn Station
 (Phase II)           7.50%     3,500      263       07/01/99        3,500
P.G. County           7.31%     4,150      303       06/06/98        4,150
Potomac Plaza
 Shopping Center      7.00%     3,656      256       07/01/99        3,656
Rosecroft
 Shopping Center      6.50%     2,000      130       05/25/99        2,000
Shoppes of
 Kildaire(12)         6.50%     7,919      515       05/31/06        5,524
Southside
 Marketplace          8.75%     8,065      706       07/01/05        7,244
Takoma Park(10)       8.50%     2,945      250       04/01/99        3,150
The Georgetown
 Shops                6.50%     1,654      108       07/01/99        1,654
Thieves
 Market(11)           7.08%       734       52       04/30/99          734
                    -------    ------   -------

TOTALS                       $167,398  $12,600                    $147,188
                             ======== ========                    ========

</TABLE>

(1)      Except for Centre Ridge  Marketplace,  Colonial  Shopping Center,  Penn
         Station (Phase II), Potomac Plaza Shopping Center, Takoma Park Shopping
         Center,  the FS Note and the Lines of Credit,  all the  properties  are
         subject to mortgages  which  contain  prepayment  penalties,  typically
         calculated using a yield maintenance formula.
(2)      The debt service on this mortgage loan floats at 2.75% above the
         applicable one-year treasury bill rate.
(3)      This debt (the Nomura  Mortgage Loan) is  collateralized  by these five
         properties.  The  Company  has  entered  into  an  interest  rate  swap
         agreement  which  fixes the rate at 7.09% for the  period  July 1, 1996
         through June 30, 1999.
(4)      The debt  service  on this  mortgage  loan is  determined  based upon a
         variable rate of interest,  plus a credit  enhancement fee of 2.0%. The
         variable  interest rate is determined  weekly at the rate  necessary to
         produce a bid in the process of remarketing the Bond Obligations  equal
         to par plus accrued interest, based on comparable issues in the market.
(5)      Branchwood Apartments, P.G. County Commercial Park, Shoppes of Kildaire
         and  Thieves  Market  amounts  reflect a reduction  of the  outstanding
         balances of the mortgages due to amortization which was escrowed at the
         closing of the June 1994  Offering for the  remaining  loan term in the
         amounts of $36,000, $507,000, $259,000 and $66,000, respectively.

                                                        25

<PAGE>



(6)      Excludes a $351,000  discount  recorded on the FS Note due to its below
         market interest rate. Such discount is being amortized over the life of
         the loan using the effective interest method.
(7)      This debt is collateralized by these four properties.
(8)      This debt matures in the year 2010.  However, the letter of credit
         enhancer expires in June 1998.
(9)      This debt is  collateralized  by these two properties.  The loan can be
         extended  through  January 11, 2021.  The interest  rate adjusts to the
         greater of the initial interest rate plus five percentage points or the
         T-bill rate plus five percentage points.
(10)     The interest rate on this mortgage floats at 0.25% above the prime
         rate.
(11)     Subsequently paid off in 1997.
(12)     The interest rate adjusts to 7.75% effective July 1, 1997.

         As of  December  31,  1996,  the Company  had total  mortgage  notes of
approximately $167.0 million, which consisted of approximately $159.7 million in
indebtedness  collateralized  by  35  of  the  Properties  and  tax-exempt  bond
financing  obligations  issued  by the  Philadelphia  Authority  for  Industrial
Development   (the   "Bond   Obligations")   of   approximately   $7.3   million
collateralized by one of the properties.  Of the Company's  indebtedness,  $19.6
million (11.7%) is variable rate indebtedness and $147.4 million (88.3%) is at a
fixed rate. The fixed rate  indebtedness has interest rates ranging from 5.0% to
10.25%,  with a weighted average interest rate (excluding the Bond  Obligations)
of  7.7%,  and will  mature  between  1997 and  2021,  with a  weighted  average
remaining  term to  maturity  of 5.8 years.  A large  portion  of the  Company's
indebtedness  will  become due by 2000,  requiring  balloon  payments  of  $2.3
million in 1997, $4.1 million in 1998,  $63.2 million in 1999 and $16.0 million
in 2000.
From 1997  through  2021,  the Company  will have to  refinance  an aggregate of
approximately  $147.2 million.  Since the Company  anticipates that only a small
portion of the principal of such  indebtedness  will be repaid prior to maturity
and the  Company  will  likely not have  sufficient  funds on hand to repay such
indebtedness,  the Company  will need to  refinance  such  indebtedness  through
modification or extension of existing indebtedness, additional debt financing or
through an additional offering of equity securities.

         On June 27, 1994, the Company borrowed $38.5 million under new mortgage
loans (collectively,  the "Nomura Mortgage Loan")  collateralized by five of the
Properties. These loans, which bear interest at 30-day LIBOR (5.375% at December
31, 1996) plus 2.0% and mature on July 1, 1999,  are closed to prepayment for 48
months  and can be  prepaid  thereafter  based on a 1.50%  declining  prepayment
penalty.  To mitigate its  exposure to these  variable  rate loans,  the Company
entered  into a five year  interest  rate  protection  agreement  for a notional
amount of $38.5 million that is effective  through the loans maturity,  and caps
the interest rate at 6.20% for year one, 6.70% for year two, and 7.70% for years
three through five. The financing cost of the interest rate protection agreement
of approximately $3.2 million, is being amortized over the life of the agreement
using the effective interest rate method resulting in an effective interest rate
on the Nomura Mortgage Loan of approximately  8.9% per annum. The estimated fair
market value of the interest  rate  protection  agreement,  as determined by the
issuing financial  institution,  was approximately  $0.5 million at December 31,
1996.

         In December  1995,  the Company  entered  into two  interest  rate swap
contracts with a notional  amount of $38.5 million.  The Company intends to hold
such  contracts,  the first of which  commences in July 1996 and expires in June
1999 and the second of which  commences  in July 1999 and  expires  in  December
2003,  until  their  expiration  dates.  The  purpose of the swaps is to fix the
interest rate on the $38.5 million  Nomura loan through its  expiration  date of
June 1999 at 7.09% and to mitigate any interest rate  exposure upon  refinancing
the loan by fixing the LIBOR rate at 6.375% for the period  beginning  July 1999
through  December  2003.  Under the terms of the  interest  rate  contract,  the
Company  will be paying a fixed rate of 5.09% to the other party to the contract
(the  "Counter  Party")  through  June 1999 and a fixed  rate of 6.375%  through
December 2003. The Company will be receiving  variable payments from the Counter
Party based on 30-day LIBOR  through  December  2003.  The Counter  Party has as
collateral  a $2.4  million  restriction  on the $5.8  million line of credit it
provided the Company (see below).  The fair market value of each of the interest
rate swaps is determined  by the amounts at which they could be settled.  If the
Company had settled  these  agreements  with the Counter  Party on December  31,
1996, the Company would have received approximately $0.8 million.

         Concurrently  with the June 1994  Offering,  the Operating  Partnership
effected a private  placement of $25.0  million  aggregate  principal  amount of
Exchangeable  Debentures.  The Debentures are  exchangeable in the aggregate for
1,000,000  shares of  Preferred  Stock of the  Company,  subject to  adjustment.
Interest on the Debentures is payable

                                                        26

<PAGE>



quarterly,  in arrears.  The  Debentures  mature on June 27, 1999. The rights of
holders of Common Stock and Preferred Stock are effectively  subordinated to the
rights of holders of Debentures.  The Debentures are  collateralized  by a first
mortgage on two of the Properties.

         The  Company  currently  has three  collateralized  revolving  lines of
credit (the "Lines of Credit"). The Company has a collateralized  revolving line
of credit of up to $5.8 million  from First Union Bank.  Loans under the line of
credit will bear  interest at LIBOR plus two  percent  (2%) per annum,  and will
mature on June 30, 1998.  Loans under the line of credit will be  collateralized
by a first  mortgage  lien on  Brafferton  Shopping  Center.  The Company has an
additional  collateralized  revolving  line of  credit  of  approximately  $8.25
million  with Mellon Bank.  This line is  collateralized  by Kenhorst  Plaza and
expires  March 29, 1998.  Loans under this line will bear interest at LIBOR plus
two percent (2%). As of December 31, 1996,  there were no  outstanding  balances
under the Lines of Credit.

         On January 31,  1997,  the Company  closed a $25 million line of credit
with Corestates Bank. The line is collateralized by Shoppes of Graylyn,  Newtown
Square,  Four Mile Fork and Centre Ridge  Marketplace,  bears  interest at LIBOR
plus 1.50% and expires January 31, 2000.

         The Lines of Credit are  available to fund  acquisitions,  renovations,
expansions and other working capital  requirements.  Definitive  agreements with
respect to the Lines of Credit contain customary representations, warranties and
covenants.

         The  Company  expects  to meet its  short-term  liquidity  requirements
generally through its working capital, net cash provided by operations and draws
on its Lines of Credit.  The  Company  believes  that the  foregoing  sources of
liquidity will be sufficient to fund liquidity needs through 1997.

         The Company expects to meet certain  long-term  liquidity  requirements
such  as  development,   property   acquisitions,   scheduled  debt  maturities,
renovations,  expansions and other non-recurring  capital  improvements  through
long-term secured and unsecured indebtedness,  including the Lines of Credit and
the issuance of additional  equity  securities.  The Company also expects to use
funds  available  under the Lines of  Credit to fund  acquisitions,  development
activities and capital improvements on an interim basis.

         During 1999, $88.2 million of the Company's  indebtedness  becomes due,
including the $25.0 million Exchangeable  Debentures.  The Company believes that
it will be able to retire this debt  through  either a  refinancing  of the debt
using the properties as collateral, an equity offering or a combination of both.
The Company currently  believes that the loan-to-values on the properties are at
a level that will enable the  Company to fully  refinance  the loans  without an
additional requirement for capital.

         The Company  has  elected to qualify as a REIT for  federal  income tax
purposes. To maintain its status as a REIT, the Company is required, among other
items,  to pay  dividends  to its  shareholders  of at least 95% of its  taxable
income. The Company intends to make quarterly  distributions to its shareholders
from operating cash flow.

Inflation, Economic Conditions

         Most of the Company's leases contain  provisions  designed to partially
mitigate  the adverse  impact of  inflation.  Such  provisions  include  clauses
enabling the Company to receive  percentage  rents based on tenant's gross sales
above  predetermined  levels,  which rents generally increase as prices rise, or
escalation  clauses  which are  typically  related to  increases in the Consumer
Price Index or similar inflation  indices.  Most of the Company's leases require
the  tenant  to pay its  share of  operating  expenses,  including  common  area
maintenance,  real estate taxes and  insurance,  thereby  reducing the Company's
exposure to increases in costs and operating  expenses resulting from inflation.
In addition,  the Company  periodically  evaluates its exposure to interest rate
fluctuations,  and may enter into  interest  rate  protection  agreements  which
mitigate,  but do not eliminate,  the effect of changes in interest rates on its
floating rate loans. The Company, as a general policy, endeavors to obtain fixed
rate financing.


                                                        27

<PAGE>



         The  Company's  financial  results  are  affected  by general  economic
conditions  in the  markets in which its  properties  are  located.  An economic
recession,  or other adverse  changes in general or local  economic  conditions,
could result in the  inability of some  existing  tenants of the Company to meet
their lease  obligations  and could  otherwise  adversely  affect the  Company's
ability to attract  or retain  tenants.  The  Retail  Properties  are  typically
anchored by supermarkets,  drug stores and other consumer  necessity and service
retailers which usually offer day-to-day  necessities  rather than luxury items.
These types of tenants,  in the  experience of the Company,  generally  maintain
more consistent sales performance during periods of adverse economic conditions.

Recent Accounting Developments

         In February of 1997, Statement of Financial Accounting Standard No. 128
"Earnings per share" (FAS 128) was issued. The statement  establishes  standards
for  computing  and  presenting  earnings  per share and will be  effective  for
financial  statements  issued  for  periods  ending  after  December  15,  1997.
Management  has yet to  assess  the  impact  of the  standard  on the  Company's
financial statements.

Item 8.  Financial Statements and Supplementary Data

         The Consolidated Financial Statements and Supplementary Data of First
         Washington Realty Trust, Inc. and Subsidiaries are listed and included
         under Item 14 of this report.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosures.

         None.





























                                                        28

<PAGE>



                                                     PART III

Item 10.  Directors and Executive Officers of the Company*

Item 11.  Executive Compensation*

Item 12.  Security Ownership of Certain Beneficial Owners and Management*

Item 13.  Certain Relationships and Related Transactions*

         *The  information  called for by Part III,  Items 10, 11, 12 and 13, is
hereby incorporated by reference to the Company's  definitive Proxy Statement to
be filed with the Securities and Exchange  Commission  within 120 days after the
year covered by this Form 10-K with respect to the Company's  Annual  Meeting of
Shareholders presently scheduled for May 16, 1997.

                                                      PART IV

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

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

         1.         The Consolidated Financial Statements of First Washington
                    Realty Trust, Inc. and Subsidiaries.

                    See  Index to  Financial  Statements  on Page  F-1  included
herein.

         2.         Financial Statement Schedules.

B.       Reports on Form 8-K

                    There was an 8-K report filed November 5, 1996.

C.       Exhibits - pursuant to Item 601 of Regulation S-K

         3.1         Articles of Incorporation of the Company (4)
                    (amendment and originals)

         3.2         Bylaws of the Company. (5)

         10.1        First Amended and Restated Agreement of Limited Partnership
                     of First Washington Realty Limited Partnership. (5)

         10.2        Promissory Note in the principal amount of $38.5 million
                     dated June 27, 1994 from the Company
                     in favor of Nomura Asset Capital Corporation. (5)

         10.3        Cash Collateral Account Security, Pledge and Assignment
                     Agreement among JFD Limited
                     Partnership, Greenspring Associates Limited Partnership
                     and FW-Bryans Road Limited Partnership
                     as borrowers, and Nomura Asset Capital Corporation,
                     as Lender. (5)

         10.4        Indemnity, Pledge and Security Agreement dated
                     June 27, 1994 between the Operating
                     Partnership, Stuart D. Halpert, William J. Wolfe,
                     Lester Zimmerman and Jack E. Spector. (5)

         10.5        Term Loan Agreement dated as of June 27, 1994 between
                     the Company and First State Plaza
                     Associates Limited Partnership. (5)

                                                        29

<PAGE>




         10.6        Letter Agreement dated February 22, 1995, between
                     First Washington Realty Limited Partnership
                     and Woodholme Properties Limited Partnership. (5)

         10.7        Purchase Agreement dated March 30, 1995, between First
                     Washington Realty Trust, Inc. and
                     United Dominion Realty Trust, Inc. (5)

         10.8        Contribution Agreement dated May 3, 1995, between
                     First Washington Realty Limited Partnership
                     and Woodholme Properties Limited Partnership (5)

         10.9        Real Estate Purchase Agreement dated May 1, 1995 between
                     First Washington Realty Trust, Inc.
                     and United Dominion Realty Trust, Inc. (2)

         10.10       Form of Registration Rights Agreement between First
                     Washington Realty Trust, Inc. and United
                     Dominion Realty Trust, Inc. (2)

         10.11       Commitment Letter dated May 29, 1995 from the Lutheran
                     Brotherhood to First Washington
                     Realty Trust, Inc. (2)

         10.12       Real Estate Purchase Agreement dated August 18, 1995
                     between First Washington Realty Limited
                     Partnership and Kenhorst Plaza Associates, L.P. (3)

         10.13       Deed of Trust and Security Agreement dated
                     October 6, 1995 between First Washington Realty
                     Limited Partnership and Luthern Brotherhood and
                     Deed of Trust Note of even date therewith. (3)

         10.14       Real Estate Purchase Agreement dated August 18, 1995
                     between First Washington Realty Limited
                     Partnership and Kenhorst Plaza Associates, L.P. (*)

         10.15       Deed of Trust and Security Agreement dated October 6, 1995
                     between First Washington Realty
                     Limited Partnership and Lutheran Brotherhood and Deed of
                     Trust Note of even date therewith. (*)

         10.16       Real Estate Purchase Agreement dated November 15, 1995,
                     by and between First Washington
                     Realty Trust, Inc. and Firstfield Center Duncan Limited
                     Partnership. (*)

         10.17       Contribution Agreement dated October 30, 1995, by and
                     between First Washington Realty Limited
                     Partnership and Carriage Associates Limited Partnership.(*)

         10.18       Purchase Money Deed of Trust dated November 15, 1995,
                     by and between First Washington
                     Realty Limited Partnership and Army and Air Force Mutual
                     Aid Association. (*)

         10.19       Mortgage, Assignment of Leases and Rents and Security
                     Agreement dated January 4, 1996, by and
                     between Allenbeth Associates Limited Partnership
                     (First Washington Realty Trust, Inc.  is the sole
                     general partner) and Nomura Asset Capital Corporation. (*)

         10.20       Real Estate Purchase Agreement dated February 1, 1996,
                     by and between First Washington Realty
                     Limited Partnership and Centre Ridge Development L.P. (*)

         10.21       Agreement to Sell Real Estate dated March 28, 1996, by
                     and between First Washington Realty
                     Limited Partnership and Super Fresh Food Markets of
                     Virginia, Inc. (*)


                                                        30

<PAGE>



         10.22       Contribution Agreement dated March 20, 1996
                     (effective as of March 1, 1996), by and between
                     First Washington Realty Limited Partnership and Brian G.
                     McElwee, Richard W.  Ireland, John
                     H.  Donegan, Stacy C.  Hornstein, Sweet Gum Tree, L.L.C.
                     and Wendy A.  Seher. (*)

         10.23       Amendment and Restatement of Deed of Trust, Assignment
                     and Security Agreement dated March
                     21, 1996 by and between Clopper's Mill Village Center,
                     J.C. Timothy R.  Casgar and Margaret
                     Everson-Fischer, Trustees, and Jackson National Life
                     Insurance Company. (*)

         10.24       Credit Line Deed of Trust and Security Agreement dated
                     March 28, 1996, by and between First
                     Washington Realty Limited Partnership, Sam T.  Beale
                     and Barry Musselman, as Trustees, and
                     South Trustees, and South Trust Bank of Alabama, N.A. (*)

         10.25       Real Estate Purchase Agreement dated October 23, 1995,
                     by and between First Washington Realty
                     Limited Partnership and 6875 New Hampshire Avenue
                     Partnership.  (*)

         10.26       Purchase Money Deed of Trust and Security Agreement
                     dated April 24, 1996, by and between First
                     Washington Realty Limited Partnership and Nicoletta R.
                     Parker and Margaret H.  Biewin, as
                     Trustees.  (*)

         10.27       Purchase Agreement dated April 4, 1996, by and between
                     First Washington Realty Limited
                     Partnership and Michael F.  Klein, Philip E.  Klein,
                     Jeffrey F.  Klein, George Arconti, Professional
                     Real Estate Services, Inc., H.S. Taylor White, Rick C.
                     Klein and William S.  Berman. (*)

         10.28       Indemnity Deed of Trust, Security Agreement, and
                     Assignment of Rents and Leases dated June 28,
                     1995, by and between Southside Marketplace Limited
                     Partnership in favor of Fleet Management
                     and Recovery Corporation.  (*)

         10.29       First Washington Realty Trust, Inc.  Restricted
                     Stock Plan. (*)

         10.30       The Contingent Stock Agreement dated June 30, 1996,
                     by and between First Washington Realty
                     Trust, Inc.  and William J.  Wolfe.  (*)

         10.31       The Contingent Stock Agreement dated June 30, 1996,
                     by and between First Washington Realty
                     Trust, Inc.  and Stuart D.  Halpert. (*)

         10.32       Restricted Stock Agreement dated June 30, 1996, by and
                     between First Washington Realty Trust,
                     Inc.  and William J.  Wolfe.  (*)

         10.33       Restricted Stock Agreement dated June 30, 1996, by and
                     between First Washington Realty Trust,
                     Inc.  and Stuart D.  Halpert.  (*)

         10.34       Contribution Agreement dated October 21, 1996, by and
                     between Contingent Realty Investor
                     Corp., JHP Development Company, Inc., J.  Mark Shapiro,
                     John A.  Luetkemeyer, Jr., James Stone
                     Trustee for Mary Luetkemeyer, James Stone Trustee for
                     Julia Luetkemeyer, James Stone Trustee
                     for Anne Luetkemeyer, Tripec Associates, J.P. Herbert
                     Rochlin and JHJ Investment Limited
                     Partnership and First Washington Realty Limited
                     Partnership.  (*)

         10.35       Contribution Agreement dated October 22, 1996, by and
                     between Isadore Shooster, Harry
                     Shooster, Donald Shooster, David Shooster, Daniel
                     Shooster, Myra Gerson, Richard and Helaine
                     Gordon, David and Michele Saland and Fairless Hills
                     S.C. Associates and First Washington Realty
                     Limited Partnership.  (*)

         10.36       Real Estate Purchase Agreement dated October 15, 1996,
                     by and between Graylyn Shopping
                     Center Associates, L.P. and First Washington Realty
                     Limited Partnership.  (*)

         10.37       Real Estate Purchase Agreement dated October 3, 1996,
                     by and between VOL Properties
                     Corporation and First Washington Realty Limited
                     Partnership.  (*)


                                                        31

<PAGE>





         10.38       Real Estate Purchase Agreement dated September 23, 1996,
                     by and between Newtown Square
                     Associates, L.P. and First Washington Realty Limited
                     Partnership.(*)

         10.39       Contribution Agreement dated October 22, 1996, by
                     and between Kings Park Associates and First
                     Washington Realty Limited Partnership.  (*)

         10.40       Revolving Credit Loan Agreement dated January 31, 1997
                     between Corestates Bank, N.A. and
                     First Washington Realty Limited Partnership.  (4)

         10.41       Contribution Agreement dated March 19, 1997, by and
                     between Ashburn Farms Village Center, L.L.C. and First
                     Washington Realty Limited Partnership. (4)

         21.1        List of Subsidiaries (4)

         23.1        Consent of Coopers & Lybrand L.L.P. (4)

         27          Financial Data Schedule (4)


                                   Executive Compensation Plans and Arrangements

         10.43       The 1994 Stock Option Plan of First Washington
                     Realty Trust, Inc., First Washington Realty
                     Limited Partnership and First Washington
                     Management, Inc.  (5)

         10.45       Employment Contract, dated June 30, 1996,
                     between the Company and Stuart D. Halpert (*)

         10.46       Employment Contract, dated June 30, 1996,
                     between the Company and William J. Wolfe (*)

         10.52       Stock Option Agreement between the Company and
                     William J. Wolfe (1)

         10.53       Stock Option Agreement between the Company and
                     Stuart D. Halpert (1)

         10.54       Stock Option Agreement between the Company
                     and Jeffrey S. Distenfeld (1)

         10.55       Stock Option Agreement between the Company
                     and James G. Blumenthal (1)

         10.56       Stock Option Agreement between the Company
                     and James G. Pounds (1)

         10.57       Stock Option Agreement between the Company
                     and Stanley T. Burns (1)

         10.58       Stock Option Agreement between the Company
                     and Matthew J. Hart (1)

         10.59       Stock Option Agreement between the Company
                     and William M. Russell (1)

         10.60       Stock Option Agreement between the Company
                     and Heywood Wilansky (1)


(*)   Incorporated herein by reference from the Company's
      Registration Statement on Form S-11 (No.  333-15423).

(1) Incorporated herein by reference from the Company's
    Form 10-K filed on March 31, 1995.

(2)   Incorporated herein by reference from Amendment No.2 to the
      Company's Registration Statement on Form S-11 (No. 33-93188).

(3)   Incorporated herein by reference to the Company's Form 10-Q
      filed on November 11, 1995 for the quarter ended September 30, 1995.

(4)   Filed herewith.

(5)   Incorporated herein by reference from the Company's
      Registration Statement on Form S-11 (No. 33-83960).




                                                        32

<PAGE>







                                                    SIGNATURES


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


                            FIRST WASHINGTON REALTY TRUST, INC.


                            By:   /s/ William J. Wolfe
                                  William J. Wolfe
                                  President and Chief Executive Officer
                                  March 28, 1997

     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 date indicated.


Signature                   Title                               Date

 /s/ Stuart D. Halpert      Chairman of the Board of Directors  March 28, 1997
--------------------------
Stuart D. Halpert

 /s/ William J. Wolfe       President, Chief Executive Officer, March 28, 1997
--------------------------
William J. Wolfe            Director

/s/ Lester Zimmerman        Executive Vice President, Director  March 28, 1997
--------------------------
Lester Zimmerman

 /s/ James G. Blumenthal    Chief Financial Officer             March 28, 1997
--------------------------
James Blumenthal

 /s/ Stanley T. Burns       Director                            March 28, 1997
--------------------------
Stanley T. Burns

 /s/ Matthew J. Hart        Director                            March 28, 1997
--------------------------
Matthew J. Hart

/s/ William M. Russell      Director                            March 28, 1997
--------------------------
William J. Russell

/s/ Heywood Wilansky        Director                            March 28, 1997
--------------------------
Heywood Wilansky


                                                        33

<PAGE>







                                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                           Page

-- Report of Independent Accountants...................................    F- 2
-- Consolidated Balance Sheets as of December 31, 1996 and 1995........    F- 3
-- Consolidated Statements of Operations for the years ended
     December 31, 1996, 1995 and 1994..................................    F- 4
-- Consolidated Statements of Stockholders' Equity for the
     years ended December 31, 1996,
     1995 and 1994.....................................................    F- 5
-- Consolidated Statements of Cash Flows for the years ended
     December 31, 1996, 1995 and 1994..................................    F- 6
-- Notes to the Consolidated Financial Statements......................    F- 7
-- Schedule II -- Valuation and Qualifying Accounts....................    F-26
-- Schedule III -- Real Estate and Accumulated Depreciation............    F-27

                                                            F-1

<PAGE>










                                             REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Stockholders
  of First Washington Realty Trust, Inc.

       We have audited the consolidated  financial  statements and the financial
statement schedules of First Washington Realty Trust, Inc. and Subsidiaries,  as
more  fully  described  in Note 1,  listed  in the index on page F-1 of the Form
10-K.  These  financial  statements  and financial  statement  schedules are the
responsibility  of the  management of First  Washington  Realty Trust,  Inc. and
Subsidiaries.  Our  responsibility  is to express an opinion on these  financial
statements and financial statement schedules 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  financial  statements  referred  to above  present
fairly, in all material respects,  the consolidated  financial position of First
Washington Realty Trust, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 1996,  in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.







                                                 COOPERS & LYBRAND L.L.P.



Washington, D.C.
January 31, 1997, except for Note 16,
as to which the date is March 26, 1997
<PAGE>

         FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS
                    as of December 31, 1996 and 1995
                (dollars in thousands except share data)

                                -----------
<TABLE>
<S>                                             <C>                    <C>

                                                 1996                   1995
                                                --------               ------

                                     ASSETS

Rental properties:
  Land                                          $61,959               $ 42,420
  Buildings and improvements                    252,276                185,672
                                                -------               --------
                                                314,235                228,092
  Accumulated depreciation                      (30,450)               (22,775)
                                                --------              --------
  Rental properties, net                        283,785                205,317

Cash and equivalents                             11,780                  7,806
Tenant receivables, net                           4,639                  3,214
Deferred financing costs, net                     4,403                  5,690
Other assets                                      9,006                  5,378
                                               --------               --------
          Total assets                         $313,613               $227,405
                                               ========               ========

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Mortgage notes payable                       $167,047               $116,182
  Debentures                                     25,000                 25,000
  Accounts payable and accrued expenses           6,328                  4,059
                                             ----------              ---------
          Total liabilities                     198,375                145,241

Minority interest                                16,661                 11,088

Stockholders' equity:
  Common stock $.01 par value;
  90,000,000 shares
     authorized; 4,946,245 and 3,189,549
     shares issued and
     outstanding, respectively                       49                     32
  Convertible preferred stock $.01 par value;
     3,750,000 shares designated; 2,314,189 shares
     issued and outstanding
     (aggregate liquidation preference
     of $57,855)                                     23                     23
  Additional paid-in capital                    116,068                 80,699
  Accumulated distributions in excess of
     earnings                                   (17,563)                (9,678)
                                              ----------            -----------
          Total stockholders' equity             98,577                 71,076
                                              ---------              ---------
          Total liabilities and
          stockholders' equity                 $313,613               $227,405
                                               ========               ========
</TABLE>





                                        The  accompanying  notes are an integral
                                        part  of  these  consolidated  financial
                                        statements.

                                                            F-3

<PAGE>



          FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
          for the years ended December 31, 1996, 1995 and 1994
               (dollars in thousands, except share data)
                             -----------
<TABLE>
<S>                                <C>              <C>               <C>

                                     1996             1995              1994
                                   -------          --------          ------

Revenues:
     Minimum rents                 $31,925           $23,276           $14,701
     Tenant reimbursements           6,704             4,362             2,823
     Percentage rents                  664               495               255
     Other income                    1,672             1,447             2,420
                                    ------           -------         ---------
          Total revenues            40,965            29,580            20,199
                                   -------           -------           -------

Expenses:
     Property operating and
     maintenance                    10,270             7,229             6,299
     General and administrative      3,137             2,831             1,356
     Interest                       14,986            11,230             9,301
     Depreciation and amortization   8,019             5,808             4,579
                                    ------            ------            ------
          Total expenses            36,412            27,098            21,535
                                   -------           -------           -------

Income  (loss)  before  income
     from  Management  Company,
     extraordinary  item,
     minority interest and
     distributions to
     Preferred Stockholders         4,553             2,482            (1,336)

Income from Management Company        221               449               500
                                  -------           -------           -------

Income (loss) before
     extraordinary item,
     minority interest and
     distributions to
     Preferred Stockholders         4,774             2,931              (836)

Extraordinary item - Gain on
     early extinguishment
     of debt and debt
     restructuring                    -                  -               2,251
                                 ---------         ---------           -------

Income before minority
    interest and distributions
    to Preferred Stockholders       4,774             2,931             1,415

Income allocated to minority
    interest                         (694)             (602)           (1,101)
                                 ---------         --------         ----------

Income before distributions
     to Preferred Stockholders      4,080             2,329               314

Distributions to
     Preferred Stockholders        (5,641)           (5,117)           (1,811)
                                 ---------         ---------        ----------

Loss allocated to Common
     Stockholders                 $(1,561)          $(2,788)          $(1,497)
                                  ========          =======          =========

Net loss per Common Share          $(0.46)           $(1.19)           $(0.95)
                                  ========           ======          =========

Weighted average shares of
     Common Stock, in thousands     3,367             2,351             1,574
                                    ======            ======           =======
</TABLE>


                                        The  accompanying  notes are an integral
                                        part  of  these  consolidated  financial
                                        statements.

                                                            F-4

<PAGE>



                 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 for the years ended December 31, 1996, 1995 and 1994
                               (dollars in thousands)
                                       ---------
<TABLE>
<S>                      <C>    <C>      <C>      <C>          <C>        <C>
                                         Addtl    Accumul
                                Convert  Paid     Distrib
                        Common  Prefrd   in       in Excess    Accumul
                        Stock   Stock    Capital  of Earnings  Deficit    Total

Balance,
  December 31, 1993                                          $(15,160) $(15,160)

Common stock
  issued in
  connection
  with June 1994
  Offering
  (1,282,051 shares)     $13             $24,987                         25,000
Common stock
  issued in
  exchange for
  $4 million
  note due from
  Management
  Company (189,744 shares) 2                  (2)
Stock issued
  to Farallon
  (102,564 shares)         1               1,999                          2,000
Convertible
  Preferred Stock
  issued in
  connection with
  June 1994 Offering
  (1,920,000 shares)               $19    47,981                         48,000
Cost of
 raising capital                         (11,902)                       (11,902)
Net income                                             $314     875       1,189
Cash distributions                                   (2,612) (2,039)     (4,651)
Pre-reorganization
 contributions                                                1,772       1,772
Adjustment for
  deconsolidation
  of Management
  Company                                                      (204)       (204)
Reclassification
  of accumulated
  deficit upon
  reorganization                         (14,756)            14,756           -
Reclassification
  of minority
  interest                                   (62)                           (62)
                          --        --    -------    -------  ------     -------
Balance,
 December 31, 1994        16        19    48,245     (2,298)    -        45,982

Net Income                                            2,329               2,329
Issuance of
 Common Stock
 (1,528,393 shares)       15              27,114                         27,129
Issuance of
 Preferred Stock
 (358,000 shares)                    4     8,051                          8,055
Issuance of
 Common Stock for
 compensation
 (66,666 shares)           1               1,182                          1,183
Issuance of
 Preferred Stock
 (36,189 shares)                     0       787                            787
Cost of raising
 capital                                  (2,808)                        (2,808)
Cash distributions                                   (9,709)             (9,709)
Exchange of
  common units for
  common shares
  (20,131 shares)                            119                            119
Adjustment for
  minority interest's
  ownership of the
  Operating Partnership                   (1,991)                        (1,991)
                          --        --    -------    -------    -------  -------

Balance,
 December 31, 1995        32        23    80,699     (9,678)       -     71,076

Net Income                                            4,080               4,080
Issuance of
 Common Stock
 (1,655,000 shares)       17              35,979                         35,996
Cost of raising
 capital                                  (2,561)                        (2,561)
Cash distributions                                  (11,965)            (11,965)
Exchange of
 common units for
 common shares
 (17,416 shares)                              83                             83
Adjustment for
 minority interest's
 ownership of the
 Operating Partnership                     1,868                          1,868

                         ---       ---  --------  ----------  --------  --------
Balance,
 December 31, 1996       $49       $23  $116,068   $(17,563)     $ -    $98,577
                         ===      ====  ========   =========  ========= ========
</TABLE>


                                          The accompanying notes are an integral
                                          part of these  consolidated  financial
                                          statements.

                                                              F-5

<PAGE>



               FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
               for the years ended December 31, 1996, 1995 and 1994
                           (Dollars in thousands)
                                  --------
<TABLE>
<S>                                  <C>              <C>               <C>
                                             Year Ended December 31,
                                      1996              1995              1994
                                    --------          --------          ------

Operating activities:
  Income before distributions
     to Preferred Stockholders       $4,080            $2,329              $314
  Adjustment to reconcile net
     cash provided by
     operating activities:
     Income allocated to
     minority interest                  694               602             1,101
     Depreciation and
     amortization                     8,019             5,808             4,579
     Amortization of deferred
     financing costs and
     loan discounts                   2,167             2,260             1,308
     Compensation paid or
     payable in company stock         1,649             1,800                 -
     Provision for uncollectible
     accounts                           527               483               941
     Gain on early extinguishment
     of debt and debt restructuring      -                 -             (2,251)
     Recognition of deferred rent      (921)             (855)              537
     Net changes in:
         Tenant receivables          (1,032)             (292)           (1,336)
         Other assets                (4,230)           (2,160)           (1,048)
         Account payable and
         accrued expenses               404                (3)             (981)
         Equity in earnings of
         Management Company             259                31               -
                                  ---------         ---------          ------
           Net cash provided by
           operating activities      11,616            10,003             3,164
                                   --------           -------          --------

Investing activities:
     Additions to
     rental properties               (4,476)           (2,067)           (3,301)
     Purchase of
     rental properties              (52,518)          (27,917)          (52,935)
     Distributions from
     Management Company                 -                 100             -
                                  ----------         ---------        ------
          Net cash used in
          investing activities      (56,994)          (29,884)          (56,236)
                                   ---------         --------        ----------

Financing activities:
     Proceeds from line
     of credit draws                  9,867              -                 -
     Proceeds from
     mortgage notes                  31,376            16,720            40,834
     Proceeds from Debentures          -                  -              25,000
     Proceeds from sale
     of Common Stock                 35,996            27,129            25,000
     Proceeds from sale
     of Preferred Stock                -                  -              48,000
     Cost of raising capital         (2,345)           (2,680)           (8.962)
     Repayment of line
     of credit                       (9,867)             -                 -
     Repayment on
     mortgage notes                    (823)           (2,260)          (63,800)
     Additions to deferred
     financing costs                   (739)             (581)           (8,032)
     Reduction in Advances
     due Principals                    -                 (447)             -
     Establishment of
     Lender escrows                    -                  -                (737)
     Prepayment  penalties             -                  -                (276)
     Distributions paid -
     Pre-reorganization                -                  -              (2,039)
     Distributions paid to
     Preferred Stockholders          (5,641)           (5,117)           (1,811)
     Distributions paid to
     Common Stockholders             (6,324)           (4,593)             (801)
     Distributions paid to
     minority interest               (2,148)           (1,597)             (509)
     Contributions -
     Pre-reorganization                 -                 -               1,772
     Deconsolidation of
     Management Company                 -                 -                 (24)
                                ----------        ----------           --------
          Net cash provided
             by financing
             activities              49,352            26,574            53,615
                                    -------           -------          --------
     Net increase in cash
          and equivalents             3,974             6,693               543
     Cash and equivalents,
          beginning of period         7,806             1,113               570
                                   --------        ----------           -------
     Cash and equivalents,
          end of period             $11,780           $ 7,806           $ 1,113
                                    =======           =======           =======
</TABLE>



                                          The accompanying notes are an integral
                                          part of these  consolidated  financial
                                          statements.

                                                              F-6

<PAGE>




              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                   --------



1.      Organization and Business

                      First  Washington  Realty  Trust,  Inc.  and  subsidiaries
        (collectively,  the "Company") is the successor to substantially  all of
        the  interests  of  First  Washington  Management,   Inc.  ("FWM"),  its
        affiliates  and  certain  others in a  portfolio  of 14  retail  and two
        multifamily  properties  owned by FWM and its affiliates  (collectively,
        the "Existing  Properties"),  all located in the Mid-Atlantic region and
        the  economic   beneficiary   of  the  related   acquisition,   property
        management,  renovation and  third-party  businesses  (together with the
        Existing  Properties,  the "FWM  Group" or  "Predecessor")  through  the
        issuance of 1,282,051  and  1,920,000  shares of Common and  Convertible
        Preferred Stock, respectively, of the Company.

                      The Company,  incorporated  in Maryland in April 1994,  is
        self-managed and self-administered and has elected to be taxed as a real
        estate  investment  trust  ("REIT")  under the Internal  Revenue Code of
        1986, as amended (the "Code").

                      On  June  27,  1994,  the  Company   completed  a  private
        placement  offering (the "June 1994  Offering")  of 1,920,000  shares of
        9.75%  Series A Cumulative  Participating  Convertible  Preferred  Stock
        ("Preferred  Stock") with a $0.01 par value per share and a  liquidation
        preference of $25.00 per share,  and 1,282,051 shares of $0.01 par value
        Common Stock.  The June 1994 Offering price per share of Preferred Stock
        and Common Stock was $25.00 and $19.50, respectively, resulting in gross
        offering  proceeds  of  $73.0  million.   Net  of  Initial   Purchaser's
        Discount/Placement  Agent's fee and total estimated  offering  expenses,
        the Company received approximately $63.1 million in proceeds.

                      Simultaneously  with the June 1994  Offering,  the Company
        was  admitted as the sole  general  partner of First  Washington  Realty
        Limited  Partnership  (the "Operating  Partnership").  The  transactions
        leading to the admittance of the Company into the Operating  Partnership
        were as follows:

                      The Operating  Partnership was formed via the contribution
                      of substantially all the assets of or interests in the FWM
                      Properties  by  the  owners,   net  of  related   mortgage
                      indebtedness.   In   addition,   certain   owners  of  FWM
                      ("Principals")  contributed a $4.0 million promissory note
                      with no cost  basis  (the "FWM  Note")  due from FWM,  the
                      operator of the related acquisition,  property management,
                      leasing and brokerage business, to the Company in exchange
                      for  189,744  shares  of Common  Stock.  The  Company  was
                      admitted  as the sole  general  partner  of the  Operating
                      Partnership,  receiving an approximate  ownership interest
                      of 83.5% in exchange  for  contributing  the net June 1994
                      Offering proceeds and the FWM Note.

                      The net proceeds of the June 1994 Offering,  together with
                      borrowings  of $38.5  million  under  new  mortgage  loans
                      collateralized  by certain  properties and the issuance of
                      $25.0  million of  Exchangeable  Debentures,  were used to
                      repay    indebtedness    of   $68.1   million    including
                      approximately   $3.1  million  for  prepaid  interest  and
                      amortization,  prepayment  penalties  and  term  extension
                      fees;  to  purchase  six  properties  at a cost  of  $51.9
                      million;  to pay expenses in connection with the formation
                      transactions  of  $6.5  million;   and,  to  fund  working
                      capital.  The original owners' interests in the properties
                      were converted  into 337,732  limited  partnership  units,
                      including  2,564  units  received  by  the  Principals  in
                      connection   with  their   contribution   of  all  of  the
                      non-voting  preferred  stock  entitled  to 99% of the cash
                      flow of FWM, which are exchangeable on a one-for-one basis
                      for shares of the Company's common stock.

                                                        F-7

<PAGE>




                   FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (dollars in thousands, except share data)
                                        --------



                      Farallon  Capital   Management,   Inc.   ("Farallon"),   a
        previously  unrelated third party,  along with certain of its affiliates
        were reimbursed  approximately  $1.1 million advanced in connection with
        their funding of certain expenses  relating to the Offering and received
        102,564  shares  of  Common  Stock  with a value of  approximately  $2.0
        million based upon the June 1994 Offering price of $19.50 per share. The
        Common Stock issued was recorded at its fair value with a  corresponding
        increase in costs of raising capital.

                      The  accompanying  financial  statements  for the  periods
        prior to the REIT formation are presented on a combined  historical cost
        basis due to their common  control and  management.  The exchange of the
        Predecessor for interests in the Operating Partnership was accounted for
        as a  reorganization  of entities under common control.  As such,  these
        assets and liabilities  were transferred and accounted for at historical
        cost in a manner similar to that in a pooling of interests.

                      The Company's  assets are held by, and all its  operations
        conducted through, the Operating Partnership and FWM. As of December 31,
        1996, the Company and the Operating  Partnership,  including  subsidiary
        partnerships,  collectively  owned  100% of the  properties.  Due to the
        Company's  ability,  as the general partner,  to exercise both financial
        and operational  control over the Operating  Partnership,  the Operating
        Partnership is consolidated for financial reporting purposes. Subsequent
        to the  admittance  of the  Company,  allocation  of net  income  to the
        limited  partners  of  the  Operating  Partnership  is  based  on  their
        respective  partnership  interests and is reflected in the  accompanying
        Consolidated   Financial   Statements  as  minority  interests.   Losses
        allocable to the limited partners in excess of their basis are allocated
        to the Common  Stockholders as the limited  partners have no requirement
        to fund losses.

                      On June 27, 1995, the Company  completed a public offering
        of  1,450,000  shares of Common  stock (the "June 1995  offering").  The
        shares of stock  were  priced at $17.75 per  share,  resulting  in gross
        offering  proceeds of $25.7  million.  The Company  netted $23.0 million
        after  deducting  the  underwriters   discount  and  estimated  offering
        expenses of $2.7 million.

                      On July 27, 1995,  an  additional  78,393 shares of Common
        Stock  were  issued  pursuant  to  the  exercise  of a  portion  of  the
        underwriters  over-allotment  option.  The Company  received  additional
        proceeds of $1.3 million net of the underwriters discount.

                      On July 26, 1996, the New York Stock Exchange accepted the
        Company's shares for trading. Trading commenced on August 13, 1996 under
        the symbol FRW and FRWPr.

                      On  December  2,  1996,  the  Company  completed  a public
        offering  of  1,500,000  shares  of Common  Stock  (the  "December  1996
        Offering").  The  shares  of stock  were  priced at  $21.75  per  share,
        resulting  in gross  offering  proceeds  of $32.6  million.  The Company
        netted $30.2  million  after  deducting  the  underwriters  discount and
        offering expenses of $2.4 million.

                      On December  30, 1996,  an  additional  155,000  shares of
        Common  Stock were issued  pursuant to the  exercise of a portion of the
        underwriters  over-allotment  option.  The Company  received  additional
        proceeds of $3.2 million net of underwriters discount.

                      The  Company's  financial  results are affected by general
        economic  conditions in the markets in which its properties are located.
        An  economic  recession,  or other  adverse  changes in general or local
        economic

                                                        F-8

<PAGE>




                FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                     --------



        conditions,  could result in the inability of some  existing  tenants of
        the  Company  to  meet  their  lease  obligations  and  could  otherwise
        adversely affect the Company's ability to attract or retain tenants. The
        Retail  Properties are typically  anchored by supermarkets,  drug stores
        and other consumer  necessity and service  retailers which usually offer
        day-to-day necessities rather than luxury items. These types of tenants,
        in the  experience of the Company,  generally  maintain more  consistent
        sales performance during periods of adverse economic conditions.

2.      Acquisition of Rental Properties

                      With the proceeds from the June 1994 Offering, the Company
        acquired six additional retail properties, net of mortgage debt assumed,
        for an aggregate  purchase price of  approximately  $83.8  million.  The
        properties  were acquired for  approximately  $60.6 million in cash, the
        assumption of approximately  $14.4 million of debt,  including  purchase
        money notes  exchangeable  into either shares of  Convertible  Preferred
        Stock or Common Stock (see Note 3), and issuance of 352,000 Exchangeable
        Preferred  Units to the sellers of two of the properties with a value of
        approximately $8.8 million.

                      On June 1, 1995,  the  Company  acquired  the  Festival at
        Woodholme  Shopping  Center  located  in  Baltimore,   Maryland  for  an
        approximate price of $14.3 million. The acquisition was financed through
        the issuance of approximately 96,000 Operating  Partnership common units
        to the seller of the property with a value of approximately $1.6 million
        and assumed  mortgage of indebtedness of $12.7 million.  Concurrent with
        the closing, the Company made a $1.0 million mortgage  curtailment.  The
        mortgage bears  interest at 9.6% per annum and is payable  monthly based
        on a 28 year amortization schedule. The loan is due in April 2000.
        The center is anchored by Sutton Place Gourmet and Pier One Imports.

                      On June 30, 1995  (effective  July 1,  1995),  the Company
        acquired  four  shopping  centers  located in Richmond,  Virginia for an
        approximate  price of $20.3 million.  The shopping centers are Glen Lea,
        anchored by Winn-Dixie Supermarket; Hanover Village, anchored by Rack `N
        Sack Supermarket;  Laburnum Square,  anchored by Hannaford Brothers; and
        Laburnum  Park,  anchored by Ukrops  Supermarket.  The  acquisition  was
        financed  through  the  issuance  of  approximately  358,000  shares  of
        Preferred  Stock  to  the  seller  of  the  property  with  a  value  of
        approximately $8.1 million, and cash of approximately $12.2 million.

                      The  Company  obtained  a loan  commitment  using the four
        Richmond properties as collateral,  in the amount of $14.2 million which
        has a term of ten years,  and bears  interest  at 8.57% per annum,  with
        monthly  payments  based on a 22 year  amortization  schedule.  The loan
        closed on October 6, 1995.

                      On October 12, 1995, the Company  acquired  Kenhorst Plaza
        Shopping  Center in Reading,  Pennsylvania  for an approximate  price of
        $11.0  million.  The center is  anchored  by  Redner's  Supermarket  and
        Rite-Aid  Drugs.  The  acquisition was financed from the proceeds of the
        $14.2 million loan discussed above.

                      On November  15,  1995,  the Company  acquired  Firstfield
        Shopping  Center  located in  Gaithersburg,  Maryland for an approximate
        price of $3.4 million. The acquisition was financed through the issuance
        of  approximately  36,000 shares of Preferred Stock to the seller of the
        property with a value of approximately  $0.8 million,  a seller provided
        7.5% purchase money note in the amount of approximately $2.5 million due
        in December 2005 and $0.1 million cash.


                                                        F-9

<PAGE>




              FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (dollars in thousands, except share data)
                                    --------



                      On January 4, 1996,  the  Company  acquired  two  shopping
        centers,   Stefko  Boulevard  Shopping  Center,  located  in  Bethlehem,
        Pennsylvania  and 15th & Allen  Shopping  Center,  located in Allentown,
        Pennsylvania,  from one seller for an approximate price of $9.4 million.
        The  shopping  centers  are each  anchored  by Laneco  Supermarket.  The
        acquisition was financed through the issuance of  approximately  121,000
        Common  Units  to  the  seller  of  the  properties   with  a  value  of
        approximately $2.2 million,  mortgage indebtedness of approximately $6.1
        million and $1.1  million  cash.  The  mortgage  loan bears  interest at
        7.745% per annum and is self amortizing over a 25 year period.

                      On March 20, 1996, the Company acquired the Clopper's Mill
        Village   Shopping  Center  located  in  Germantown,   Maryland  for  an
        approximate  price of $19.9 million.  The center is anchored by Shoppers
        Food Warehouse and  CVS/Pharmacy.  The acquisition was financed with new
        mortgage debt of $14.5 million,  the issuance of  approximately  172,000
        Common Units to the seller of the property with a value of approximately
        $3.3   million,   the   issuance  to  the  seller  of  the  property  of
        approximately  68,000 Preferred Units with a value of approximately $1.6
        million and  approximately  $.5 million  cash.  The mortgage  loan bears
        interest at 7.18% per annum, amortizes over a 25 year period and matures
        in March 2006.

                      On March 29,  1996,  the  Company  acquired  Centre  Ridge
        Marketplace located in Centreville  Virginia.  The price of the property
        was $5.5 million.  On June 1, 1996, the Company  acquired the Superfresh
        Supermarket  building,  which  anchors  the  shopping  center  for  $3.0
        million.  The Company  subsequently spent approximately $1.6 million for
        the construction of an additional  34,000 square feet. The total cost of
        the project when completed will be approximately $11.0 million which was
        financed  through a $9.0 million  construction  loan and $2.0 million of
        cash. The  construction  loan was paid off in January 1997 with proceeds
        from the December 1996 Offering.

                      On April  29,  1996,  the  Company  acquired  Takoma  Park
        Shopping  Center  located in Takoma Park,  Maryland  for an  approximate
        price  of  $4.6  million.  The  center  is  anchored  by  Shoppers  Food
        Warehouse.  The  acquisition was financed with new mortgage debt of $2.4
        million and a draw on the Company's line of credit in the amount of $2.1
        million and $0.1 million cash.  The Company is  renovating  the shopping
        center at a cost of approximately  $.8 million.  The work is expected to
        be  completed  by June  1997 and  will be  financed  through  additional
        proceeds from the current first trust lender. The loan bears interest at
        prime plus .25% and matures in April 1999.

                      On  June  7,  1996,   the   Company   acquired   Southside
        Marketplace  shopping  center  located  in  Baltimore,  Maryland  for an
        approximate  price of $11.0  million.  The center is  anchored  by Metro
        Foods and Rite Aid Drugs.  The  acquisition  was  financed  through  the
        assumption  of an $8.1  million  first trust  mortgage and a draw on the
        Company's  line of credit in the amount of  approximately  $2.9 million.
        The  mortgage  loan  bears  interest  at 8.75% per annum and is  payable
        monthly  based on a 29 year  amortization  schedule.  The loan is due in
        July 2005.

                      On December  19,  1996,  the Company  acquired  Kings Park
        Shopping Center located in Burke,  Virginia for an approximate  price of
        $5.7 million. The center is anchored by Giant Food and CVS/Pharmacy. The
        acquisition was financed  through the assumption of a $4.3 million first
        trust  mortgage,  issuance of  approximately  36,000 Common Units to the
        seller of the  property  with a value of $0.8  million and $0.6  million
        cash.  The  mortgage  loan bears  interest  at 9.00% per annum,  is self
        amortizing over a 17 year period, and is due November 2014.

                                                       F-10

<PAGE>




               FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (dollars in thousands, except share data)
                                  --------



                      On December 27, 1996, the Company  acquired Newtown Square
        Shopping  Center  located  in  Newtown  Square,  Pennsylvania,   for  an
        approximate  price of $11.7  million.  The  center is  anchored  by Acme
        Markets and Thrift Drug.  The property was financed from the proceeds of
        the December 1996 Offering.

                      On  December  30,  1996,  the  Company  acquired  Northway
        Shopping  Center  located in  Millersville,  Maryland for an approximate
        price of $9.1  million.  The center is  anchored by Metro Foods and Rite
        Aid. The  acquisition  was  financed  through the  assumption  of a $7.8
        million mortgage,  issuance of approximately  48,000 Common Units to the
        seller of the property  with a value of  approximately  $1.1 million and
        $0.2 million in cash. The mortgage loan of $7.8 million was subsequently
        split into two loans.  A first trust mortgage loan in the amount of $6.0
        million bears interest at 8.5% per annum and is payable monthly based on
        a 25 year  amortization  schedule.  The loan is due in January  2007.  A
        second trust  mortgage in the amount of $1.8 million  bears  interest at
        10.25% per annum and is payable monthly based on a 28 year  amortization
        schedule. The loan is due in August 1999.

                      All the acquisitions were accounted for using the purchase
method of accounting.

                      The  following  unaudited  pro  forma  condensed  combined
        results of operations for the years ended December 31, 1996 and 1995 are
        presented as if the  acquisitions of the rental  properties  occurred on
        January 1 of the period  presented.  In  preparing  the pro forma  data,
        adjustments  have been made to assume  that the  December  1996 and June
        1995  Offering  occurred  on January 1, of the  periods  presented.  The
        proforma statements are provided for information purposes only. They are
        based on  historical  information  and do not  necessarily  reflect  the
        actual  results  that  would  have  occurred  nor are  they  necessarily
        indicative of future results of operations of the Company.

<TABLE>
           <S>                                            <C>           <C>

                                                             1996          1995
                                                           --------      ------
                                                                (unaudited)

           Total revenues                                 $45,855       $41,739
            Expenses:
             Property operating and maintenance            11,563         9,876
             General and administrative                     3,137         2,831
             Interest                                      16,475        15,574
             Depreciation and amortization                  8,966         8,119
                                                          -------       -------
                                                           40,141        36,400
            Income before income from Management
             Company, minority interest and distributions
              to Preferred Stockholders                     5,714         5,339
            Income from Management Company                    221           449
                                                           ------       -------
            Income before minority interest and
             distributions to Preferred Stockholders        5,935         5,788
            Income allocated to minority interest            (908)         (891)
                                                          --------      --------
            Income before distributions to Preferred
             Stockholders                                   5,027         4,897
            Distributions to Preferred Stockholders        (5,641)       (5,641)
                                                           -------       -------
            Loss allocated to Common Stockholders           $(614)        $(744)
                                                           =======       =======
            Net loss per common share                      $(0.13)       $(0.15)
                                                           =======       =======

                                                       F-11

<PAGE>




                FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                    --------



3.      Summary of Significant Accounting Policies


        Basis of Presentation

               The consolidated financial statements include the accounts of the
        Company and its majority  owned  partnerships,  including  the Operating
        Partnership. All significant intercompany balances and transactions have
        been eliminated.  Combined financial statements,  including the accounts
        after elimination of all transactions between business entities included
        in the FWM Group, are presented prior to the June 1994 Offering.

               The  Company's  investment  in  the  preferred  stock  of  FWM is
        accounted  for under the equity  method of  accounting.  In  addition to
        receiving  fees under  third-party  management,  leasing  and  brokerage
        agreements,  FWM  manages  and  leases all the  properties  owned by the
        Operating Partnership in exchange for a fee.


        Use of Accounting Estimates

               The  preparation  of  financial  statements  in  conformity  with
        generally accepted  accounting  principles  requires  management to make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities  and disclosure of contingent  assets and liabilities at the
        date of the financial  statements  and the reported  amounts of revenues
        and  expenses  during the  reporting  period.  These  estimates  involve
        judgments with respect to, among other things,  various future  economic
        factors which are difficult to predict and are beyond the control of the
        Company. Therefore, actual amounts could differ from these estimates.


        Rental Properties

               Rental   properties  are  carried  at  the  lower  of  cost  less
        accumulated  depreciation  or  net  realizable  value.  Depreciation  is
        computed on the  straight-line  basis over the estimated useful lives of
        the assets.  The Company  uses a 27.5- to 31.5-year  estimated  life for
        buildings and 5- to 31.5-year  estimated life for capital  improvements.
        Tenant  improvement  expenditures  are depreciated  over the term of the
        related lease.  Expenditures  for ordinary  maintenance  and repairs are
        charged to  operations as incurred  while  significant  renovations  and
        improvements that improve and/or extend the useful life of the asset are
        capitalized and depreciated over the estimated useful life.

               In determining  whether there has been any impairment losses, the
        Company  determines that the property's net projected  undiscounted cash
        flow before debt service is sufficient to recover the cost of the asset.
        An impairment  loss would result if the carrying value were greater than
        the cumulative  undiscounted  net cash flow. The amount of an impairment
        would be calculated by determining  the difference  between the carrying
        value and the cumulative discounted net cash flow.



                                                   F-12

<PAGE>




             FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (dollars in thousands, except share data)
                                   --------



        Cash and Equivalents

               All demand,  money market  accounts,  certificates of deposit and
        repurchase  agreement accounts with an original maturity of three months
        or less at date of purchase are  considered to be cash and  equivalents.
        The Company  places its  temporary  cash  investments  with high quality
        financial institutions.  The deposits at such financial institutions are
        guaranteed by the Federal Deposit Insurance  Corporation  ("FDIC") up to
        $100.  At various  times  during the year,  the Company has  deposits in
        excess of the FDIC insurance limit. In addition, the Company is required
        to maintain escrow deposits with certain lenders. Such amounts which are
        included in other assets, are also in excess of FDIC insurance limits.


        Deferred Lease Costs

               Deferred  lease  costs  consist  of fees and  costs  incurred  to
        initiate and renew operating leases,  including amounts paid to FWM, are
        amortized over the lease term and are included in other assets.


        Deferred Financing Costs

               Deferred  financing  costs  include  costs of interest rate caps,
        interest rate buydowns and fees incurred to obtain long-term  financing.
        They are being  amortized over the terms of the  respective  loans using
        the effective interest method.  Unamortized deferred financing costs are
        charged  to  expense  when debt is retired  before  the  maturity  date.
        Accumulated  amortization  of deferred  financing  costs at December 31,
        1996 and 1995 was $5,518 and $3,492,  respectively.  Deferred  financing
        cost  amortization  expense is included in interest expense and amounted
        to $2,167, $2,260 and $1,308 during 1996, 1995, and 1994 respectively.


        Revenue Recognition

               Rental  income  attributable  to leases is recorded when due from
        tenants.  Certain of the leases provide for escalating base rents, which
        are recognized on a straight-line  basis over the term of the agreement.
        Rents accrued, but not yet paid, are included in accounts receivable. As
        of  December  31,  1996 and 1995,  the  amounts  of these  straight-line
        receivables were $3,317 and $2,396,  respectively.  The amount of rental
        income from the  straight-lining  of rents  amounted  to $921,  $855 and
        ($603) for the years ended 1996, 1995 and 1994, respectively. Certain of
        the leases also provide for additional revenue to be paid based upon the
        level of sales  achieved by the lessee and are  recorded  as  percentage
        rents.  Most  leases  provide  for tenant  reimbursement  of common area
        maintenance and other operating expenses.

               An allowance for doubtful  accounts has been provided against the
        portion  of  tenant  accounts   receivable  which  is  estimated  to  be
        uncollectible.   Tenant   accounts   receivable   in  the   accompanying
        consolidated  balance  sheets are shown net of an allowance for doubtful
        accounts  of  $683  and  $418  as  of  December  31,  1996,   and  1995,
        respectively.

                                                   F-13

<PAGE>




                 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (dollars in thousands, except share data)
                                        --------



        Income Taxes

               The  Company  operates  and  intends to  continue to operate in a
        manner  intended  to  qualify as a REIT  under the Code.  A trust  which
        distributes at least 95% of its taxable income to its shareholders  each
        year and which meets certain other  conditions will not be taxed on that
        portion of its taxable income which is distributed to its  shareholders.
        During  1996,  common  and  preferred  distributions  paid of $0.48  and
        $2.4375 per share were treated as ordinary income, respectively.  During
        1996,  common  distributions  paid of $1.47 were  treated as a return of
        capital.  During 1996, all preferred  distributions paid were treated as
        ordinary income.

               If the  Company  fails to qualify as a REIT in any tax year,  the
        Company will be subject to Federal  income tax (including any applicable
        alternative  minimum  tax) on its  taxable  income at regular  corporate
        rates. Even if the company qualifies for taxation as a REIT, the Company
        may be  subject  to  certain  state and local  taxes on its  income  and
        property  and  federal  income  and  excise  taxes on its  undistributed
        income.


        Loss per Share

               Loss per share is  calculated by dividing  income after  minority
        interest, less preferred distributions by the weighted average number of
        common shares  outstanding  during the respective  periods.  The assumed
        conversion of the partnership  units held by the limited partners of the
        Operating  Partnership as of the REIT  formation,  which would result in
        the elimination of earnings and losses  allocated to minority  interests
        would have no effect for 1996 and 1995 and would have been anti-dilutive
        in 1994, as the  allocation of losses to limited  partners was suspended
        due to their lack of responsibility to fund losses.


        Minority Interest

               Minority interest  represents the limited  partners'  interest of
        782,360,  and 422,802  common  units as of  December  31, 1996 and 1995,
        respectively,  and 419,609 and 352,000  Exchangeable  Preferred Units in
        the   Operating   Partnership   as  of  December   31,  1996  and  1995,
        respectively.   The  Exchangeable  Preferred  Units  have  an  aggregate
        liquidation  preference  of  $10,490.  At the  date  of  formation,  the
        minority  interest was established  based on their interest in the value
        of the  Operating  Partnership.  Annually,  the  income is  assigned  to
        Preferred  Stockholders to the extent of their distributions and amounts
        necessary  to  maintain  their  balance at its  liquidation  value.  Any
        remaining  income is assigned to minority Common  Stockholders  based on
        their  percentage  interest  during the period the income is  generated.
        Losses of the Operating  Partnership  are  allocated to minority  Common
        Stockholders based on their percentage  interest to the extent that they
        have  capital  available.  In the event  that  consolidated  net  assets
        decrease below the Preferred Stock liquidation  value,  operating losses
        are  allocated  to  the  Preferred  minority  interest  based  on  their
        percentage ownership. Additionally, the impact on stockholders equity of
        changes in minority interest percentage ownership caused by the issuance
        of common  stock or  conversions  of  preferred  stock are  reflected in
        additional paid in capital.

                                                   F-14

<PAGE>




                    FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (dollars in thousands, except share data)
                                         --------



 4.     Rental Properties

                      Depreciation  expense for each of the years ended December
        31, 1996, 1995, and 1994 was $7,675, $5,534, and $4,223, respectively.

                      For each of the years ended  December 31, 1996,  1995, and
        1994,  maintenance  and repairs  expense was $2,767,  $1,872 and $1,552,
        respectively,  and real  estate  taxes were  $3,070,  $2,044 and $1,484,
        respectively.  Such  amounts  are  included in  property  operating  and
        maintenance  expense  in the  accompanying  consolidated  statements  of
        operations.


  5.    Mortgage Debt

                      Mortgage  and  other  notes   payable   consisted  of  the
        following as of December 31, 1996 and 1995, respectively:

</TABLE>
<TABLE>
          <S>                                            <C>             <C>


                                                           1996            1995
                                                         --------        ------
          Mortgage notes with fixed interest at:
           7.31%, maturing June 1998                      4,151           4,151
           6.50%, maturing May 1999                       3,587           3,587
           6.50%, maturing July 1999 (f)                  3,826           3,826
           7.09%, maturing July 1999 (a)(b)(c)           38,500          38,500
           7.50%, maturing June 1999                      3,500           3,500
           7.00%, maturing July 1999                      3,656           3,656
          10.25% maturing August 1999                     1,759           -
           9.60% maturing April 2000                     11,588          11,671
           5.00%, maturing July 2000 (d)                  4,449           4,308
           6.50% to 8.00%, maturing through July 2001     9,332           9,332
           8.75% maturing July 2005                       8,065           -
           8.57% maturing October 2005                   13,952          14,163
           7.50% maturing December 2005                   2,497           2,520
           7.745% maturing January 2006                   6,002           -
           7.18% maturing March 2006                     14,358           -
           6.50%, maturing May 2006                       7,919           7,998
           8.50% maturing January 2007                    6,000           -
           9.00% maturing January 2014                    4,315           -
                                                      ---------        --------
                 Total fixed rate notes                 147,456         107,212
                                                        -------        --------

            Mortgage notes with variable rates:
            Variable maturing June 1998 (e)               7,265           7,440
            Variable maturing February 2020
             (1 year T-bill + 2.75%)                      1,530           1,530
            Variable maturing March 2002 (libor + 2.25%)  7,851            -
            Variable maturing April 1999 (prime + .25%)   2,945            -
                                                        -------        -----
            Total variable rate notes                    19,591           8,970
                                                         ------          ------

                                                       $167,047        $116,182
</TABLE>


                                                   F-15

<PAGE>




                    FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         (dollars in thousands, except share data)
                                          --------



(a)     As part of this loan the lender required the Company to establish escrow
        accounts for real estate taxes,  insurance  and a  replacement  reserve.
        These escrows, totaling $734 at December 31, 1996, are included in other
        assets.



(b)     The Company borrowed $38.5 million under new mortgage loans
        (collectively, the "Nomura Mortgage Loan") collateralized by five
        of the Properties.  These loans, which bear interest at 30-day
        LIBOR (5.375% at December 31, 1996) plus 2.0% and mature on July 1,
        1999, are closed to prepayment until July 1, 1998 and can be prepaid
        thereafter based on a 1.50% declining prepayment
        penalty.  To mitigate its exposure to these variable rate loans,
        the Company entered into a five year interest rate protection
        agreement for a notional amount of $38.5 million that is effective
        through the loans maturity, and caps the interest rate at 6.20% for
        year one, 6.70% for year two, and 7.70% for years three through five.
        The financing cost of the interest rate protection agreement of
        approximately $3.2 million, is being amortized over the life of the
        agreement using the effective interest rate method resulting in an
        effective interest rate on the Nomura Mortgage Loan of
        approximately 8.9% per annum.  The estimated fair market value of the
        interest rate protection agreement, as determined by the issuing
        financial institution, was approximately $0.5 million at
        December 31, 1996.

(c)     In December 1995, the Company entered into two interest rate swap
        contracts with a notional amount of $38.5 million.  The Company
        intends to hold such contracts, the first of which commences in July
        1996 and expires in June 1999 and the second of which commences
        in July 1999 and expires in December 2003, until their expiration dates.
        The purpose of the swaps is to fix the interest rate on
        the $38.5 million Nomura loan through its expiration date of
        June 1999 at 7.09% and to mitigate any interest rate exposure upon
        refinancing the loan by fixing the LIBOR rate at 6.375% for the period
        beginning July 1999 through December 2003.  Under the terms of the
        interest rate contract, the Company will be paying a fixed rate of
        5.09% to the Counter Party through June 1999 and a fixed
        rate of 6.375% through December 2003.  The Company will be receiving
        variable payments from the Counter Party based on 30 day libor through
        December 2003.  The Counter Party has as collateral
        a $2.4 million restriction on the $5.8 million line of credit it
        provided the Company (see below).  The contracts are accounted for
        on the accrual basis with net payments/receipts due on the swaps
        recognized as an adjustment to interest expense.  The fair market
        value of each of the interest rate swaps is determined by the amounts
        at which they could be settled.  If the Company had settled these
        agreements with the counter party on December 31, 1996, the Company
        would have received approximately $0.8 million.

(d)     In  connection  with the  acquisition  of First  State  Plaza and Valley
        Centre,  the Company  issued a $4.8 million note (the "FS Note") bearing
        interest  at  5.0%  per  annum,  plus  a  participation   under  certain
        circumstances  as described in the agreement,  and is  exchangeable  for
        shares of Common  Stock.  The FS Note was  recorded net of a discount of
        $703 of which $351 remains outstanding, reflecting an effective interest
        rate of  approximately  8.2% as the stated  interest rate  represented a
        below market rate. This discount is being amortized over the life of the
        loan using the effective interest method.


                                                   F-16

<PAGE>




                FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (dollars in thousands, except share data)
                                       --------



(e)     The Company assumed Bond Obligations of $7.6 million  collateralized  by
        Mayfair  Shopping  Center.  The  Bond  Obligations  bear  interest  at a
        variable rate, plus a credit  enhancement fee of 2.0%. The variable rate
        is  determined  weekly  at the rate  necessary  to  produce a bid in the
        process of remarketing  the Bond  Obligations  equal to par plus accrued
        interest,  based on comparable issues in the market.  The interest rate,
        including  the 2.0% credit  enhancement  fee, was 6.350% at December 31,
        1996. The Bond  Obligations  have a stated maturity of February 1, 2010,
        however, the letter of credit supporting the Bond Obligations expires on
        June 24, 1998.

(f)     $1,750  of this  loan was  repaid  with  proceeds  from  the  June  1994
        Offering. As part of this transaction, the lender waived $0.8 million of
        accrued interest. This has been recorded as an extraordinary item during
        1994.

        A portion of the net proceeds  from the June 1994  Offering,  along with
        proceeds  from the  aforementioned  new  borrowings  were  used to repay
        indebtedness of $68.1 million,  including approximately $3.1 million for
        prepaid and escrowed  interest and  principal  amortization,  prepayment
        penalties and loan extension  fees. The Operating  Partnership  recorded
        extraordinary  gains  of  approximately  $2.3  million,  including  $0.8
        million of accrued interest,  resulting from the early extinguishment of
        debt at a discount.

        In August 1992, an  FWM-affiliated  partnership  owning the Penn Station
        Shopping  Center was  voluntarily  placed in Chapter 11 under the United
        States  Bankruptcy  Code as a result of the  lender's  unwillingness  to
        extend  the  loan  in  the  ordinary  course  on  terms  and  conditions
        acceptable to the  partnership.  Among other matters,  the lender,  as a
        condition  to  the  extension,  endeavored  to  convert  the  loan  from
        non-recourse to personal  recourse.  In July 1993, a consensual plan was
        approved by all parties and the loan was  modified  and  extended,  on a
        non-recourse  basis,  to provide for  capitalization  of $0.8 million of
        accrued  interest,  bringing  the  principal  balance to $20.0  million,
        waiver  of  approximately  $0.9  million  of  accrued  interest  and  an
        extension of the maturity through August 1998.  Interest would accrue at
        the rate of 8% per annum through August 1995, increasing to 8.5% for the
        year ending August 1996 and increasing to 8.75% for the remainder of the
        term,  resulting in an effective rate of  approximately  8.4% per annum.
        Principal amortization,  based on a 30-year amortization schedule, would
        begin in September  1995. The original note of $19.2 million had accrued
        interest outstanding of $1.7 million at July 30, 1993. Accordingly,  the
        Company reflected an extraordinary  gain of $0.9 million in 1993 for the
        forgiveness   of  interest   on  the  debt   pursuant  to  the  plan  of
        reorganization.  The note was repaid in June 1994 from  proceeds  of the
        June 1994 Offering and an extraordinary  gain was recognized during 1994
        for $1.2 million less the write-off of unamortized  deferred  charges of
        $0.2 million.

        The  Nomura  Mortgage  Loan,  the  Debentures  (see  Note  6),  the Bond
        Obligations, and the FS Note contain affirmative and negative covenants,
        events of default and other  provisions as are customarily  required for
        such instruments.  The most restrictive covenants require the Company to
        maintain a leverage ratio (total  indebtedness  divided by net worth) of
        at least 2.50, maintain a debt service coverage ratio (net income before
        interest and depreciation divided by scheduled debt service payments) of
        at least 1.50 and require the  Operating  Partnership  to maintain a net
        worth of at least $75 million.  Management  believes that the Company is
        in compliance  with all restrictive  covenants.  In the case of mortgage
        loans on four of the Properties,  scheduled  principal  amortization for
        the five years subsequent to June 27, 1994 of approximately $0.9 million
        was  escrowed  in an  irrevocable  trust at  closing  of the  June  1994
        Offering  with the  corresponding  note  balances  reduced for reporting
        purposes.   As  of  December  31,  1996,  $0.6  million  was  considered
        extinguished.


                                                   F-17

<PAGE>




         FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (dollars in thousands, except share data)
                             --------





        Maturities  of the  existing  indebtedness  at December  31, 1996 are as
follows:
<TABLE>
          <S>                                             <C>

                                                               Amount

          1997                                                 $3,736
          1998                                                  5,740
          1999                                                 64,724
          2000                                                 17,768
          2001                                                  3,645
          Thereafter                                           71,785
                                                          -----------
                                                              167,398
          Less:  Unamortized loan discount                       (351)
                                                             $167,047
</TABLE>


                      The Company currently has three  collateralized  revolving
        lines of credit  (the  "Lines of  Credit").  The Company has a revolving
        line of credit of up to $5.8 million from First Union Bank.  Loans under
        the  line of  credit  are  collateralized  by a first  mortgage  lien on
        Brafferton  Shopping  Center,  bears  interest at LIBOR plus two percent
        (2%) per annum,  and will  mature on June 30,  1998.  The Company has an
        additional  revolving line of credit of approximately $8.25 million with
        Mellon Bank. This line is  collateralized  by Kenhorst Plaza and expires
        March 29, 1998.  Loans under this line will bear  interest at LIBOR plus
        two percent  (2%) per annum.  As of  December  31,  1996,  there were no
        outstanding balances under the Lines of Credit.

                      On January 31, 1997, the Company closed a $25 million line
        of credit with Corestates Bank. The line is collateralized by Shoppes of
        Graylyn,  Newtown Square,  Four Mile Fork and Centre Ridge  Marketplace,
        bears interest at LIBOR plus 1.50% and expires January 31, 2000.

                      The Lines of Credit are  available  to fund  acquisitions,
        renovations,   expansions  and  other  working   capital   requirements.
        Definitive  agreements  with  respect  to the  Lines of  Credit  contain
        customary representations, warranties and covenants.

                      Interest paid for the years ended December 31, 1996,
        1995, and 1994 was $12,471, $8,965, and  $9,114, respectively.








                                                   F-18

<PAGE>




               FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   (dollars in thousands, except share data)
                                  --------




  6.    Debentures

                      Simultaneous  with the June  1994  Offering,  the  Company
        effected a private  placement with respect to $25.0 million of aggregate
        principal  amount of 8.25%  Debentures due June 27, 1999,  with interest
        payable  quarterly  beginning  September 27, 1994.  The  Debentures  are
        exchangeable  in the  aggregate  for one million  shares of  Convertible
        Preferred  Stock,  representing  approximately  12.2% of all  shares  of
        Common  Stock  (assuming  exchange/conversion  of all  Common  Units and
        Convertible Preferred Stock (or securities exchangeable into Convertible
        Preferred Stock or Common Stock)).  The Debentures are collateralized by
        two of the Properties.


  7.    Accounts Payable and Accrued Expenses

                      Accounts  payable and accrued  expenses  consisted  of the
        following as of December 31, 1996 and 1995, respectively:
<TABLE>
         <S>                                            <C>            <C>


                                                              1996         1995
         Tenant Security Deposits                           $1,224        $ 993
         Accrued compensation payable in Company stock       2,266          617
         Accounts payable and other accrued expenses         2,841        1,749
         Accrued tenant improvements                          -             700
                                                        ----------     --------
                                                            $6,328       $4,059
</TABLE>


 8.     Preferred Stock

                       The Company's  charter  authorizes  the issuance of up to
        10,000,000  shares of  preferred  stock,  par value $.01 per  share.  In
        connection with the June 1994 Offering, the Company designated 3,500,000
        (subsequently  increased  to  3,750,000)  shares of  preferred  stock as
        Convertible  Preferred  Stock, of which 2,314,189  shares are issued and
        remain  outstanding.  The Convertible  Preferred Stock has a liquidation
        preference equal to $25.00 per share plus an amount equal to any accrued
        and unpaid dividend,  (the "Convertible Preferred Liquidation Preference
        Amount").  Holders of the  Convertible  Preferred  Stock are entitled to
        receive cumulative preferential cash dividends in an amount per share of
        Convertible  Preferred  Stock  equal  to  $0.6094  per  quarter  plus  a
        participating  dividend  equal to the amount,  if any, of  dividends  in
        excess of $0.4875  per quarter  with  respect to the number of shares of
        Common Stock into which a share of Convertible  Preferred  Stock is then
        convertible. Shares of Convertible Preferred are convertible on or after
        May 31, 1999 into 1.282051 shares of Common Stock, at a conversion price
        equal to $19.50.



                                                   F-19

<PAGE>




        FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (dollars in thousands, except share data)
                              --------





9.      Summary of Noncash Investing and Financing Activities

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

<TABLE>
          <S>                              <C>           <C>            <C>


                                              1996         1995            1994
                                            --------     --------       -------

         Liabilities assumed in
          purchase of rental properties    $20,171      $11,723         $22,428

         Common and Preferred
             units in the Operating
             Partnership issued in
             connection with the
             purchase of rental properties  $8,978       $1,630          $8,800

         Convertible Preferred Stock
             issued in
             connection with the
             purchase of rental properties    -          $8,842             -

         Common Stock issued as a fee
            for the funding of
            offering costs                     -            -            $2,000

         Accrual of cost of raising capital   $216         $128            $940

         Reclassification of accumulated
            deficit at June 27, 1994,
            to additional paid-in capital      -            -           $14,756

         Decrease (increase) in adjustment
            for minority interest's
            ownership of the
            Operating Partnership         $(1,868)       $1,991          $8,862

         Deconsolidation of
            Management Company                 -            -              $204

         Accrual of tenant
            improvements                       -           $700             -
</TABLE>


                      The above information supplements the disclosures required
        by Statement of Financial Accounting Standards No. 95-"Statement of
        Cash Flows."





                                                   F-20

<PAGE>




            FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (dollars in thousands, except share data)
                                        --------



10.     Lease Agreements

                      The  Company  is the  lessor  of  retail  properties  with
        initial  lease terms  expiring  through  the year 2020.  Many leases are
        renewable for three to five years at the lessee's option. Future minimum
        lease receipts under  noncancelable  operating leases as of December 31,
        1996 are as follows:

<TABLE>
                <S>                                         <C>


                1997                                          $32,752
                1998                                           29,485
                1999                                           26,016
                2000                                           22,493
                2001                                           18,625
                Thereafter                                    109,044
                                                             --------
                                                             $238,415

</TABLE>


                      These future rentals do not include  additional rent which
        may be received  from  tenants  for  pass-through  provisions  in leases
        related to  increases in operating  expenses and  percentage  rentals or
        rentals on the multifamily properties due to their short duration.

11.     Commitments and Contingencies

        Environmental

                      The  Company,  as an owner of real  estate,  is subject to
        various environmental laws of Federal and local governments.  Compliance
        by the Company with existing laws has not had a material  adverse effect
        on its financial  condition and management does not believe it will have
        such an effect in the future.  However,  the Company  cannot predict the
        impact of new or changed laws or regulations on its current Properties.

                      All of the  Properties  have  been  subjected  to  Phase I
        environmental  audits. Such audits have not revealed,  nor is management
        aware of any environmental liability that management believes would have
        a  material  adverse  impact  on the  consolidated  financial  position,
        results from  operations  or  liquidity,  including  the two  situations
        discussed  below.  Management  is unaware of any  instances  in which it
        would   incur  and  be   financially   responsible   for  any   material
        environmental  costs if any or all  Properties  were sold,  disposed  or
        abandoned.

12.  Related-Party Transactions

                      The  Operating  Partnership  owns  100% of the  non-voting
        Preferred  stock of  First  Washington  Management,  Inc.  (FWM),  which
        entitles it to 99% of the cash flow of FWM,  which  amounted to $0, $100
        and $255 in 1996, 1995 and 1994 respectively. Certain of the officers of
        the Company own 100% of the Common Stock of FWM which  entitles  them to
        1% of the cash flow of FWM, which amounted to  approximately  $0, $1 and
        $3 in  1996,  1995 and  1994  respectively.  In  addition,  the  Company
        received $480, $480 and $245 of interest income, included in income from

                                                   F-21

<PAGE>




             FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (dollars in thousands, except share data)
                               --------



        Management Company, on the FWM Note in 1996, 1995 and 1994 respectively.
        The Company's  equity in earnings of FWM for the year ended December 31,
        1996, 1995 and 1994 was ($259), ($31) and $0 respectively.

                      FWM  provides  property  management,   leasing  and  other
        related  services to the Company.  Management and other fees paid by the
        Company in 1996 and 1995  amounted to $1,955 and  $1,178,  respectively.
        Management  and other fees paid by the  Company  during the period  from
        June 27, 1994 through  December 31, 1994 amounted to $350. Fees for such
        services were  eliminated in the combined  financial  statements for the
        periods prior to the REIT formation.


13.     Stock and Stock Option Plans

        Stock Option Plans

                      Under  various  plans  and  agreements,  the  Company  has
        authorized  the issuance of stock and stock options to certain  officers
        and  employees  of the  Company.  In 1995,  the FASB  issued FAS No. 123
        "Accounting for Stock Based Compensation" (FAS 123). As permitted by FAS
        123,  the  Company  continues  to apply APB  Opinion  No. 25 and related
        Interpretations  in accounting  for its plans.  Recognizing  stock based
        compensation  for the  Company's  1996 and 1995  awards  based  upon the
        provisions of FAS 123 would not result in a significant  difference from
        reported net income.

                      The Company  established  a Stock  Option Plan (the "Stock
        Option Plan") for the Company's directors,  executive officers and other
        key  employees.  The Stock Option Plan  provides  that the  compensation
        committee  of the Board of Directors  (or Board,  in the case of options
        granted to independent directors) may grant or issue stock options. Each
        grant or  issuance  will be set forth in a separate  agreement  with the
        person  receiving  the  award  and will  indicate  the  type,  terms and
        conditions of the award.  The plan provides for both  non-qualified  and
        incentive stock options.

                      The non-qualified stock options will provide for the right
        to purchase  Common  Stock at a  specified  price which may be less than
        fair market value on the date of grant (but no less than par value), and
        usually will become  exercisable in  installments  after the grant date.
        Non-qualified stock options may be granted for any reasonable term.

                      The incentive stock options, if granted,  will be designed
        to comply with the  provisions of the Internal  Revenue Code ("IRC") and
        will be subject to restrictions contained in the IRC, including exercise
        prices  equal to at least 100% of the fair market  value of Common Stock
        on the grant date and a ten-year  restriction  on their term, but may be
        subsequently  modified to disqualify them from treatment as an incentive
        stock option.

                      The Stock  Option Plan  provides  that  351,540  shares of
        Common  Stock will be  reserved  for  issuance.  Concurrently,  with the
        closing of the June 1994  Offering,  the Company  issued  options to two
        officers to purchase  146,475  Shares of Common Stock each,  pursuant to
        their respective  employment  agreements.  Such options vest 33 1/3% per
        years  over 3 years,  have a life of ten  years and are  exercisable  at
        $19.50 per Share.  No options  were  granted  under the plan in 1996 and
        1995.
        As of December 31, 1996, no options were exercised.



                                                   F-22

<PAGE>




               FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                   --------





                      In December  1994,  the Company  issued options to certain
        officers,  directors and employees under the non-qualified  stock option
        plan. 46,698 options are outstanding. The options have an exercise price
        of $19.50 and have a term of ten years.  The option  rights vest 33 1/3%
        per year beginning with the first  anniversary  date of the grant if the
        employee  continues  to be  employed  by the  Company.  No options  were
        granted under the plan in 1995.  During 1996, 3,500 options were issued.
        As of December 31, 1996 no options were exercised. During 1996 and 1995,
        2,670 and 9,801 options were forfeited, respectively.

        Contingent and Restricted Stock Plans

                      Two of the Company's officers have entered into three year
        employment  agreements.  The  agreements  call for a base salary plus an
        incentive compensation  arrangement based on the Company meeting certain
        operating result requirements. The incentive compensation is in the form
        of common stock grants.  Up to 100,000  shares of stock may be issued to
        each of the two officers (or their  designees).  These additional shares
        of stock  will be  recorded  as  additional  compensation  in the period
        earned.  During  1995,  22,417  shares  were  issued  to each of the two
        officers.  The weighted average fair value of the shares issued was $0.4
        million.   No  additional   shares  were  issued   during  1996.   Total
        compensation  cost recognized  under this plan was $1.5 million and $1.8
        million for the years ended December 31, 1996 and 1995, respectively.

                      In April 1996, the  stockholders of the Company approved a
        contingent stock and a restricted stock plan for each of these officers.
        The contingent stock agreements have reserved for grant 60,000 shares of
        stock (30,000 shares each) for the period July 1, 1997 through  December
        31, 1999. The agreements are administered by the Compensation  Committee
        of the Board of Directors  ("Committee").  The grants will be awarded if
        the Committee  determines  that the Company has  materially  met certain
        targeted  performance  criteria.  The two  officers  were issued  39,200
        shares each under the restricted stock plan, which is also  administered
        by the  Compensation  Committee.  The shares  issued under this plan are
        subject to a vesting schedule as follows:

<TABLE>
               <S>                                <C>


              Vesting Date                         Number of Shares Vested

               July 1, 1997                                     5,000
               March 31, 1998                                  11,400
               March 31, 1999                                  11,400
               March 31, 2000                                  11,400
                                                               ------

                      TOTAL                                    39,200

</TABLE>


                      An  additional  50,000 shares of common stock are reserved
        under this plan for grants to officers and employees of the Company,  of
        which 5,880 were issued.






                                                   F-23

<PAGE>




            FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (dollars in thousands, except share data)
                                 --------




14.     Condensed Quarterly Financial Information (Unaudited)

<TABLE>
         <S>                          <C>        <C>         <C>        <C>


         1996                          First      Second       Third      Fourth
         ----                          -----      ------       -----      ------

         Total Revenues               $9,361     $10,238     $10,514    $10,852

         Net Income (loss) before
         Preferred Distributions
         and Minority Interest        $1,160        $984      $1,287     $1,343

         Net Income (loss) allocated
         to Common Stockholders        $(422)      $(552)      $(311)     $(276)

         Net Income (loss) per
         Common Share                 $(0.13)     $(0.17)     $(0.09)    $(0.07)


         1995                          First      Second       Third      Fourth
         ----                          -----      ------       -----      ------

         Total Revenues               $6,480      $6,608      $7,704     $8,788

         Net Income (loss) before
         Preferred Distributions
         and Minority Interest          $979        $918(1)     $(78)(1) $1,112

         Net Income (loss) allocated
         to Common Stockholders        $(536)       $224(1)  $(1,684)(1)  $(792)

         Net Income (loss) per
         Common Share                 $(0.34)      $0.14      $(0.55)    $(0.25)

</TABLE>


         (1)  The decrease in net income allocated to Common Shareholders in the
              third  quarter was due to increases in general and  administrative
              expenses,  operating and maintenance  expenses,  depreciation  and
              amortization  expense and interest expense.  The increase in these
              expenses were partially offset by increased revenues.  General and
              administrative   expenses   increased   due  to  the  awarding  of
              performance  bonuses in the form of stock grants  during the third
              quarter.  The increases in other expenses and revenues were due to
              the  acquisition  of five  properties.  In addition,  there was an
              increase in the amount of income  allocated to minority  interests
              in the third quarter when compared to the previous  quarter.  This
              occurred  because the common  minority  interests  were  allocated
              losses in the second  quarter which were  suspended  from previous
              quarters due to lack of basis.  The common minority  interests are
              not allocated  losses if their basis would fall below zero because
              they  are  not  required  to  fund  losses.  The  common  minority
              interests currently have basis.



                                                   F-24

<PAGE>




            FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (dollars in thousands, except share data)
                                     --------




15.      Fair Value of Financial Instruments

         The following  methods and  assumptions  were used to estimate the fair
         values of the Company's financial instruments:

         Cash and Equivalents: The carrying amount approximates fair value.

         Mortgage notes payable and  Debentures:  The fair values were estimated
         by  discounting  the future  cash  flows  using the  current  rates for
         similar types of borrowing arrangements.

         Interest  Rate Swaps:  The fair value of these  contracts was estimated
         based upon the amount the Company would have received/paid to terminate
         the swaps.

         The estimated  fair values of the Company's  financial  instruments  at
December 31 are as follows:

<TABLE>
     <S>                    <C>             <C>        <C>            <C>

                                          1996                             1995
                            ---------------------------------------------------

     Financial Assets:      Carrying Value  Fair Value Carrying Value Fair Value

      Cash and Equivalents         $11,780     $11,780         $7,806    $7,806

      Financial Liabilities:

      Mortgage notes payable       167,047     167,300        116,182   116,600

      Debentures                    25,000      27,300         25,000    24,500

      Off-Balance Sheet
      Assets/Liabilities:

      Interest Rate Swaps
      and Caps receive/(pay)         -           1,200           -          800
</TABLE>


16.      Subsequent Events

         On January 19, 1997, the Board of Directors  declared a distribution of
         $0.4875   and  $.6094  per  Common  and   Preferred   share  of  stock,
         respectively  to  shareholders  of record as of  February  1, 1997.  On
         February 18, 1997, distributions in the amount of $4,418 were paid.

         On January 24, 1997,  the Company  acquired City Line Shopping  Center,
         located in Philadelphia, Pennsylvania for an approximate price of $14.8
         million.  The  shopping  center is  anchored  by Acme Market and Thrift
         Drugs.   The   acquisition   was  financed   through  the  issuance  of
         approximately 143,000 Common Units to the seller of the property with a
         value of approximately $3.4 million,  assumed mortgage  indebtedness of
         approximately $10.0 million,  new indebtedness of $1.0 million and $0.4
         million in cash.  The mortgage  loan bears  interest at 8.00% per annum
         and is payable monthly based on a 24 year  amortization  schedule.  The
         loan is due in October 2005.


                                                   F-25

<PAGE>




                FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (dollars in thousands, except share data)
                                       --------



         On January 28,  1997,  the  Company  acquired  Four Mile Fork  Shopping
         Center located in Fredericksburg,  Virginia for an approximate price of
         $5.7 million.  The center is anchored by Safeway and CVS/Pharmacy.  The
         acquisition was financed with proceeds of the December 1996 Offering.

         On January  28,  1997,  the  Company  sold  Thieves  Market  located in
         Alexandria,  Virginia.  The center was sold for an approximate price of
         $1.2 million.

         On January 31, 1997, the Company acquired Shoppes of Graylyn located in
         Wilmington,  Delaware.  The  purchase  price of the  property  was $7.2
         million.  The  center is  anchored  by Rite Aid.  The  acquisition  was
         financed by a $3.8 million draw on the  Company's  line of credit,  $.4
         million from  proceeds  raised  through the sale of Thieves  Market and
         $3.0 million in cash from the proceeds of the December 1996 Offering.

         On March 19,  1997  (effective  March 1, 1997),  the  Company  acquired
         Ashburn  Farms  Village  Center  located in  Ashburn,  Virginia  for an
         approximate price of $9.2 million. The center is anchored by Superfresh
         Supermarket.  The  acquisition  was financed with mortgage debt of $6.8
         million the issuance of approximately 55,000 Common Units to the seller
         of the  property  with a  value  of  approximately  $1.2  million,  the
         issuance of  approximately  9,500  Preferred Units to the seller of the
         property with a value of approximately  $0.2 million and  approximately
         $1.0 million in cash.  The mortgage loan bears interest at LIBOR + 1.5%
         per annum and has an annual  amortization of approximately $.1 million.
         The loan is due in January 2001.

         On March 26, 1997, the Company filed a $175 million shelf  registration
         statement with the Securities and Exchange Commission, which allows for
         the issuance of debt or equity.
























                                                   F-26

<PAGE>






                 FIRST WASHINGTON REALTY TRUST, INC.
          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
        for the years Ended December 31, 1996, 1995 and 1994

                              --------



<TABLE>
<S>                               <C>        <C>          <C>         <C>


                                             Additions
                                  Balance at Charged      Deduction   Balance
                                  Beginning  to Bad       Amounts     at End of
 Description                      of Year    Debt Expense Written Off Year
 -----------                      -------    ------------ ----------- -----------

 Allowance for
 Doubtful Accounts:

 Year Ended December 31, 1996     $418       $527         $(262)       $683
                                  ====       ====         ======       ====

 Year Ended December 31, 1995     $391       $483         $(456)       $418
                                  ====       ====         ======       ====

 Year Ended December 31, 1994     $185       $941         $(735)       $391
                                  ====       ====         ======       ====

</TABLE>



































                                                   F-27

<PAGE>


SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
(dollars in thousands)
<TABLE>
<S>              <C>           <C>         <C>    <C>          <C>

                                                               Capitalized
                                             Initial Cost      Subsequent to
                                                 Building &    Acquisition -
Property         Location      Encumbrance Land  Improvements  Improvements

Retail:
Brafferton(3)    Garrisonville,
                 VA                 -     $1,595     $6,385         $158
Bryans Road(1)   Bryans Road,
                 MD               150      1,214      3,314        3,721
Capital Corner   Landover,
                 MD             3,587        966          0        3,441
Centre Ridge
Marketplace(3)   Centreville,
                 VA             7,853      4,847      3,807          272
Chesapeake
Bagel Building   Alexandria,
                 VA               735        191        804          648
Clinton Square   Clinton,
                 MD             1,313        242      1,437          122
Clopper's Mill   Germantown,
                 MD            14,358      4,011     16,006           49
4483 Connecticut Washington,
                 DC               626         91        932          140
Colonial Square  York,PA        1,528        639      1,678          180
Davis Ford
Crossing         Manassas,
                 VA            38,500      2,574     10,092          215
Fifteen &
Allen(7)         Allentown,
                 PA             6,002        867      2,404          966
Firstfield       Gaithersburg,
                 MD             2,497        699      2,797           43
First State
Plaza(1)         New Castle,
                 DE             4,449      2,575     10,358          532
Fox Mill         Reston, VA    25,000      2,752     11,019          267
Georgetown
Shops(4)         Washington,
                 D.C.           1,653        949      3,174          321
Glen Lea(5)      Richmond,VA   13,952        757      3,027          183
Hanover Vllg(5)  Mechanicsville,
                 VA                 -      1,081      4,323           87
James Island(1)  Charleston,SC      -      1,321      2,758          364
Kenhorst Plaza(3)Reading,PA         -      2,253      9,013        1,169
Kings Park       Burke,VA       4,315      1,153      4,613            0
Laburnum Park(5) Richmond,VA        -      1,194      4,774           24
Laburnum Sq(5)   Richmond,VA        -      1,104      4,418          133
Mayfair          Philadelphia,
                 PA             7,265      2,463      9,860          163
Newtown Sq(3)    Newtown Square,
                 PA                 -      2,508     10,031            0
Northway         Millersville,
                 MD             7,759      1,838      7,400            0
Penn Station(2)  District
                 Heights,MD     3,500      4,275          0       21,132
P.G. County
Comm & Tech Pk.  Beltsville,
                 MD             4,150      1,309        972        5,344
Potomac Plaza    Woodbridge,
                 VA             3,656        795      4,235        1,165
Rosecroft        Temple
                 Hills,MD       2,000        664      2,723        2,407
Shoppes of
Kildaire         Cary,NC        7,919      2,202      8,833          530
Southside
Marketplace      Baltimore,
                 MD             8,065      2,209      8,835           39
Stefko
Boulevard(7)     Bethlehem,
                 PA                 -      1,149      3,187        1,293
Takoma Park      Takoma Park    2,945        957      3,829           16
Thieves Market   Alexandria,VA    734        246      1,065          118
Valley Center(1) Owings Mills,
                 MD                 -      4,719     18,937          111
Festival at
Woodholme        Baltimore,MD  11,589      2,915     11,660          157

Multi-family:
Branchwood
Apartments       Charleston,SC  2,121        142      2,521          223
Broadmoor
Apartments       Charleston,SC  3,826        387      4,396          926
                                -----        ---      -----          ---
                             $192,047    $61,853   $205,617      $46,659
                             ========    =======   ========      =======
</TABLE>
<TABLE>
<S>              <C>           <C>     <C>          <C>    <C>

                               Gross amounts at
                               which carried at
                               the close of period         Accumulated
Property         Location      Land    Improvement  Total  Depreciation

Retail:
Brafferton(3)    Garrisonville,
                 VA            $1,595    $6,543     $8,138       $519
Bryans Road(1)   Bryans Road,
                 MD             1,230     7,035      8,265      1,323
Capital Corner   Landover,
                 MD               989     3,441      4,430      1,252
Centre Ridge
Marketplace(3)   Centreville,
                 VA             4,847     4,079      8,962        101
Chesapeake
Bagel Building   Alexandria,
                 VA               192     1,452      1,644        597
Clinton Square   Clinton,
                 MD               251     1,559      1,810        640
Clopper's Mill   Germantown,
                 MD             4,011    16,055     20,066        409
4483 Connecticut Washington,
                 DC                95     1,072      1,167        349
Colonial Square  York,PA          646     1,858      2,504        409
Davis Ford
Crossing         Manassas,
                 VA             2,574    10,307     12,881        816
Fifteen &
Allen(7)         Allentown,
                 PA               867     3,370      4,237        107
Firstfield       Gaithersburg,
                 MD               699     2,840      3,539        101
First State
Plaza(1)         New Castle,
                 DE             2,575    10,890     13,465        904
Fox Mill         Reston, VA     2,752    11,286     14,038        890
Georgetown
Shops(4)         Washington,
                 D.C.             970     3,495      4,465      1,262
Glen Lea(5)      Richmond,VA      757     3,210      3,967        151
Hanover Vllg(5)  Mechanicsville,
                 VA             1,081     4,410      5,491        212
James Island(1)  Charleston,SC  1,324     3,122      4,446        678
Kenhorst Plaza(3)Reading,PA     2,253    10,182     12,435        365
Kings Park       Burke,VA       1,153     4,613      5,766          -
Laburnum Park(5) Richmond,VA    1,194     4,798      5,992        232
Laburnum Sq(5)   Richmond,VA    1,104     4,551      5,655        212
Mayfair          Philadelphia,
                 PA             2,463    10,023     12,486        798
Newtown Sq(3)    Newtown Square,
                 PA             2,508    10,031     12,539          -
Northway         Millersville,
                 MD             1,838     7,400      9,238          -
Penn Station(2)  District
                 Heights,MD     4,285    21,132     25,417      4,953
P.G. County
Comm & Tech Pk.  Beltsville,
                 MD             1,342     6,136      7,658      2,104
Potomac Plaza    Woodbridge,
                 VA               733     5,400      6,133      1,512
Rosecroft        Temple
                 Hills,MD         688     5,130      5,818      1,582
Shoppes of
Kildaire         Cary,NC        2,208     9,363     11,571      3,136
Southside
Marketplace      Baltimore,
                 MD             2,209     8,874     11,083        165
Stefko
Boulevard(7)     Bethlehem,
                 PA             1,149     4,480      5,629        143
Takoma Park      Takoma Park      957     3,845      4,802         81
Thieves Market   Alexandria,VA    247     1,183      1,430        303
Valley Center(1) Owings Mills,
                 MD             4,719    19,048     23,767      1,534
Festival at
Woodholme        Baltimore,MD   2,915    11,817     14,732        600

Multi-family:
Branchwood
Apartments       Charleston,SC    144     2,744      2,888        733
Broadmoor
Apartments       Charleston,SC    395     5,322      5,717      1,277
                                  ---     -----      -----      -----
                              $61,959  $252,276   $314,235    $30,450
                              =======  ========   ========    =======

</TABLE>
<TABLE>
<S>              <C>           <C>           <C>


                               Date
Property         Location      Construction  Acquired

Retail:
Brafferton(3)    Garrisonville,
                 VA                 1974         1994
Bryans Road(1)   Bryans Road,
                 MD                 1972         1990
Capital Corner   Landover,
                 MD                 1987         1986
Centre Ridge
Marketplace(3)   Centreville,
                 VA                 1996         1996
Chesapeake
Bagel Building   Alexandria,
                 VA                 1800's       1983
Clinton Square   Clinton,
                 MD                 1979         1984
Clopper's Mill   Germantown,
                 MD                 1995         1996
4483 Connecticut Washington,
                 DC                 1954         1986
Colonial Square  York,PA            1955         1990
Davis Ford
Crossing         Manassas,
                 VA                 1988         1994
Fifteen &
Allen(7)         Allentown,
                 PA                 1958         1996
Firstfield       Gaithersburg,
                 MD                 1978         1995
First State
Plaza(1)         New Castle,
                 DE                 1988         1994
Fox Mill         Reston, VA         1988         1994
Georgetown
Shops(4)         Washington,
                 D.C.               1800's  1983-1989
Glen Lea(5)      Richmond,VA        1969         1995
Hanover Vllg(5)  Mechanicsville,
                 VA                 1971         1995
James Island(1)  Charleston,SC      1967         1990
Kenhorst Plaza(3)Reading,PA         1990         1995
Kings Park       Burke,VA           1966         1996
Laburnum Park(5) Richmond,VA        1988         1995
Laburnum Sq(5)   Richmond,VA        1975         1995
Mayfair          Philadelphia,
                 PA                 1988         1994
Newtown Sq(3)    Newtown Square,
                 PA            1960's-70's       1996
Northway         Millersville,
                 MD                 1987         1996
Penn Station(2)  District
                 Heights,MD         1989         1986
P.G. County
Comm & Tech Pk.  Beltsville,
                 MD                 1985         1985
Potomac Plaza    Woodbridge,
                 VA                 1963         1985
Rosecroft        Temple
                 Hills,MD           1963         1985
Shoppes of
Kildaire         Cary,NC            1986         1986
Southside
Marketplace      Baltimore,
                 MD                 1990         1996
Stefko
Boulevard(7)     Bethlehem,
                 PA           1958-60-75         1996
Takoma Park      Takoma Park        1960         1996
Thieves Market   Alexandria,VA      1946         1986
Valley Center(1) Owings Mills,
                 MD                 1987         1994
Festival at
Woodholme        Baltimore,MD       1986         1995

Multi-family:
Branchwood
Apartments       Charleston,SC      1989         1989
Broadmoor
Apartments       Charleston,SC      1990         1990

</TABLE>


(1) These  properties are also  encumbered by first deeds of trust as collateral
for the $38,500  Nomura  mortgage  loan.  (2) This property  (phase I only) also
serves as collateral for the $25,000 Exchangeable Debentures.
(3)  These properties serve as collateral for the line of credit facilities.
(4)  Consists of five locations in the shopping district of Georgetown in
Washington, D.C.
(5)  These properties are also encumbered by first deeds of trust a collateral
for a $13,952 mortgage loan.
(6) The retail properties and the multi-family properties have depreciable lives
of 31.5  years  and 27.5  years  respectively.  (7)  These  properties  are also
encumbered by first deeds of trust as collateral for a $6,002 mortgage loan.

                                                                    F-28

<PAGE>